<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF DENDRITE APPEARS HERE]
DENDRITE INTERNATIONAL, INC.
April 30, 1998
Dear Shareholder:
On behalf of the Board of Directors and management, I am pleased to invite
you to the 1998 Annual Meeting of Shareholders of Dendrite International, Inc.
The meeting will be held on Tuesday, May 19, 1998 at 10:00 a.m. at the
Company's headquarters, 1200 Mount Kemble Avenue, Morristown, New Jersey
07960-6797.
I urge you to read the enclosed materials carefully and to complete, sign
and mail promptly the proxy card contained with this letter to assure that
your vote will be counted. Also enclosed is a copy of the Company's 1998
Annual Report to Shareholders.
The officers and directors of Dendrite appreciate your continuing support
and we look forward to seeing you at the Annual Meeting.
/s/ John E. Bailye
John E. Bailye
President and Chief Executive
Officer
Morristown, New Jersey
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you
are requested to complete, sign, and date the enclosed proxy
as promptly as possible and return it in the enclosed
envelope to which no postage need be affixed if mailed in
the United States.
<PAGE>
[LOGO OF DENDRITE APPEARS HERE]
DENDRITE INTERNATIONAL, INC.
1200 MOUNT KEMBLE AVENUE
MORRISTOWN, NEW JERSEY 07960-6797
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1998
The Annual Meeting of Shareholders (the "Annual Meeting") of Dendrite
International, Inc. (the "Company") will be held at the Company's
headquarters, 1200 Mount Kemble Avenue, Morristown, New Jersey 07960-6797, on
Tuesday, May 19, 1998 at 10:00 a.m. (local time) for the following purposes:
1. To elect five directors to serve until the next Annual Meeting and
until their successors have been elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP, as the Company's
independent public accountants for the fiscal year ending December 31,
1998;
3. To approve the Company's 1997 Stock Incentive Plan; and
4. To act upon such other matters as may properly come before the meeting
or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The record date for determining those
shareholders who will be entitled to notice of, and to vote at, the meeting
and at any adjournment thereof is April 3, 1998. The stock transfer books will
not be closed between the record date and the date of the meeting. A list of
shareholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company.
Whether or not you plan to attend the meeting, please complete, date, sign,
and return the enclosed proxy promptly in the accompanying reply envelope.
Your proxy may be revoked at any time prior to the voting of the proxy at the
Annual Meeting. If you decide to attend the Annual Meeting and wish to change
your proxy vote, you may do so by voting in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Christopher J. French
Christopher J. French
Secretary
Morristown, New Jersey
April 30, 1998
<PAGE>
DENDRITE INTERNATIONAL, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Dendrite International, Inc., a New
Jersey corporation (the "Company"), for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at 10:00 a.m. (local time) on
Tuesday, May 19, 1998, at the Company's headquarters, 1200 Mount Kemble
Avenue, Morristown, New Jersey 07960-6797, and at any adjournment or
postponement of the Annual Meeting. These proxy materials are being first
mailed to shareholders on or about April 30, 1998.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Shareholders.
Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
VOTING
The Company's Common Stock, no par value (the "Common Stock"), is the only
type of security entitled to vote at the Annual Meeting. On April 3, 1998, the
record date for determination of shareholders entitled to vote at the Annual
Meeting, there were 11,399,191 shares of Common Stock outstanding. Each
shareholder of record on April 3, 1998 is entitled to one vote for each share
of Common Stock held by such shareholder.
The presence in person or by proxy of the holders, as of the record date, of
a majority of the outstanding shares of Common Stock will constitute a quorum
at the Annual Meeting. In the election of directors, the five candidates
receiving the highest number of affirmative votes will be elected. The Board
wishes to receive a majority of the votes cast at the Annual Meeting for
Proposal 2, while Proposal 3 requires for approval the affirmative vote of a
majority of the votes cast at the Annual Meeting. Abstentions will be treated
as shares that are present for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the approval of any matter
submitted for a vote of the shareholders. The New York Stock Exchange, whose
rules effectively govern the voting by any brokerage firm holding Common Stock
registered in the name of its nominee on behalf of a beneficial owner, has
informed the Company that Proposals 1 and 2 are considered "discretionary"
items upon which brokerage firms may vote in their discretion on behalf of
their clients if such clients have not furnished voting instructions within
ten days of the date of the Annual Meeting. Proposal 3 is "nondiscretionary"
and brokers who have not received instructions from their clients do not have
discretion to vote on this item. In instances where brokers are prohibited
from exercising discretionary authority for beneficial owners who have not
returned a proxy (so called "broker non-votes"), the shares of Common Stock
subject to such broker non-votes will be treated in the same manner as
abstentions.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions, and broker non-votes.
PROXIES
The persons named as proxies are John E. Bailye, George T. Robson and
Christopher J. French. Mr. Bailye is a director and officer of the Company and
Messrs. Robson and French are officers of the Company. Whether or not you are
able to attend the Annual Meeting, you are urged to complete and return the
enclosed proxy,
1
<PAGE>
which is solicited by the Company's Board of Directors and which will be voted
as you direct on your proxy when properly completed. In the event no
directions are specified, such proxies will be voted FOR the nominees of the
Board of Directors (Proposal 1), FOR Proposals 2 and 3, and, as to other
matters that may properly come before the Annual Meeting, in the discretion of
the proxy holders. You may revoke or change your proxy at any time before the
voting of the proxy at the Annual Meeting. To do this, send a written notice
of revocation or another signed proxy with a later date to the Secretary of
the Company at the Company's principal executive offices before the beginning
of the Annual Meeting. You may also revoke your proxy by attending the Annual
Meeting and filing a written notice of revocation with the secretary of the
Annual Meeting prior to the voting at the Annual Meeting or by voting the
shares subject to the proxy by written ballot.
EXPENSES OF SOLICITATION
The Company will bear the entire cost of solicitation, including the
presentation, assembly, printing, and mailing of this Proxy Statement, the
proxy, and any additional soliciting material furnished to shareholders.
Copies of solicitation material will be furnished to brokerage houses,
fiduciaries, and custodians holding shares in their names that are
beneficially owned by others so that they may forward this solicitation
material to such beneficial owners. In addition, the Company may reimburse
such persons for their costs of forwarding the solicitation material to such
beneficial owners. The original solicitation of proxies by mail may be
supplemented by solicitation by telephone, telegram, or other means by
directors, officers, employees, or agents of the Company. No additional
compensation is anticipated to be paid to these individuals for any such
services. Except as described above, the Company does not presently intend to
solicit proxies other than by mail.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
The Company's Board of Directors is elected annually by the holders of the
Common Stock and is currently comprised of five (5) members (the "Directors").
Each Director holds office until the next Annual Meeting of Shareholders and
until his successor is elected and qualified or until his earlier resignation
or removal. The names of the nominees for Director, each of whom is presently
a Director of the Company, and their positions and offices with the Company
are set forth in the table below.
The proxy holders intend to vote all valid proxies received by them for the
nominees listed below unless otherwise instructed. In the event any nominee is
unable or declines to serve as a Director at the time of the Annual Meeting,
the proxies will be voted for any nominee who may be designated by the present
Board of Directors to fill the vacancy. As of the date of this Proxy
Statement, the Board of Directors is not aware of any nominee who is unable or
will decline to serve as a Director. The five (5) nominees receiving the
highest number of affirmative votes of the shares entitled to vote at the
Annual Meeting will be elected Directors.
Nominees for Election at the 1998 Annual Meeting are:
<TABLE>
<CAPTION>
AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
NOMINEES --- -------------------------------------------
<S> <C> <C>
John E. Bailye.................. 44 President, Chief Executive Officer,
Director and Chairman of the Board
Bernard M. Goldsmith............ 54 Director
Edward J. Kfoury................ 59 Director
Paul A. Margolis................ 45 Director
John H. Martinson............... 50 Director
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED HEREIN.
2
<PAGE>
BUSINESS EXPERIENCE OF NOMINEES
The following describes the current and past five years business experience
and certain directorships of each nominee for Director. This information was
furnished to the Company by the respective nominees.
MR. JOHN E. BAILYE has served as the Company's President, Chief Executive
Officer and Director since its incorporation in March 1987 and, since October
1991, as Chairman of the Board. Prior to that, from February 1976 Mr. Bailye
served as a market researcher at Foresearch Pty., Limited ("Foresearch"), a
consulting company to the pharmaceutical industry in Australia. In 1976, Mr.
Bailye acquired Foresearch and served as Managing Director of Foresearch,
which he sold in 1986. Mr. Bailye has a Bachelor of Commerce degree in
Finance, Marketing, and Business from the University of New South Wales.
MR. BERNARD M. GOLDSMITH has served as a Director of the Company since May
1996. In 1986, he founded The Updata Group, Inc., an investment banking firm
focused on mergers and acquisitions in the information technology industry
("Updata"), where he currently serves as Managing Director. Mr. Goldsmith also
founded Updata Software Company, where he served as Chief Executive Officer
from 1986 to 1988 and CGA Computer, Inc., where he served as Chairman and
Chief Executive Officer from 1968 to 1986. Mr. Goldsmith is also a director of
Compuware Corporation and several private companies.
MR. EDWARD J. KFOURY has served as a Director of the Company since July
1997. Prior to joining the Company, Mr. Kfoury served as a division President
and Vice President of IBM Corporation from 1988 through 1993 and in various
other positions with the IBM Corporation from 1963 to 1988. Mr. Kfoury is also
a director of Mapics, Inc. and five privately-held companies. In addition, Mr.
Kfoury is a director of the Nature Conservancy, an advisory trustee of the
Maine Audobon Society, and President of Rangeley Lakes Heritage Trust.
MR. PAUL A. MARGOLIS has served as a Director of the Company since July
1993. Mr. Margolis is President of Longworth Management Company, Inc., his
personal investment management company. Mr. Margolis is a director of Marcam
Corporation, an applications software and services company for manufacturers
which he co-founded in 1980, Obtech, LLC, POMS Corporation and Big Brother
Association of Greater Boston, and Past Chairman of the Open Applications
Group, Inc., a non-profit software industry organization. He previously worked
as an independent business consultant and, prior to that, as Manufacturing
Manager for Keltron Corporation. Mr. Margolis holds a B.A. degree from Brown
University and an M.B.A. from Harvard Business School.
MR. JOHN H. MARTINSON has served as a Director of the Company since
September 1991. In 1986, he founded the Edison Venture Fund where he currently
serves as Managing Partner. Mr. Martinson is also a director of Best Software,
Inc., Nobel Education Dynamics, Inc., and eight privately held companies. He
is Chairman of the New Jersey Technology Council and a Director of the
National Venture Capital Association. Mr. Martinson holds a B.S. in
Aeronautics from the United States Air Force Academy, an M.S. in Astronautics
from Purdue University and an M.B.A. from Southern Illinois University.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997, the Board of Directors held
eight meetings. During this period, each member of the Board of Directors
attended or participated in more than 75% of the aggregate of (i) the total
number of meetings of the Board of Directors (held during the period for which
such person has been a Director) and (ii) the total number of meetings held by
all Committees of the Board on which each such Director served (during the
periods such Director served).
The Company has five standing Committees: the Audit Committee, the
Compensation Committee, the Stock Plan Committee, the Stock Option Committee
and the Employee Plan Committee.
The Audit Committee (currently composed of Mr. Martinson and Mr. Margolis)
reviews the internal accounting procedures of the Company and consults with
and reviews the services provided by the Company's
3
<PAGE>
independent public accountants. In addition, from time to time as appropriate,
the Audit Committee will review the Company's policies relating to avoidance
of conflicts of interest and review past or proposed transactions between the
Company and members of management as well as policies and procedures with
respect to officer's expense accounts and requisitions, including the use of
corporate assets. During the fiscal year ended December 31, 1997, the Audit
Committee held one meeting.
The Compensation Committee (currently composed of Mr. Goldsmith and Mr.
Kfoury) makes general policy decisions relating to compensation and benefits
for the Company's employees and directors. In addition, effective as of July
24, 1997, the Compensation Committee assumed the functions of the Stock Plan
Committee and the Stock Option Committee for the administration of all of the
Company's stock option plans. During the fiscal year ended December 31, 1997,
the Compensation Committee held four meetings. At each of such meetings,
however, the Compensation Committee consisted of Mr. Martinson and Mr.
Goldsmith. Mr. Kfoury replaced Mr. Martinson on the Compensation Committee
effective January 28, 1998. During the fiscal year ended December 31, 1997,
the Compensation Committee also acted by unanimous written consent five times.
The Stock Plan Committee (currently composed of Mr. Bailye, Mr. Martinson
and Mr. Goldsmith) administered the Company's 1992 Stock Plan (the "1992 Stock
Plan") until July 24, 1997. During the fiscal year ended December 31, 1997,
the Stock Plan Committee held one meeting and acted by unanimous written
consent three times.
The Stock Option Committee (currently composed of Mr. Bailye, Mr. Goldsmith,
Mr. Margolis and Mr. Martinson) administered the Company's 1992 Senior
Management Incentive Stock Option Plan (the "ISO Plan") until July 24, 1997.
During the fiscal year ended December 31, 1997, the Stock Option Committee
acted by unanimous written consent one time.
The Employee Plan Committee (currently composed of Mr. Goldsmith, Mr.
Margolis and Mr. Martinson) administers the Company's 1997 Employee Stock
Purchase Plan (the "Employee Plan"). During the fiscal year ended December 31,
1997, the Employee Plan Committee did not meet.
DIRECTOR COMPENSATION
Directors receive no cash compensation for services provided as a Director
and received no such cash compensation in the 1997 fiscal year. In July 1997,
each of the four non-employee Directors were granted options to purchase
30,000 shares of Common Stock in accordance with the formula provisions of the
Company's 1997 Stock Incentive Plan (the "1997 Stock Plan"). Directors receive
reimbursement for reasonable expenses incurred traveling to and from Board
meetings. In addition, the Company has entered into a Consulting Agreement
with Mr. Kfoury. See "Certain Transactions."
CERTAIN TRANSACTIONS
From October 1992 through April 1995, the Company used a five-passenger
Beechcraft Baron airplane leased from Kookaburra Air, LLC and its predecessor,
Kookaburra Air Charters, Inc. (collectively, "Kookaburra"), and, in addition,
from October 1994 to September 1997, a seven-passenger Beechcraft King Air
airplane was also leased from Kookaburra. John E. Bailye, the President and
Chief Executive Officer of the Company, and his spouse are the sole members of
Kookaburra, as they were the sole stockholders of its corporate predecessor.
In April 1996, Kookaburra sold the Beechcraft Baron. The Baron and the King
Air leases were on an hourly basis. The Company paid fees to Kookaburra of
approximately $33,434 for the fiscal year ended December 31, 1997. The Company
was responsible for all direct costs connected with the operation of the
aircraft, including hiring a licensed pilot. These arrangements were approved
by the Board of Directors of the Company. Each of the airplanes has been used
pursuant to a written policy adopted by the Board of Directors of the Company.
The Company believes that the terms, including price, of the aircraft leases
with Kookaburra were no less favorable than those available for comparable
leases for comparable aircraft from unaffiliated third parties. The King Air
lease was terminated in September 1997. In the future, to the extent the
Company wishes
4
<PAGE>
to lease an aircraft, it presently intends to lease such aircraft from a third
party leasing company not affiliated with Mr. Bailye, which company may, from
time to time, lease to the Company the King Air aircraft. Any such lease will
be on terms no less favorable to the Company than such leasing company offers
to it's other customers.
As of January 1, 1994, the Company entered into an Indemnification Agreement
with Mr. Paul A. Margolis, a Director, providing that, with certain
exceptions, the Company would hold harmless and indemnify Mr. Margolis in
connection with his directorship to the extent permitted under the New Jersey
Business Corporation Act. More specifically, the Indemnification Agreement
provides that the Company is obligated to indemnify Mr. Margolis against all
reasonable costs, expenses (including attorneys' fees), fines, judgments, and
settlement amounts that Mr. Margolis may incur in connection with any actual
or threatened action, suit, or proceeding (whether civil, criminal,
investigative or administrative) to which Mr. Margolis is, or may be, a party
by reason of his position as Director or as a director, officer, employee, or
agent of any other company to which Mr. Margolis provides services at the
request of the Company.
John E. Bailye is a party to a registration rights agreement with the
Company under which he has certain rights with respect to the registration
under the Securities Act of 1933 for resale to the public of certain of the
shares of Common Stock which are owned by him. During 1997, certain other
stockholders of the Company that are affiliated with John H. Martinson were
also parties to that agreement.
Since January 1, 1997, Updata has provided advice to the Company with
respect to certain investment banking issues. The Company has not yet retained
Updata as one of its advisors, although it may do so in the future.
As of January 5, 1998, the Company entered into a Consulting Agreement with
Edward J. Kfoury, a Director, providing that Mr. Kfoury would provide certain
consulting services to the Company in exchange for a grant of options to
purchase 12,000 shares of Common Stock. Such options were granted at the fair
market value of the underlying shares of Common Stock and are subject to a
three-year vesting schedule. In addition, the Company will reimburse Mr.
Kfoury for his reasonable travel and business expenses related to any business
travel or expenditure specifically requested by the Company. The Consulting
Agreement terminates January 5, 2001 unless earlier terminated by either
party.
OTHER EXECUTIVE OFFICERS
Each executive officer is an at-will employee and serves at the discretion
of the Board of Directors, except for Mr. Bailye and Mr. Savage.
MR. R. BRUCE SAVAGE, 49, has served as the Company's Executive Vice
President and Chief Operating Officer since September 1994. From June 1993
until September 1994, Mr. Savage was Vice President, Europe/Asia and from
September 1988 to June 1993 he was Vice President, Europe. He served as
General Manager for Dendrite New Zealand from 1986 to 1987, and served as the
General Manager of Dendrite Australia and Dendrite New Zealand from 1987 until
September 1988. Prior to joining the Company, Mr. Savage spent 15 years in the
pharmaceutical industry working for Ciba Geigy (NZ) Limited as Manager of
Sales and Marketing.
MS. TERESA F. WINSLOW, 42, has served as the Company's Senior Vice President
for U.S. Operations since June 1997, the Company's Senior Vice President for
the Pfizer Pharmaceutical Global Account Group from September 1996 to June
1997, the Company's Vice President, Sales and Business Development from
September 1994 to September 1996, the Company's Executive Director,
International Sales from August 1993 to September 1994 and the Company's
Director of Marketing and Sales for Dendrite Americas from October 1991 to
August 1993, where she was responsible for business development of the United
States and Canadian sales regions. Prior to joining the Company, Ms. Winslow
served in various positions at Schering Laboratories, a division of Schering-
Plough Corporation from 1983 to 1991, ranging from Sales Representative to
National Sales Director. Ms. Winslow is a registered Pharmacist. She graduated
with a B.S. in Pharmacy from the Philadelphia College of Pharmacy and Science.
5
<PAGE>
MR. GEORGE T. ROBSON, 51, has served as the Company's Senior Vice President
and Chief Financial Officer since June 1997. Prior to joining the Company, Mr.
Robson served as Senior Vice President and Chief Financial Officer of H&R
Block, Inc. from January 1996 to May 1997, and as Treasurer of such
corporation from June 1996 to May 1997. In addition, Mr. Robson served as
Senior Vice President of Unisys Corporation from April 1991 to January 1996,
and as Chief Financial Officer of such corporation from January 1990 until
January 1996.
MR. MARK H. CIEPLIK, 43, has served as the Company's Senior Vice President,
Worldwide Sales since June 1997. Prior to joining the Company, Mr. Cieplik
served as President of Interleaf Corporation from October 1996 to May 1997,
and Vice President, Americas of such corporation from April 1995 to October
1996. In addition, Mr. Cieplik served as General Manager, North America Major
Accounts for System Software Associates from December 1991 to April 1995, and
served in various capacities for IBM Corporation from 1976 until 1991.
MR. JEAN LAHAIE, 42, has served as the Company's Senior Vice President,
Business Development since September 1996. In addition, Mr. LaHaie served from
April 1996 to September 1996 as the Company's Vice President, Product
Development; from October 1993 to April 1996 as the Company's Executive
Director, Corporate Technical Services; from February 1993 to October 1993, as
the Company's Director of Operations, Corporate Technical Services; from April
1992 to February 1993, as the Company's Group Business Director; from July
1991 to April 1992, as the Company's Business Director for a Dendrite service
group; and from July 1990 to July 1991, as Project Manager for a Dendrite
service group. Prior to joining the Company in July 1990, Mr. LaHaie spent
nine years at American Cyanamid Corporation in positions ranging from
Industrial Engineering Manager to International Business Manager for the
Middle East and the Far East. Mr. LaHaie is a graduate of Montreal University
Polytechnic Institute and of McGill Graduate School of Business.
MR. CHRISTOPHER J. FRENCH, 38, has served as the Company's Vice President,
General Counsel since January 1996 and as the Company's Secretary since July
1996. Prior to joining the Company, Mr. French was an associate at Skadden,
Arps, Slate, Meagher & Flom from 1987 to 1996.
MR. THIERRY DURAND, 38, has served as the Company's Vice President, Europe
since July 1997. Mr. Durand also served as the Company's General Manager,
France from September 1993 to July 1997 and as a Business Manager in France
for the Company from September 1992 to September 1993.
6
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 3, 1998 by (i) each person who is
known by the Company to own beneficially more than five percent of the Common
Stock, (ii) each of the Directors, nominees for Director and Named Officers
(as defined below under "Executive Compensation") and (iii) all current
Directors and executive officers as a group. Unless indicated otherwise, the
address of each of these persons is c/o Dendrite International, Inc., 1200
Mount Kemble Avenue, Morristown, New Jersey 07960-6797.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(1)(2) PERCENTAGE
- ------------------------------------ ------------ ----------
<S> <C> <C>
The TCW Group, Inc...................................... 728,900 6.4
865 South Figueroa Street
Los Angeles, CA 90017
Massachusetts Financial Services Company................ 638,400 5.6
500 Boylston Street
Boston, MA 02116
William Blair & Company, L.L.C.......................... 635,050 5.6
222 W. Adams Street
Chicago, IL 60606
Waddell & Reed, Inc..................................... 600,000 5.3
2001 Third Avenue South
Birmingham, AL 35233
State of Wisconsin Investment Board..................... 580,000 5.1
P.O. Box 7842
Madison, WI 53707
John E. Bailye(3)....................................... 1,963,900 17.2
John H. Martinson(4).................................... 84,104 *
Bernard M. Goldsmith(5)................................. 8,000 *
Paul A. Margolis........................................ 57,500 *
Edward J. Kfoury........................................ -- --
R. Bruce Savage(6)...................................... 115,250 1.0
Teresa F. Winslow(7).................................... 49,200 *
George T. Robson(8)..................................... 50,556 *
Mark H. Cieplik(9)...................................... 27,500 *
All Directors and current executive officers
(12 persons)(3)(4)(5)(6)(7)(8)(9)(10).................. 2,408,466 20.6
</TABLE>
- --------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Common Stock subject to options currently exercisable or exercisable on or
prior to 60 days after the date as of which information is presented are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
(3) Includes 1,454,400 shares owned of record by Mr. Bailye, 449,500 shares
owned of record by Carinya Holdings Company ("Carinya"), 58,000 shares
owned of record by the Bailye Family Foundation (the "Foundation") and
options exercisable for 2,000 shares of Common Stock. Carinya is a general
partnership consisting of Mr. Bailye, Mr. Bailye's wife, and trusts for
the benefit of each of their two minor children, the trustees of which are
Mr. Bailye's parents and Mrs. Bailye's parents, respectively, as general
partners. The partnership agreement provides that the voting power with
respect to shares owned by the partnership resides with the majority vote
of all partners other than Mr. Bailye. Mr. Bailye disclaims beneficial
7
<PAGE>
ownership of the shares owned of record by Carinya except to the extent of
the two 10% partners' interests therein owned by Mr. Bailye and his spouse,
respectively. The Foundation is a trust established exclusively to provide
financial support for charitable organizations which are exempt
institutions under Section 501(c) (3) of the Internal Revenue Code. Mr.
Bailye and his spouse constitute two of the three trustees of the
Foundation.
(4) Represents shares previously owned by Edison Venture Fund II, L.P. and
Edison Venture Fund II-Pa, L.P. which were distributed to the partners of
such entities, including Mr. Martinson.
(5) Represents options exercisable for 8,000 shares of Common Stock.
(6) Represents 750 shares owned of record by Mr. Savage, 12,500 shares owned
of record by his spouse and options exercisable for 102,000 shares of
Common Stock.
(7) Includes options exercisable for 49,000 shares of Common Stock.
(8) Includes options exercisable for 50,000 shares of Common Stock.
(9) Represents options exercisable for 27,500 shares of Common Stock.
(10) Includes options exercisable for 42,000 shares of Common Stock held by
executive officers not listed in the table.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
Compensation of executive officers of the Company is established by the full
Board of Directors of the Company, based upon recommendations made to it by
its Compensation Committee and, with respect to the 1992 Stock Plan, the ISO
Plan and the Employee Plan, the Stock Plan Committee and the Stock Option
Committee, respectively. The Compensation Committee is responsible for
establishing the Company's general policy with regard to executive
compensation, and is currently composed of two directors of the Company,
Messrs. Goldsmith and Kfoury, who are not employees of the Company. During the
year ended December 31, 1997, the Compensation Committee was composed of
Messrs. Martinson and Goldsmith. Effective July 24, 1997, the Compensation
Committee assumed the functions of the Stock Plan Committee and the Stock
Option Committee for the administration of all of the Company's stock option
plans.
GENERAL POLICY
The Compensation Committee's general policy regarding the form and level of
executive compensation is to attract and retain the highest level of executive
talent possible and to induce such executives to achieve both short-term
objectives and long-term growth and profitability for the Company. Factors
used in determining such compensation include competitive market
considerations, the contribution of the individual to the present financial
success of the Company, and the long-term performance of the Company. The
Compensation Committee, does not, however, rely upon objective factors to make
compensation decisions, but instead reaches its determination based upon a
subjective review of the factors set forth above. To achieve these objectives,
the Company's 1997 fiscal year executive compensation program consisted of the
following elements: annual base salary, other annual compensation and
benefits; annual cash bonus; performance awards; and long-term compensation in
the form of stock options.
ANNUAL COMPONENT: BASE SALARY, OTHER COMPENSATION AND BONUS
Each of the elements of executive compensation has a different purpose and
basis. The base salary and other annual compensation and benefits paid in 1997
were made to compensate ongoing performance throughout the year. The base
salary for each executive officer was based on factors, including, but not
limited to, a comparison of compensation practices of other companies in the
industry, personal performance, and performance of the Company. Benefits for
all executive officers included group term life insurance premiums and the
Company's matching portion of the executive's 401(k) plan contribution. The
Compensation Committee's policy is to have annual compensation at the higher
end of the range reported by the companies in its industry.
8
<PAGE>
From time to time, the Company may pay to one or more of its executives
annual and/or quarterly cash bonuses and/or performance awards in the form of
option grants as an additional incentive and reward for his or her
contribution in reaching and exceeding short-term Company objectives for
revenues and profitability. These cash bonuses reflect the Compensation
Committee's assessment, in consultation with the President and Chief Executive
Officer, of that individual's achievement and the significance of that
executive officer's contribution to the financial success of the Company
during a particular fiscal year. For the 1997 fiscal year, cash bonuses were
paid to each of the Named Officers and quarterly performance awards were
granted to each of Mr. Bailye, Mr. Savage, Ms. Winslow, Mr. LaHaie and Mr.
French.
LONG-TERM COMPONENT: INCENTIVE STOCK OPTIONS
The long-term component of executive compensation involves primarily the
award of tax-qualified incentive stock options to align the interests of the
executive with those of the shareholders. The amount of options awarded is
intended to be set at a level sufficient to create a meaningful opportunity
for stock ownership in executives other than Mr. Bailye, the Company's
founding shareholder. To comply with Federal income tax requirements for
incentive stock options, the options are granted with an exercise price equal
to the fair market value per share of the Common Stock at the time of the
grant. To induce the executives' long-term employment commitment to the
Company, the options become exerciseable in equal twenty-five percent (25%)
installments over a four-year vesting schedule, and expire if not exercised
within ten years after the date of grant. Options under the 1992 Stock Plan
and the 1997 Stock Plan were granted in 1997 to each of Mr. Savage, Ms.
Winslow, Mr. LaHaie, Mr. French and Mr. Durand in connection with each such
executive officer's and the Company's performance in 1997. In addition,
options under the 1992 Stock Plan and the ISO Plan were granted in 1997 to Mr.
Robson and Mr. Cieplik in connection with their retention by the Company.
Effective July 24, 1997, recipients of stock options under the 1992 Stock
Plan, the ISO Plan and the 1997 Stock Plan are determined by the Compensation
Committee. Prior to such time, recipients of stock options under the 1992
Stock Plan and the ISO Plan were determined by the Stock Plan Committee and
the Stock Option Plan Committee, respectively.
In addition to the foregoing, options under the 1992 Stock Plan and the 1997
Stock Plan were granted in 1997 to each of Mr. Savage, Ms. Winslow, Mr. LaHaie
and Mr. French in connection with quarterly performance awards granted to each
of such executive officers. Such options become exercisable on the first
anniversary of the date of grant and expire if not exercised within ten years
after the date of grant.
PRESIDENT AND CHIEF EXECUTIVE OFFICER COMPENSATION
The 1997 annual base salary for Mr. Bailye, the Chairman of the Board,
President and Chief Executive Officer of the Company, was established pursuant
to his Employment Agreement. The Compensation Committee may, in its
discretion, determine to pay Mr. Bailye an annual cash bonus if the Company
meets or exceeds its budgeted goals in a particular fiscal year. Mr. Bailye
did receive a cash bonus for the 1997 fiscal year. In addition, in 1997, Mr.
Bailye was granted an aggregate of 208,000 options to purchase shares of
Common Stock under the Company's 1992 Stock Plan and the 1997 Stock Plan. Of
such options, 200,000 will vest in accordance with the following schedule:
options to purchase 30,000 shares will vest effective as of the day that the
average closing price for the Common Stock over a six month period equals or
exceeds $23.00; options to purchase 30,000 shares will vest effective as of
the day that the average closing price for the Common Stock over a six month
period equals or exceeds $26.00; options to purchase 40,000 shares will vest
effective as of the day that the average closing price for the Common Stock
over a six month period equals or exceeds $30.00; and options to purchase
100,000 shares will vest effective as of the day that the average closing
price for the Common Stock over a six month period equals or exceeds $36.00.
To the extent that the conditions for vesting for a particular option grant
are not satisfied by October 21, 2004, the options covered by such grant shall
automatically vest as of such date. Such options terminate to the extent that
they are unvested at the time of termination of Mr. Bailye's employment with
the Company. The Compensation Committee believes that an award of options to
Mr. Bailye was the appropriate method to align his compensation with that of
chief executive officers of comparable corporations in similar industries. In
addition, the Compensation Committee believes that the foregoing vesting
9
<PAGE>
schedule provides substantial incentive to Mr. Bailye to promote the growth
and long-term profitability of the Company. Mr. Bailye was also granted 8,000
options in connection with quarterly performance awards. Such options become
exercisable on the first anniversary of the date of the grant and expire if
not exercised within 10 years after the date of such grant. None of such
options are deemed incentive stock options because Mr. Bailye's stock
ownership in the Company exceeds ten percent (10%). Mr. Bailye does not
participate in decisions of the Board relating to his own compensation.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
At this time, the Compensation Committee believes that, as a result of
transitional rules and the levels of compensation paid, the Company is not
affected by the $1 million limitation on deductions with respect to certain
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
COMPENSATION COMMITTEE*
(as constituted at year-end)
John H. Martinson
Bernard M. Goldsmith
- --------
* Except as to certain matters set forth in "Long-Term Component: Incentive
Stock Options."
STOCK PLAN COMMITTEE**
John E. Bailye
John H. Martinson
Bernard M. Goldsmith
- --------
** Only as to matters set forth in "Long-Term Component: Incentive Stock
Options" relating to the 1992 Stock Plan prior to July 24, 1997.
STOCK OPTION COMMITTEE***
John E. Bailye
John H. Martinson
Paul A. Margolis
Bernard M. Goldsmith
- --------
*** Only as to matters set forth in "Long-Term Capital Incentive Stock
Options" relating to the ISO Plan prior to July 24, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, the Stock Plan Committee and the
Stock Option Committee of the Company's Board of Directors are as named above
in the Compensation Committee Report. No member of any such Committee was at
any time during the 1997 fiscal year or at any other time an officer or
employee of the Company other than John E. Bailye who is the Chairman of the
Board, President and Chief Executive Officer of the Company.
Kookaburra, an entity controlled by Mr. Bailye and his spouse, leased
aircraft to the Company during the fiscal year ended December 31, 1997. See
"Certain Transactions."
No executive officer of the Company served on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
10
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table and accompanying footnotes provide certain summary
information concerning the compensation earned by the Company's President and
Chief Executive Officer and the next four most highly compensated executive
officers for 1997 (the "Named Officers"), in each case for services rendered
in all capacities to the Company and its subsidiaries for the years ended
December 31, 1995, 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(2) COMPENSATION(3)
- --------------------------- ---- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bailye........... 1997 $436,920 $160,000 $11,766 208,000 $10,563
President and Chief
Executive 1996 425,012 0 0 0 13,952
Officer 1995 277,342 120,000 76,012 0 9,324
R. Bruce Savage.......... 1997 293,977 109,000 11,766 68,000 5,898
Executive Vice President 1996 282,756 0 0 0 5,898
and Chief Operating
Officer 1995 264,900 65,000 0 0 5,768
Teresa F. Winslow........ 1997 219,267 235,900 3,138 88,000 5,015
Senior Vice President 1996 172,500 53,400 0 20,000 4,985
1995 153,993 40,000 0 4,000 4,449
George T. Robson......... 1997 200,000 120,000 0 200,000 674
Senior Vice President
and 1996 0 0 0 0 0
Chief Financial Officer 1995 0 0 0 0 0
Mark H. Cieplik.......... 1997 161,062 100,000 0 110,000 148
Senior Vice President, 1996 0 0 0 0 0
Worldwide Sales 1995 0 0 0 0 0
</TABLE>
- --------
(1) Other annual compensation includes, in the case of Mr. Bailye, a housing
allowance of $55,608, $0 and $0 and an automobile allowance of $20,404, $0
and $0, in each case, in the years ended December 31, 1995, 1996 and 1997,
respectively, pursuant to the Bailye Employment Agreement (as defined
below). In 1996 and 1997, Mr. Bailye's housing and automobile allowances
were included as part of his base salary. In addition, such amount for
1997 represents the fair market value as of the date of issuance of a
stock award granted to Mr. Bailye. In the case of Mr. Savage and Ms.
Winslow, respectively, such amounts for 1997 represent the fair market
value as of the date of issuance of a stock award granted to each such
person.
(2) In the case of each of Mr. Bailye, Mr. Savage and Ms. Winslow, such
options do not include options to purchase 3,000 shares of Common Stock
granted to each of such Named Officers in January 1998 as quarterly
performance awards.
(3) All other compensation in 1997 includes Group Term Life Insurance premiums
of $693, $1,148, $265, $674 and $148, the Company's matching portion of
the employees 401(k) contributions of $4,750, $4,750, $4,750, $0 and $0,
and life insurance premium payments of $5,120, $0, $0, $0 and $0, for Mr.
Bailye, Mr. Savage, Ms. Winslow, Mr. Robson and Mr. Cieplik. All other
compensation in 1996 includes Group Term Life Insurance premiums of $652,
$1,148 and $235, the Company's matching portion of the employee's 401(k)
contributions of $4,750, $4,750 and $4,750, and life insurance premium
payments of $8,550, $0, $0 and $0 for Mr. Bailye, Mr. Savage and Ms.
Winslow, respectively. All other compensation in 1995 includes Group Term
Life Insurance premiums of $569, $1,148 and $204, the Company's matching
portion of the employee's 401(k) contributions of $4,620, $4,620 and
$4,245, and life insurance premium payments of $4,135, $0, and $0 for Mr.
Bailye, Mr. Savage and Ms. Winslow, respectively.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made under the 1992 Stock Plan, the ISO Plan and the 1997 Stock Plan to each
of the Named Officers for the fiscal year ended December 31, 1997. No stock
appreciation rights were granted to these individuals during such year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
PERCENTAGE ANNUAL
NUMBER OF OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
GRANTED(1) FISCAL YEAR PER SHARE(2) DATE 5% 10%
NAME ---------- ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John E. Bailye.......... 2,000 * $10.44 5/2007 $ 13,120 $ 33,280
3,000 * 18.88 7/2007 35,610 90,270
3,000 * 19.25 10/2007 36,330 92,040
200,000 14.8 19.25 10/2007 2,422,000 6,136,000
R. Bruce Savage......... 20,000 1.4 7.94 1/2007 99,800 253,000
2,000 * 10.44 5/2007 13,120 33,280
3,000 * 18.88 7/2007 35,610 90,270
40,000 3.0 18.88 7/2007 474,800 1,203,600
3,000 * 19.25 10/2007 36,330 92,040
Teresa F. Winslow....... 5,000 * 7.94 1/2007 24,950 63,250
2,000 * 10.44 5/2007 13,120 33,280
75,000 5.5 10.44 5/2007 492,000 1,248,000
3,000 * 18.88 7/2007 35,610 90,270
3,000 * 19.25 10/2007 36,330 92,040
George T. Robson........ 200,000 13.6 11.94 5/2007 1,502,000 3,806,000
Mark H. Cieplik......... 110,000 7.5 12.75 5/2007 882,200 2,235,200
</TABLE>
- --------
* Less than one percent.
(1) In the case of each of Mr. Bailye, Mr. Savage and Ms. Winslow, the options
granted to purchase 2,000 shares of Common Stock in May 1997 and the
options granted to purchase 3,000 shares of Common Stock in July 1997 and
October 1997, respectively, were granted as quarterly performance awards
to each of such Named Officers. Such options will become exercisable on
the first anniversary of the date of grant.
(2) All options were granted under the 1992 Stock Plan, the ISO Plan and the
1997 Stock Plan at the fair market value of the underlying securities on
the date of grant as determined by the Stock Plan Committee, the Stock
Option Committee or the Compensation Committee, as the case may be.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are prescribed by rules of the Securities and Exchange Commission ("SEC")
and are calculated on the basis of the fair market value of the underlying
securities on the date of grant as determined by the Stock Plan Committee.
Actual gains, if any, on stock option exercises and Common Stock holdings
are dependent on the timing of such exercise and the future performance of
the Common Stock. There can be no assurance provided to any executive
officer or any other holder of the Company's securities that the actual
stock price appreciation over the option term will be at the assumed 5%
and 10% levels or at any other defined level.
Except as set forth above, each of the options shall become exercisable and
vested based upon a four-year vesting schedule with 25% of each option grant
vesting on the first four anniversaries of the date of grant, and the
underlying shares are subject to cancellation by the Company, to the extent
unvested, should the optionee cease employment. The Compensation Committees
has the discretion to accelerate the date of exercisability of any portion of
any option granted under the 1992 Stock Plan, the ISO Plan and the 1997 Stock
Plan. Each option has a maximum term of ten years.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, for each of the Named Officers, information
concerning option exercises and option holdings for the fiscal year ended
December 31, 1997. No stock appreciation rights were exercised during such
year or were outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
VALUE YEAR END (#) FISCAL YEAR END ($) (1)
SHARES ACQUIRED ON REALIZED ------------------------- -------------------------
EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ------------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bailye.......... 0 0 0 208,000 0 45,590
R. Bruce Savage......... 0 0 95,000 93,000 1,603,550 669,140
Teresa F. Winslow....... 0 0 19,500 111,250 206,885 850,863
George T. Robson........ 0 0 0 200,000 0 1,488,000
Mark H. Cieplik......... 0 0 0 110,000 0 729,300
</TABLE>
- --------
(1) Calculated on the basis of the closing price of the Common Stock at
December 31, 1997 of $19.38 per share, less the per share exercise price.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
EMPLOYMENT AGREEMENT WITH JOHN E. BAILYE
The Company has entered into an Employment Agreement with John E. Bailye
(the "Bailye Employment Agreement"), which names Mr. Bailye as the President
and Chief Executive Officer of the Company. Pursuant to the Bailye Employment
Agreement, Mr. Bailye's annual base salary is $436,920 per year (for 1997), to
be increased each year in accordance with the increase in the consumer price
index (All-items portion, for Urban Consumers (CPI-U), as published by the
U.S. Bureau of Labor Statistics).
At a minimum of once every two years (but in no event more than once every
year) the Compensation Committee will review Mr. Bailye's annual base salary
in the light of the performance of the Company and evaluate whether it should
consider any adjustment in Mr. Bailye's annual base salary in addition to any
CPI adjustment to which he may be entitled. In addition to his base salary,
the Compensation Committee, in its discretion, shall pay Mr. Bailye a bonus
not to exceed fifty percent (50%) of Mr. Bailye's annual base salary for the
year. Under his agreement, Mr. Bailye is entitled to the fringe benefits
generally made available to employees of the Company from time to time and
shall be entitled to four weeks annual vacation, which may be carried forward
from year to year, provided that any accumulated vacation in excess of eight
weeks shall be forfeited.
The Bailye Employment Agreement has an initial term continuing through
December 31, 1999 (the "Term"). 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 gives written notice to the other party that
the Term will not be extended. In addition, upon a Change in Control (as
defined), the remaining Term shall, if less than two years at such date, be
extended automatically to continue for at least two years following such
Change in Control. Notwithstanding its stated term, (i) either party may
terminate the Bailye Employment Agreement for any reason whatsoever by
providing the other party with certain advance written notice, and (ii) the
Board of Directors of the Company may terminate the Bailye Employment
Agreement for (A) any gross misconduct or gross neglect on Mr. Bailye's part
with respect to his duties under the agreement which gross misconduct or gross
neglect has or is likely to have a material adverse effect upon the business
of the Company, provided, however, that Mr. Bailye's good faith exercise of
his business judgment in executing his duties under the agreement does not
constitute Cause (as defined) thereunder, or (B) the indictment of Mr. Bailye
for a felony which relates to his duties under the agreement or has or is
likely to have a material adverse effect on the business of the Company,
provided, that, if Mr. Bailye ultimately is not convicted of, or does not
plead guilty or nolo contendere to, such felony, Mr. Bailye's termination of
employment shall be treated retroactively as a termination by the Company
without cause and he shall be entitled to severance under the agreement. The
Bailye
13
<PAGE>
Employment Agreement shall terminate automatically in the event of the death
or Disability (as defined) of Mr. Bailye.
In the event that (i) the Company terminates Mr. Bailye's employment for any
reason other than Cause or Disability, or as a result of Mr. Bailye's death,
or (ii) by Mr. Bailye for Good Reason (as defined), Mr. Bailye shall be
entitled to receive severance payments in the aggregate amount equal to the
sum of (A) the annual rate of his 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 him during the three completed fiscal years of the Company immediately
preceding his date of termination, divided by twelve (12), and multiplied by
the number of full and fractional months remaining in the Term as of his date
of termination. Such severance payments shall be paid by the Company in cash
in consecutive equal monthly payments commencing no later than thirty (30)
days after the effective date of the termination of Mr. Bailye's employment
for a period through the remainder of the Term as of the date of termination.
In the event that, during the Term and within the two-year period following
a Change in Control, Mr. Bailye's employment is terminated by (i) the Company
for any reason other than Cause or Disability, or as a result of Mr. Bailye's
death, or (ii) Mr. Bailye for Good Reason, Mr. Bailye shall be entitled to
receive severance payments in the aggregate amount equal to three (3) times
the sum of (A) the annual rate of his 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 him
during the three (3) completed fiscal years of the Company immediately
preceding his date of termination. Such severance payments shall be paid by
the Company in a lump sum in cash. Depending upon Mr. Bailye's base salary,
such severance payments may be affected by (i) the $1 million limitation on
deductions with respect to certain compensation under Section 162(m) of the
Code and (ii) the limitation on deductions under Section 280G of the Code.
In the event that the Company provides Mr. Bailye with written notice that
it is not extending the Term, the Compensation Committee shall determine, in
its sole discretion, the amount of any severance payments to be made to Mr.
Bailye, which amount shall be determined as of Mr. Bailye's date of
termination in accordance with what is usual and customary for companies of
comparable size operating in a similar industry as the Company as it exists as
of the effective date of termination and which is appropriate for Mr. Bailye's
employment position with the Company.
During the period of his employment with the Company and for a period of two
(2) years following any voluntary termination by him (other than a termination
for Good Reason) or any termination by the Company for Cause, Mr. Bailye is
prohibited, whether directly or indirectly, in any U.S. state or foreign
country where the Company is doing business at the time of Mr. Bailye's
termination, from (i) engaging in any venture or activity in competition with
the business of the Company or its affiliates, or any business that the
Company may establish that it will likely conduct within one year of Mr.
Bailye's departure; (ii) soliciting for any venture or activity in competition
with the businesses conducted by the Company or its affiliates any customers
who were customers within one year of Mr. Bailye's departure or soliciting,
whether directly or indirectly, such customers to reduce their business with
the Company or its affiliates; or (iii) inducing or attempting to influence
any employee of the Company or its affiliates employed on the effective date
of Mr. Bailye's termination, or within six months prior to such termination,
to terminate his or her employment with the Company. In the event the Company
terminates Mr. Bailye's employment without Cause (or elects not to extend Mr.
Bailye's employment) or Mr. Bailye terminates his employment for Good Reason,
the restrictive covenants described above shall apply for a period of six (6)
months following Mr. Bailye's date of termination.
The Bailye Employment Agreement may not be assigned by either party other
than by the Company in connection with certain business combinations and is
enforceable in accordance with the laws of the State of New Jersey.
OTHER EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (each, an "Employment
Agreement") with each of R. Bruce Savage, Teresa F. Winslow, George T. Robson
and Mark H. Cieplik. Except for Mr. Savage, the
14
<PAGE>
Company employs such persons as at-will employees, and each Employment
Agreement may be terminated at any time for any reason by the Company or by
the employee. Mr. Savage will be deemed as an at-will employee after July 24,
2000. Each Employment Agreement provides for annual vacation and such fringe
benefits as are generally made available to employees of the Company.
Mr. Savage's Employment Agreement provides for an annual base salary of
$290,000 (for 1997), to be increased each year in accordance with the increase
in the consumer price index (All-items portion, for Urban Consumers (CPI-U),
as published by the U.S. Bureau of Labor Statistics). In addition to his base
salary, Mr. Savage is eligible to receive an annual bonus of not less than 30%
of his annual base salary for the year, provided that (i) the Company achieves
certain goals and objectives and (ii) Mr. Savage is employed by the Company at
the end of any such year. Upon execution of his Employment Agreement, Mr.
Savage was granted options to purchase 40,000 shares of Common Stock. Such
options were granted at the fair market value of the underlying shares of
Common Stock and are subject to a four-year vesting schedule. Upon the first
anniversary of his Employment Agreement, Mr. Savage shall receive an
additional grant of options to purchase 25,000 shares of Common Stock,
provided that he is employed by the Company on such date. The price for such
options will be determined by the Compensation Committee and will be subject
to a four-year vesting schedule. Notwithstanding the foregoing, in the event
of (i) a Change of Control (as defined), if Mr. Savage is not retained in a
similar position or if no similar position is offered to Mr. Savage following
a Change of Control, or (ii) the termination of Mr. Savage's employment by the
Company without Cause (as defined), all of Mr. Savage's options owned by him
at the time of such event shall immediately vest.
In the event that the Company terminates Mr. Savage's employment for any
reason other than death, Cause or Disability (as defined) prior to July 24,
2000, Mr. Savage shall be entitled to receive severance payments totaling
twenty-four (24) months base salary (calculated at a rate of base salary then
being paid to Mr. Savage as of the date of termination) and, solely for the
calendar year in which Mr. Savage is terminated, a pro rata portion of the
bonus that Mr. Savage would have otherwise been entitled to had he been
employed by the Company for the entire year in which he was terminated, the
amount of any such bonus corresponding to the portion of the year to have
elapsed through the termination date. Such severance payments in respect of
base salary shall be paid in twenty-four (24) consecutive equal monthly
payments commencing not later than thirty (30) days after the effective date
of the termination of Mr. Savage's employment. Any pro rata bonus payment
shall be paid by the Company in a lump sum within sixty (60) days of the date
of termination.
In the event that the Company terminates Mr. Savage's employment for any
reason other than death, Cause or Disability on or after July 24, 2000, Mr.
Savage shall be entitled to receive severance payments totaling twelve (12)
months base salary (calculated at a rate of base salary then being paid to Mr.
Savage as of the date of termination) and, solely for the calendar year in
which Mr. Savage is terminated, a pro rata portion of the bonus that Mr.
Savage would have otherwise been entitled to had he been employed by the
Company for the entire year in which he was terminated, the amount of any such
bonus corresponding to the portion of the year to have elapsed through the
termination date. Such severance payments in respect of base salary shall be
paid in twelve (12) consecutive equal monthly payments commencing not later
than thirty (30) days after the effective date of the termination of Mr.
Savage's employment. Any pro rata bonus payment shall be paid by the Company
in a lump sum within sixty (60) days of the date of termination.
Ms. Winslow's Employment Agreement provides for an initial starting salary
of $110,000 to be reviewed at least annually and to be adjusted based on
performance. In addition to her base salary, Ms. Winslow shall also be
entitled to a thirty percent bonus potential payable on terms and conditions
agreed between Ms. Winslow and the Company.
Mr. Robson's Employment Agreement provides for an annual base salary of
$300,000. In addition to his base salary, commencing on the completion of the
third fiscal quarter of 1997, Mr. Robson is eligible to receive a quarterly
bonus of $50,000 per quarter, provided that (i) the Company achieves certain
goals and objectives and (ii) Mr. Robson is employed by the Company at the end
of any such quarter. Mr. Robson was also granted options to purchase 200,000
shares of Common Stock. Such options were granted at the fair market value of
the
15
<PAGE>
underlying shares of Common Stock and are subject to a four-year vesting
schedule. Mr. Robson is also entitled to receive options to purchase 40,000
and 25,000 shares of Common Stock, respectively, on each of the first and
second anniversary date of his Employment Agreement. The price of such options
will be determined by the Compensation Committee and will be subject to a
four-year vesting schedule. Notwithstanding the foregoing, in the event of a
Change of Control (as defined), if Mr. Robson is not retained in a similar
position or if no similar position is offered to Mr. Robson following a Change
of Control, all of Mr. Robson's options owned by him at the time of such event
shall immediately vest.
In the event that the Company terminates Mr. Robson's employment for any
reason other than death, Cause (as defined) or Disability (as defined), Mr.
Robson shall be entitled to receive severance payments totaling his annual
base salary. Such severance payments shall be paid in twelve (12) consecutive
equal monthly payments commencing not later than thirty (30) days after the
effective date of the termination of Mr. Robson's employment.
Mr. Cieplik's Employment Agreement provides for an annual base salary of
$250,000. In addition to his base salary, commencing on the completion of the
third fiscal quarter of 1997, Mr. Cieplik is eligible to receive a quarterly
bonus of $50,000 per quarter, provided that (i) the Company achieves certain
goals and objectives, and (ii) Mr. Cieplik is employed by the Company at the
end of any such quarter. Mr. Cieplik was also granted options to purchase
110,000 shares of Common Stock. Such options were granted at the fair market
value of the underlying shares of Common Stock and are subject to a four-year
vesting schedule.
In the event that the Company terminates Mr. Cieplik's employment for any
reason other than death, Cause (as defined) or Disability (as defined), Mr.
Cieplik shall be entitled to receive severance payments totaling six (6)
months Compensation (as defined) (calculated at the rate of Compensation then
being paid to Mr. Cieplik). Such severance payments shall be paid in six (6)
consecutive equal monthly payments commencing not later than thirty (30) days
after the effective date of the termination of Mr. Cieplik's employment. In
the event such termination occurs on or before June 8, 1998, Mr. Cieplik shall
be entitled to receive severance payments totaling twelve (12) months
Compensation (calculated at the rate of Compensation then being paid to Mr.
Cieplik). Such severance payments shall be paid in twelve (12) consecutive
equal monthly payments commencing not later than thirty (30) days after the
effective date of the termination of Mr. Cieplik's employment.
The Company may terminate the Employment Agreements of each of Mr. Savage,
Mr. Robson and Mr. Cieplik for (i) any gross misconduct on such employee's
part with respect to his duties under his respective agreement, (ii) the
engaging by such employee in an indictable offense which relates to his duties
under his respective agreement or which is likely to have a material adverse
effect on the business of the Company, (iii) the commission by such employee
of any wilful or intentional act which injures in a material respect or could
reasonably be expected to injure in any material respect the reputation,
business or business relationships of the Company, or (iv) the engaging by
such employee through gross negligence in conduct which injures materially or
could reasonably be expected to injure materially the business or reputation
of the Company. Each such Employment Agreement shall terminate automatically
in the event of the death or Disability of such employee.
Each Employment Agreement restricts the respective employee from disclosing
any confidential information of the Company, or any confidential information
of the Company's clients, customers or suppliers to any person without the
prior written consent of the Company or the client, customer or supplier, as
the case may be. Each Employment Agreement, other than Ms. Winslow's, also
provides that for a period of two years following termination of employment,
with or without cause, each employee is prohibited from (i) performing
services that compete with the businesses conducted by the Company or any of
its affiliates or rendering services to any organization or entity which
competes with the business or businesses conducted by the Company or any of
its affiliates anywhere in the United States or elsewhere where the Company or
any of its affiliates do business, or any business or businesses that the
Company or any of its affiliates may establish that it will likely conduct
within one year (or, in the case of Ms. Winslow, six months) following the
date of such employee's termination; (ii) soliciting any customers or
potential customers of the Company with whom the employee had contact while
employed by the Company or who was a customer of the Company at any time
during the two years immediately
16
<PAGE>
before the employee's termination; (iii) requesting that any of the Company's
customers or suppliers discontinue doing business with the Company; (iv)
knowingly taking any action that would disparage the Company or be to its
disadvantage; or (v) employing or attempting to employ or assisting anyone
else to employ any employee or contractor of the Company to terminate their
employment or engagement with the Company. Ms. Winslow's Employment Agreement
is substantially similar to the other Employment Agreements, except that the
term of her noncompetition covenant is three years, not two. In addition, in
consideration for such noncompetition covenant, the Company has agreed to pay
Ms. Winslow one year's base salary at the Company's discretion, to be paid in
equal monthly installments over two years, except that such payments shall be
discontinued if Ms. Winslow becomes employed during such period.
The four Employment Agreements are not assignable by either party, except
that the Company may assign its rights to any affiliated or successor entity.
The Employment Agreements are enforceable in accordance with the laws of the
State of New Jersey.
COMMON STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on June 30, 1995, the first day of public trading in
the Common Stock along with the composite prices of companies listed in the
NASDAQ Stock Market-US Index and the Hambrecht & Quist Technology Index.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement period ________ ________ ________
(Fiscal Year Covered) Dendrite NASDAQ Hambrecht
Int'l Stock & Quist
- --------------------- -------- -------- --------
<S> <C> <C> <C>
Measurement PT -
06/95 $ 100 $ 100 $ 100
FYE 12/95 $ 112 $ 113 $ 107
FYE 12/96 $ 51 $ 139 $ 133
FYE 12/97 $ 120 $ 171 $ 156
</TABLE>
* $100 INVESTED ON 06/30/95 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
No cash dividends have been declared on the Common Stock. Shareholder
returns over the indicated period should not be considered indicative of
future shareholder returns.
17
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 (the "Exchange Act") that might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report
on Executive Compensation and the Common Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such
report or graph be incorporated by reference into any future filings made by
the Company under those statutes.
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board is asking the shareholders of the Company to ratify its
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1998. The Board wishes to
receive the majority of the votes cast at the Annual Meeting to ratify the
selection of Arthur Andersen LLP.
In the event the shareholders fail to ratify the appointment, the Board of
Directors will reconsider its selection, but may elect to retain Arthur
Andersen LLP nevertheless. Even if the selection is ratified, the Board of
Directors, in its discretion, may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors feels that such a change would be in the Company's and its
shareholders' best interests.
Arthur Andersen LLP has audited the Company's financial statements annually
since fiscal year 1993. Its representatives are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire
to do so, and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP TO SERVE AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
PROPOSAL NO. 3
ADOPTION OF THE 1997 STOCK INCENTIVE PLAN
The 1997 Stock Plan was adopted by the Board of Directors on July 24, 1997
and authorizes the grant of "incentive stock options" (within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")),
non-qualified stock options, and stock awards based on the value of the
Company's Common Stock. No more than 1,250,000 shares of Common Stock (subject
to adjustment) are available for grant under the 1997 Stock Plan.
The terms of the 1997 Stock Plan as adopted required the approval of the
1997 Stock Plan by shareholders of the Company as a condition to the valid
exercise of any options granted under the 1997 Stock Plan. On February 27,
1998, the Board of Directors amended the 1997 Stock Plan, effective as of July
24, 1997, to remove the shareholder approval condition. This was done to
clarify that the Board of Directors, in adopting the 1997 Stock Plan, intended
on July 24, 1997 to authorize the grant of options that would be considered
outstanding for accounting purposes as of the date of grant. Notwithstanding
the foregoing, 270,200 number of shares still available for grant under the
1997 Stock Plan are subject to the approval of the shareholders. If the
shareholders do not approve the 1997 Stock Plan, no additional awards will be
made under the 1997 Stock Plan.
18
<PAGE>
As of April 1, 1998, options to purchase 979,800 Common Shares have been
granted under the 1997 Stock Plan at an exercise price per share equal to the
fair market value of the Common Stock on the date of grant, including grants
to officers and directors of the Company as set forth in the table below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME AND TITLE OPTIONS GRANTED EXERCISE PRICE
- -------------- --------------- --------------
<S> <C> <C>
John Bailye, President, Chief Executive Officer
and Director................................... 209,000 $19.31
Bernard H. Goldsmith, Director.................. 40,000 20.10
Paul A. Margolis, Director...................... 40,000 20.10
John H. Martinson, Director..................... 40,000 20.10
Edward J. Kfoury, Director...................... 52,000 19.84
R. Bruce Savage, Executive Vice President and
Chief Operating Officer........................ 49,000 19.20
Teresa F. Winslow, Senior Vice President........ 9,000 20.63
George T. Robson, Senior Vice President and
Chief Financial Officer........................ -- --
Mark H. Cieplik, Senior Vice President, World-
wide Sales..................................... -- --
All current executive officers as a group (8
persons)....................................... 382,000 19.43
All current Directors who are not executive of-
ficers as a group (4 persons).................. 172,000 20.02
All employees, including all current officers
who are not executive officers as a group (492
persons)....................................... 425,800 19.16
</TABLE>
Whether or not shareholder approval of the 1997 Stock Plan is obtained,
options previously granted pursuant to the 1997 Stock Plan will remain valid
and outstanding.
Even though the 1997 Stock Plan by its terms does not require shareholder
approval, the Board of Directors is seeking that approval for several reasons.
First, options granted under the 1997 Stock Plan will not be considered
"incentive stock options" or "ISOs" for federal income tax purposes unless
shareholder approval has been obtained within twelve months from the adoption
of the 1997 Stock Plan. If shareholder approval is not obtained, then the
options will be treated as non-qualified stock options. The Board of Directors
believes it is in the Company's best interests to permit option holders to
take advantage of the more favorable tax treatment given to ISOs (as discussed
below).
The Company is also seeking shareholder approval to authorize the Company to
grant options on all remaining shares authorized under the 1997 Stock Plan in
order that all income attributable to the exercise of such options will
qualify as performance-based compensation under Section 162(m) of the Code.
Since options previously granted under the 1997 Stock Plan are not subject to
shareholder approval, no income realized upon exercise of such options will
qualify as performance-based compensation under Section 162(m) of the Code.
Accordingly, the Company could lose a deduction for ordinary income realized
by the chief executive officer and the other four highest compensated officers
of the Company ("Covered Employees") in excess of $1,000,000. For purposes of
this limit, all ordinary income realized upon exercise of options previously
granted under the 1997 Stock Plan will be counted.
Set forth below is a summary of the material features of the 1997 Stock
Plan. This summary is qualified in its entirety by the actual terms of the
1997 Stock Plan, a copy of which is attached as Exhibit A.
The purpose of the 1997 Stock Plan is to enhance the ability of the Company
to attract and retain employees, directors, and consultants of outstanding
ability and to provide them with an interest in the Company parallel to that
of the shareholders. The 1997 Stock Plan authorizes the grant of incentives in
the form of stock options to officers, other key employees, consultants and
non-employee directors and stock awards based on the value of Common Stock to
employees. The Compensation Committee administers the Plan. On April 1, 1998
there were approximately 498 employees and non-employee directors who have
received stock options. No other form of stock awards have been granted.
Because future participation in the 1997 Stock Plan and the level of
participation will vary, it is not possible to determine the value of benefits
which may be obtained by those eligible to participate in the 1997 Stock Plan.
19
<PAGE>
The Compensation Committee may grant options under the 1997 Stock Plan to
eligible employees, consultants and directors selected by the Compensation
Committee. No employee may be granted in any year options to purchase more
than 500,000 shares of Common Stock. The options may be either non-qualified
stock options or incentive stock options qualifying under Section 422 of the
Code. The Compensation Committee is to establish the option price at the time
that each option is granted; provided, however, that the exercise price of any
options which are intended to be incentive stock options must be at least
equal to the fair market value per share of the Common Stock at the time of
the grant. Options granted under the 1997 Stock Plan may be exercised at such
time as is determined by the Compensation Committee, but not more than 10
years from their date of grant.
Options may not be transferred except by will or the laws of descent and
distribution, except that the Compensation Committee may permit non-qualified
stock options to be transferred to members of the holder's immediate family or
trusts, partnerships or limited liability companies established for such
family members.
Under the 1997 Stock Plan, non-qualified 10-year stock options to purchase
30,000 shares of Common Stock were granted automatically to each Director of
the Company who is not an employee of the Company on the date the 1997 Stock
Plan was adopted or the date the Director first becomes a non-employee
Director. In addition, based on the Company's performance in 1997, each such
Director was granted additional options to purchase 10,000 shares of Common
Stock in January 1998. On the third anniversary of the initial grant of
options and on each succeeding anniversary thereafter, an additional option to
purchase 10,000 shares is granted. The option price is the fair market value
of the Common Stock on the date of grant and each option becomes exercisable
one year from the date of grant.
In the event of a Change in Control (as defined in the 1997 Stock Plan) of
the Company, any option will become vested and exercisable in full and all
restrictions or conditions, if any, on other stock awards will automatically
lapse.
If an option holder engages in certain activity which is harmful to the
Company, all outstanding and unexercised options may be canceled and
terminated. In addition, such option holders may have to reimburse the Company
for any gain realized upon exercise of options within one year of the harmful
behavior. This forfeiture and repayment provision will not apply following a
Change in Control.
The Board of Directors may amend, suspend or terminate the 1997 Stock Plan
at any time, but no amendment may adversely affect the rights of any person in
connection with an award previously granted. In addition, if the shareholders
approve the 1997 Stock Plan, no amendment to the 1997 Stock Plan may be made
without subsequent shareholder approval if such approval is required under any
applicable law, regulation or stock exchange rule.
The 1997 Stock Plan became effective upon adoption by the Board and will
have a term of 10 years from its effective date.
The following is a general summary of the federal income tax consequences of
the grant and exercise of options under the 1997 Stock Plan. This summary is
not intended to provide tax advice to recipients and holders of awards.
Generally, the grant of options does not result in taxable income to the
option holder and the Company is not entitled to a corresponding deduction
from its income taxes.
In the case of ISOs, generally there will be no taxable income for the
option holder upon exercise. In addition, if the option holder does not
dispose of the shares acquired upon exercise of the ISO until the later of two
years from the date of grant or one year from the date of exercise (a
"disqualifying disposition"), any gain or loss realized by the option holder
upon disposition will be taxed as long-term or mid-term capital gain or loss,
as the case may be. The Company will not be entitled to a tax deduction upon
the grant or exercise of ISOs or the disposition of ISO shares. However, if a
disqualifying disposition occurs, then the option holder will realize
20
<PAGE>
ordinary income in the year of disposition in an amount equal to the excess,
if any, of the fair market value of the option shares at the time of exercise
(or, if less, the amount realized on the disqualifying disposition) over the
exercise price thereof. The Company will be entitled to deduct an amount equal
to the ordinary income realized by the option holder upon a disqualifying
disposition.
With respect to non-qualified stock options, the option holder will realize
ordinary income equal to the difference between the fair market value of the
option shares upon exercise over the exercise price thereof. The Company will
be entitled to a corresponding deduction in an amount equal to the amount of
ordinary income realized by the option holder. Upon the subsequent disposition
of the option shares, any gain (loss) will be taxed as short-term, mid-term or
long-term capital gain (loss), as the case may be.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the Company's directors, officers,
and any person holding more than ten percent of the Common Stock are required
to report initial ownership of the Common Stock and any subsequent changes in
ownership to the SEC. Specific due dates have been established by the SEC, and
the Company is required to disclose in this Proxy Statement any failure to
file by these dates. Except as set forth below, based upon (i) the copies of
the Section 16(a) reports that the Company received from such persons for
their 1997 fiscal year transactions and (ii) the written representations
received from one or more of such persons that no annual Form 5 reports were
required to be filed for them for the 1997 fiscal year, the Company believes
that there has been compliance with all Section 16(a) filing requirements
applicable to such directors, officers, and ten percent beneficial owners.
Each Form 4 referenced below reported one transaction.
The Company is aware that each of Paul A. Margolis, John H. Martinson and
Bernard M. Goldsmith, each a Director of the Company, filed a Form 4 with the
SEC on or about October 31, 1997, November 6, 1997 and December 9, 1997,
respectively. The Company believes that each such Form 4 should have been
filed no later than August 10, 1997.
The Company is aware that R. Bruce Savage, Executive Vice President and
Chief Operating Officer of the Company, and Teresa F. Winslow, Senior Vice
President of the Company, each filed a Form 4 with the SEC on or about
February 13, 1998. The Company believes that each such Form 4 should have been
filed no later than February 10, 1998.
The Company is aware that Edward J. Kfoury, a Director of the Company,
George T. Robson, Senior Vice President and Chief Financial Officer of the
Company, Mark H. Cieplik, Senior Vice President, Worldwide Sales of the
Company, and Thierry Durand, Vice President, Europe of the Company, each filed
a Form 3 with the SEC on or about November 1, 1997, June 1, 1997, July 7, 1997
and November 5, 1997, respectively. The Company believes that each such Form 3
should have been filed with the SEC no later than August 3, 1997, May 24,
1997, June 9, 1997 and July 11, 1997, respectively.
SHAREHOLDER PROPOSALS FOR 1999 PROXY STATEMENT
Shareholder proposals that are intended to be presented at the 1999 Annual
Meeting of Shareholders currently expected to be held on or about May 19, 1999
must be received by the Company at its principal executive offices no later
than January 19, 1999 and must be in compliance with applicable SEC
regulations, in order to be included in the proxy statement and related proxy
materials.
21
<PAGE>
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ITS
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES, AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO DENDRITE INTERNATIONAL, INC.,
1200 MOUNT KEMBLE AVENUE, MORRISTOWN, NEW JERSEY 07960-6797, ATTN: CHRISTOPHER
J. FRENCH, SECRETARY.
OTHER MATTERS
The Board knows of no other matters to be presented for shareholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Christopher J. French
Christopher J. French
Secretary
22
<PAGE>
- --------------------------------------------------------------------------------
DENDRITE INTERNATIONAL, INC.
1200 MOUNT KEMBLE AVENUE
MORRISTOWN, NEW JERSEY 07960-6797
The undersigned hereby constitutes and appoints John E. Bailye, George T.
Robson and Christopher J. French, each of them, proxies of the undersigned with
full power of substitution, to represent and vote, as designated below, all
shares of Common Stock of Dendrite International, Inc. (the "Company"), which
the undersigned could represent and vote if personally present, at the Annual
Meeting of Shareholders of the Company to be held on May 19, 1998 and at any
adjournment thereof.
1. ELECTION OF DIRECTORS [_] WITHHOLD AUTHORITY
[_] FOR all nominees listed below to vote for all five nominees
(except as marked to the contrary listed below (See instruction
below). below).
<TABLE>
<CAPTION>
NOMINEES TERM EXPIRES NOMINEES TERM EXPIRES
-------- ------------ -------- ------------
<S> <C> <C> <C>
John E. Bailye 1999 Annual Meeting Paul A. Margolis 1999 Annual Meeting
Bernard M. Goldsmith 1999 Annual Meeting John H. Martinson 1999 Annual Meeting
Edward J. Kfoury 1999 Annual Meeting
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee or
nominees, write nominee's name on the following line
---------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES LISTED ABOVE
2. Proposal to ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998.
[_FOR] [_AGAINST] [_ABSTAIN]
MANAGEMENT RECOMMENDS A VOTE FOR RATIFICATION OF APPOINTMENT OF AUDITORS
3. Proposal to approve the Company's 1997 Stock Incentive Plan.
[_FOR] [_AGAINST] [_ABSTAIN]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
(CONTINUED FROM OTHER SIDE)
MANAGEMENT RECOMMENDS A VOTE FOR APPROVAL OF THE COMPANY'S 1997 STOCK INCENTIVE
PLAN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE NOMINEES FOR DIRECTOR LISTED IN ITEM 1 ABOVE, OR FOR SUCH
SUBSTITUTE NOMINEES AS MAY BE NOMINATED BY THE BOARD OF DIRECTORS IN THE EVENT
ANY OF THE INITIAL NOMINEES SHOULD BECOME UNAVAILABLE, "FOR" ITEMS 2 AND 3 AND,
IN THE PROXIES' DISCRETION, ON ANY OTHER MATTER COMING BEFORE THE ANNUAL
MEETING.
The undersigned acknowledges
receipt of the Company's 1997
Annual Report to Shareholders,
the Notice of the Annual
Meeting of Shareholders and
Proxy Statement, and revokes
all former proxies.
Dated: ____________, 1998
-------------------------
Signature of Shareholder
(Please insert date
above, sign exactly as
name appears on Stock
Certificate and mail in
the enclosed envelope.
When signing as Officer,
Partner, Executor, Ad-
ministrator, Trustee or
Guardian, please give
full title. For joint
accounts, each joint
owner should sign.)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
DENDRITE INTERNATIONAL, INC.
1997 STOCK INCENTIVE PLAN
(As amended through February 27, 1998)
1. Purpose. The purpose of the Dendrite International, Inc. 1997 Stock
-- -------
Incentive Plan (the "Plan") is to enhance the ability of Dendrite International,
Inc. (the "Company") and its subsidiaries to attract and retain employees,
directors and consultants of outstanding ability and to provide employees,
directors and consultants with an interest in the Company parallel to that of
the Company's shareholders.
2. Definitions.
-- -----------
(a) "Award" shall mean an award determined in accordance with the
terms of the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Change in Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is defined in Section
3(a)(9) of 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 the Company representing 33-1/3% or more of the
combined voting power of the Company's then outstanding securities
eligible to vote for the election of the Board (the "Company Voting
Securities"); provided, however, that the 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 the Company or any
subsidiary, (B) by any employee benefit plan sponsored or maintained
by the Company or any subsidiary, (C) by any underwriter temporarily
holding securities pursuant to an offering of such securities, (D)
pursuant to a Non-Control Transaction (as defined in paragraph (iii)),
or (E) a transaction (other than one described in (iii) below) in
which Company Voting Securities are acquired from the Company, if a
majority of the Incumbent Board (as defined below) approves a
resolution providing expressly that the acquisition pursuant to this
clause (E) does not constitute a Change in Control under this
paragraph (i);
(ii) individuals who, on the Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
<PAGE>
subsequent to the Effective Date, whose election or nomination for
election was approved by a vote of at least two-thirds of the
directors comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such
nomination) shall be considered a member of the Incumbent Board;
provided, however, that no individual initially elected or nominated
-------- -------
as a director of the Company as a result of an actual or threatened
election contest with respect to directors or 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 a member of the
Incumbent Board;
(iii) the shareholders of the Company approve a merger,
consolidation, share exchange or similar form of corporate
reorganization of the Company or any such type of transaction
involving the Company or any of its subsidiaries (whether for such
transaction or the issuance of securities in the transaction or
otherwise) (a "Business Combination"), unless immediately following
such Business Combination: (A) more than 50% of the total voting power
of the publicly traded corporation resulting from such Business
Combination (including, without limitation, any corporation which
directly or indirectly has beneficial ownership of 100% of the Company
Voting Securities or all or substantially all of the assets of the
Company and its subsidiaries) eligible to elect directors of such
corporation would be represented by shares that were Company Voting
Securities immediately prior to such Business Combination (either by
remaining outstanding or being converted), and such voting power would
be in substantially the same proportion as the voting power of such
Company Voting Securities immediately prior to the Business
Combination, (B) no person (other than any publicly traded holding
company resulting from such Business Combination, any employee benefit
plan sponsored or maintained by the Company (or the corporation
resulting from such Business Combination), or any person which
beneficially owned, immediately prior to such Business Combination,
directly or indirectly, 33-1/3% or more of the Company Voting
Securities (a "Company 33-1/3% Stockholder")) would become the
beneficial owner, directly or indirectly, of 33-1/3% or more of the
total voting power of the outstanding voting securities eligible to
elect directors of the corporation resulting from such Business
Combination and no Company 33-1/3% Stockholder would increase its
percentage of such total voting power, and (C) at least a majority of
the members of the board of directors of the corporation resulting
from such Business Combination would be members of the Incumbent Board
at the time of the Board's approval of the execution of the initial
agreement providing for such Business Combination (a "Non-Control
Transaction"); or
-2-
<PAGE>
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or the sale or
disposition of all or substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control of the
Company shall not be deemed to occur solely because any person acquires
beneficial ownership of more than 33-1/3% of the Company Voting Securities as a
result of the acquisition of Company Voting Securities by the Company which, by
reducing the number of Company Voting Securities outstanding, increases the
percentage of shares beneficially owned by such person; provided, that if a
-------- ----
Change in Control of the Company would occur as a result of such an
acquisition by the Company (if not for the operation of this sentence), and
after the Company's acquisition such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, then a
Change in Control of the Company shall occur.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Committee" shall mean a committee of at least two members of
the Board appointed by the Board to administer the Plan and to perform the
functions set forth herein and who are "non-employee directors" within the
meaning of Rule 16b-3 as promulgated under Section 16 of the Exchange Act and
who are also "outside directors" within the meaning of Section 162(m) of the
Code.
(f) "Common Stock" shall mean the common stock, no par value per
share, of the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(h) "Fair Market Value" per share as of a particular date shall
mean the last reported sale price (on the day immediately preceding such date)
of the Common Stock on the NASDAQ National Market List.
(i) "Immediate Family Member" shall mean, except as otherwise
determined by the Committee, a Participant's children, stepchildren,
grandchildren, parents, stepparents, grandparents, spouse, siblings, in-laws and
persons related by reason of legal adoption.
(j) "Incentive Stock Option" shall mean a stock option which is
intended to meet the requirements of Section 422 of the Code.
-3-
<PAGE>
(k) "Non-Employee Director" shall mean a member of the Board who is
not an employee of the Company or any Subsidiary.
(l) "Nonqualified Stock Option" shall mean a stock option which is
not intended to be an Incentive Stock Option.
(m) "Option" shall mean either an Incentive Stock Option or a
Nonqualified Stock Option.
(n) "Participant" shall mean an employee, director or consultant of
the Company or its Subsidiaries who is selected to participate in the Plan in
accordance with Section 5.
(o) "Subsidiary" shall mean any subsidiary of the Company that is a
corporation and which at the time qualifies as a "subsidiary corporation" within
the meaning of Section 424(f) of the Code.
3. Shares Subject to the Plan. Subject to adjustment in accordance
--------------------------
with Section 16, the total of the number of shares of Common Stock which shall
be available for the grant of Awards under the Plan shall not exceed 1,250,000
shares; provided, that, for purposes of this limitation, any Option which is
-------- ----
canceled or expires without exercise shall again become available for Awards
under the Plan. Upon forfeiture of Awards in accordance with the provisions of
the Plan, and the terms and conditions of the Award, such shares shall no longer
be counted in any determination of the number of shares available under the Plan
and shall be available for subsequent Awards. Subject to adjustment in
accordance with Section 16, no employee shall be granted in any calendar year
Options to purchase more than 500,000 shares of Common Stock. Shares of Common
Stock available for issue or distribution under the Plan shall be authorized and
unissued shares or shares reacquired by the Company in any manner.
4. Administration. (a) The Plan shall be administered by the Committee.
--------------
(b) The Committee shall (i) approve the selection of Participants,
(ii) determine the type of Awards to be made to Participants, (iii) determine
the number of shares of Common Stock subject to Awards, (iv) determine the terms
and conditions of any Award granted hereunder (including, but not limited to,
any restriction and forfeiture conditions on such Award) and (v) have the
authority to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of any
agreements entered into hereunder, and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or in any Award in the manner and to the extent it shall deem desirable to
carry it into effect.
-4-
<PAGE>
(c) Any action of the Committee shall be final, conclusive and
binding on all persons, including the Company and its Subsidiaries and
shareholders, Participants and persons claiming rights from or through a
Participant.
(d) The Committee may delegate to officers or employees of the
Company or any Subsidiary, and to service providers, the authority, subject to
such terms as the Committee shall determine, to perform administrative functions
with respect to the Plan and Award agreements.
(e) Members of the Committee and any officer or employee of the
Company or any Subsidiary acting at the direction of, or on behalf of, the
Committee shall not be personally liable for any action or determination taken
or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified by the Company with respect to any such
action or determination.
5. Eligibility. Individuals eligible to receive Awards under the Plan
-----------
shall be the directors, officers, other key employees and selected consultants
of the Company and its Subsidiaries selected by the Committee. In addition, all
Non-Employee Directors shall be eligible to receive Options as provided in
Section 9 hereof.
6. Awards. Awards under the Plan may consist of Options, stock awards or
------
other awards based on the value of the Common Stock. Awards shall be subject to
the terms and conditions of the Plan and shall be evidenced by an agreement
containing such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable.
7. Options. Options may be granted under the Plan in such form as the
-------
Committee may from time to time approve pursuant to terms set forth in an Option
agreement. The Committee may alter or waive, at any time, any term or condition
of an Option that is not mandatory under the Plan.
(a) Types of Options. Each Option agreement shall state whether or
----------------
not the Option will be treated as an Incentive Stock Option or Nonqualified
Stock Option. Incentive Stock Options shall only be granted to employees of the
Company and its Subsidiaries.
(b) Option Price. The purchase price per share of the Common Stock
------------
purchasable under an Option shall be determined by the Committee, but in the
case of Incentive Stock Options, the Option price will be not less than 100% of
the Fair Market Value of the Common Stock on the date of the grant of the Option
and in the case of Incentive Stock Options granted to an employee owning stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company and its Subsidiaries (a "10% Shareholder") the price per
share specified in the agreement relating
-5-
<PAGE>
to such Option shall not be less than 110% of the Fair Market Value per share of
the Common Stock on the date of grant.
(c) Option Period. The term of each Option shall be fixed by the
-------------
Committee, but no Option shall be exercisable after the expiration of 10 years
from the date the Option is granted, provided, however, that in the case of
-------- -------
Incentive Stock Options granted to 10% Shareholders, the term of such Option
shall not exceed 5 years from the date of grant.
(d) Exercisability. Each Option shall vest and become exercisable at a
--------------
rate determined by the Committee at or subsequent to grant.
(e) Method of Exercise. Options may be exercised, in whole or in
------------------
part, by giving written notice of exercise to the Company specifying the number
of shares of Common Stock to be purchased. Such notice shall be accompanied by
the payment in full of the Option purchase price. Such payment shall be made:
(a) in cash, or (b) to the extent authorized by the Committee, by surrender of
shares of Common Stock owned by the holder of the Option, or (c) through
simultaneous sale through a broker of shares acquired on exercise, as permitted
under Regulation T of the Federal Reserve Board, or (d) through additional
methods prescribed by the Committee, or (e) by a combination of any such
methods.
8. Stock Awards. Subject to such performance and employment conditions as
------------
the Committee may determine, awards of Common Stock or awards based on the value
of the Common Stock may be granted either alone or in addition to Options
granted under the Plan. Any Awards under this Section 8 and any Common Stock
covered by any such Award may be forfeited to the extent so provided in the
Award agreement, as determined by the Committee.
9. Non-Employee Director Stock Options.
-----------------------------------
(a) Initial Grant. Nonqualified Stock Options to purchase 30,000
-------------
shares of Common Stock shall be granted automatically to each Non-Employee
Director who is a Non-Employee Director on the day the Board approves the
adoption of the Plan. With respect to each person who becomes a Non-Employee
Director after such date, Nonqualified Stock Options to purchase 30,000 shares
of Common Stock shall be granted automatically to each such Non-Employee
Director on the day he or she first becomes a Non-Employee Director.
(b) Subsequent Options. In addition to the Nonqualified Stock Options
------------------
granted to Non-Employee Directors under Section 9(a), Nonqualified Stock Options
to purchase 10,000 shares of Common Stock shall be granted automatically to each
Non-Employee Director, effective on the third anniversary date
-6-
<PAGE>
on which such director was granted an Initial Option under Section 9(a) and on
each anniversary date thereafter; provided, however, he or she continues to
-------- -------
serve as a Non-Employee Director on such date.
(c) Option Price. The purchase price for each Option granted under
------------
this Section 9 to a Non-Employee Director shall be the Fair Market Value of the
Common Stock on the date of grant of the Option.
(d) Exercisability. Each Initial Option and Subsequent Option granted
--------------
under this Section 9 shall become exercisable and vest on the first anniversary
of the date of grant of such Option.
(e) Method of Exercise. Each Option granted under this Section 9 may
------------------
be exercised in the same manner as provided in Section 7(e).
(f) Option Period. Each Option granted under this Section 9 shall
-------------
terminate 10 years from the date of grant unless sooner terminated by reason of
termination of service as a director of the Company and its Subsidiaries.
(g) Termination of Director Status.
------------------------------
(i) In the event of termination of service as a director of the
Company and its Subsidiaries for any reason other than cause, death or
permanent disability (as determined by the Committee), an Option
granted under this Section 9 (to the extent exercisable as of the date
of termination) shall be exercisable for the remaining term of the
Option and shall thereafter terminate.
(ii) In the event of the death of a Non-Employee Director while
a director of the Company or any Subsidiaries, the Option (to the
extent exercisable as of the date of death), shall be exercisable by
any prior transferee or by the Non-Employee Director's designated
beneficiary, or if none, the person(s) to whom such Non-Employee
Director's rights under the Option are transferred by will or the laws
of descent and distribution for 180 days following the date of death
(but in no event beyond the term of the Option), and shall thereafter
terminate.
(iii) In the event of the termination of service as a director
of the Company and its Subsidiaries due to permanent disability (as
determined by the Committee), the Option (to the extent exercisable as
of the date of termination), shall be exercisable for 180 days
following such termination of service (but in no event beyond the term
of the Option), and shall thereafter terminate.
-7-
<PAGE>
(iv) In the event of the termination of service as a director of
the Company and its Subsidiaries for cause (as determined by the
Committee in its sole discretion), the Option shall terminate upon
such termination of status as director, regardless of whether the
Option was then exercisable.
(h) Except as expressly provided in this Section 9, any Option
granted to a Non-Employee Director hereunder shall be subject to the terms and
conditions of the Plan.
10. Change in Control. Upon the occurrence of a Change in Control,
-----------------
all Options shall automatically become vested and exercisable in full and all
restrictions or conditions, if any, on any stock awards granted hereunder shall
automatically lapse. The Committee may, in its discretion, include such further
provisions and limitations in any agreement documenting such Options as it may
deem equitable and in the best interests of the Company.
11. Forfeiture. Notwithstanding anything in the Plan to the
----------
contrary, the Committee may provide in any Award agreement that in the event of
a serious breach of conduct by the person granted such Award (including, without
limitation, any conduct prejudicial to or in conflict with the Company or its
Subsidiaries), or any activity of any such person in competition with any of the
businesses of the Company or any Subsidiary, (a) cancel any outstanding Award
granted to such person, in whole or in part, whether or not vested, and/or (b)
if such conduct or activity occurs within 1 year following the exercise or
payment of an Award, require such person to repay to the Company any gain
realized or payment received upon the exercise or payment of such Award (with
such gain or payment valued as of the date of exercise or payment). Such
cancellation or repayment obligation shall be effective as of the date specified
by the Committee. Any repayment obligation may be satisfied in Common Stock or
cash or a combination thereof (based upon the Fair Market Value of Common Stock
on the day prior to the date of payment), and the Committee may provide for an
offset to any future payments owed by the Company or any Subsidiary to such
person if necessary to satisfy the repayment obligation. The determination of
whether any such person has engaged in a serious breach of conduct or any
activity in competition with any of the businesses of the Company or any
Subsidiary shall be determined by the Committee in good faith and in its sole
discretion. This Section 11 shall have no application following a Change in
Control.
12. Withholding. The Company shall have the right to deduct from any
-----------
payment to be made pursuant to the Plan the amount of any taxes required by law
to be withheld therefrom, or to require a Participant to pay to the Company in
cash such amount required to be withheld prior to the issuance or delivery of
any shares of Common Stock or the payment of cash under the Plan. Such taxes
may be paid by (a) delivering previously owned shares of Common Stock or (b)
having the Company retain shares of Common Stock which would otherwise be
delivered upon exercise or payment of Awards
-8-
<PAGE>
or (c) any combination of a cash payment or the methods set forth in (a) and (b)
above. For purposes of (a) and (b) above, shares of Common Stock shall be valued
at Fair Market Value determined as of the day immediately prior to exercise or
payment. If and to the extent authorized by the Committee, the Company may, upon
election by a Participant, withhold from any distribution of Common Stock
hereunder shares of Common Stock with a Fair Market Value in excess of the
Participant's required withholding obligation.
13. Nontransferability, Beneficiaries. Unless otherwise determined
---------------------------------
by the Committee with respect to the transferability of Nonqualified Stock
Options by a Participant to his Immediate Family Members (or to trusts or
partnerships or limited liability companies established for such family
members), no Award shall be assignable or transferable by the Participant,
otherwise than by will or the laws of descent and distribution or pursuant to a
beneficiary designation, and Options shall be exercisable, during the
Participant's lifetime, only by the Participant (or by the Participant's legal
representatives in the event of the Participant's incapacity). Each Participant
may designate a beneficiary to exercise any Option held by the Participant at
the time of the Participant's death or to be assigned any other Award
outstanding at the time of the Participant's death. If no beneficiary has been
named by a deceased Participant, any Award held by the Participant at the time
of death shall be transferred as provided in his will or by the laws of descent
and distribution. Except in the case of the holder's incapacity, an Option may
only be exercised by the holder thereof.
14. No Right to Employment. Nothing contained in the Plan or in any
----------------------
Award under the Plan shall confer upon any employee any right with respect to
the continuation of employment with the Company or any of its Subsidiaries, or
interfere in any way with the right of the Company to terminate his or her
employment at any time. Nothing contained in the Plan shall confer upon any
employee or other person any claim or right to any Award under the Plan.
15. Governmental Compliance. Each Award under the Plan shall be
-----------------------
subject to the requirement that if at any time the Committee shall determine
that the listing, registration or qualification of any shares issuable or
deliverable thereunder upon any securities exchange or under any Federal or
state law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition thereof, or in connection therewith, no
such grant or award may be exercised or shares issued or delivered unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
16. Adjustments. In the event of any change in the outstanding
-----------
shares of Common Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spinoff, combination or exchange of
shares or other corporate change, or any distribution to holders of Common Stock
other than regular cash dividends, the number or kind of shares available for
Options and Awards under the Plan may be
-9-
<PAGE>
adjusted by the Committee as it shall in its sole discretion deem equitable and
the number and kind of shares subject to any outstanding Awards granted under
the Plan and the purchase price thereof may be adjusted by the Committee as it
shall in its sole discretion deem equitable to preserve the value of such
Awards.
17. Award Agreement. Each Award under the Plan shall be evidenced by
---------------
an agreement setting forth the terms and conditions, as determined by the
Committee, which shall apply to such Award, in addition to the terms and
conditions specified in the Plan.
18. Amendment. The Board may amend, suspend or terminate the Plan or
---------
any portion thereof at any time, provided that (a) except as provided in Section
16, no amendment shall be made that would adversely affect the rights of a
Participant under an Award theretofore granted, without such Participant's
written consent and (b) if and when the Plan is approved by the shareholders of
the Company, no amendment made after such approval shall be made without
shareholder approval if such approval is necessary to comply with any applicable
law, regulation or stock exchange rule.
19. General Provisions.
------------------
(a) The Committee may require each Participant purchasing or
acquiring shares pursuant to an Award under the Plan to represent to and agree
with the Company in writing that such Participant is acquiring the shares for
investment and without a view to distribution thereof.
(b) All certificates for shares of Common Stock delivered under
the Plan pursuant to any Award shall be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions. If the Committee determines that the issuance of shares of
Common Stock hereunder is not in compliance with, or subject to an exemption
from, any applicable Federal or state securities laws, such shares shall not be
issued until such time as the Committee determines that the issuance is
permissible.
(c) It is the intent of the Company that the Plan satisfy, and be
interpreted in a manner that satisfies, the applicable requirements of Rule 16b-
3 as promulgated under Section 16 of the Exchange Act so that Participants will
be entitled to the benefit of Rule 16b-3, or any other rule promulgated under
Section 16 of the Exchange Act, and will not be subject to short-swing liability
under Section 16. Accordingly, if the operation of any provision of the Plan
would conflict with the intent expressed in this Section 19(c), such provision
to the extent possible shall be interpreted and/or deemed amended so as to avoid
such conflict.
-10-
<PAGE>
(d) Except as otherwise provided by the Committee in the
applicable grant or Award agreement, a Participant shall have no rights as a
shareholder with respect to any shares of Common Stock subject to Options until
a certificate or certificates evidencing shares of Common Stock shall have been
issued to the Participant and, subject to Section 16, no adjustment shall be
made for dividends or distributions or other rights in respect of any share for
which the record date is prior to the date on which Participant shall become the
holder of record thereof.
(e) The law of the State of New Jersey shall apply to all Awards
and interpretations under the Plan regardless of the effect of such state's
conflict of laws principles.
(f) Where the context requires, words in any gender shall include
any other gender.
20. Term of Plan. Subject to earlier termination pursuant to Section
------------
18, the Plan shall have a term of 10 years from its Effective Date.
21. Effective Date. The Plan is effective as of July 24, 1997.
--------------
-11-
