<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
Exchange Act of 1934
For the quarter ended June 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from
Commission File Number 0-26138
DENDRITE INTERNATIONAL, INC.
(Exact name of registrant as specified in its Charter)
New Jersey 22-2786386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Mount Kemble Avenue
Morristown, NJ 07960
973-425-1200
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
<TABLE>
<CAPTION>
Class Shares Outstanding at August 3, 1998
------------------------------------------------------------
<S> <C>
Common Stock 11,488,037
</TABLE>
<PAGE> 2
DENDRITE INTERNATIONAL, INC
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE NO
-------
<S> <C>
Consolidated Statements of Operations
Three months and six months ended June 30, 1998 and 1997 3
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 15
Signatures 15
</TABLE>
2
<PAGE> 3
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
DENDRITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 4,299 $ 1,725 $ 7,270 $ 2,819
Services 24,028 16,342 43,684 31,890
------- ------- ------- -------
28,327 18,067 50,954 34,709
------- ------- ------- -------
Cost of revenues:
Cost of license fees 1,024 392 1,385 664
Cost of services 12,402 8,333 22,296 18,128
------- ------- ------- -------
13,426 8,725 23,681 18,792
------- ------- ------- -------
Gross margin 14,901 9,342 27,273 15,917
------- ------- ------- -------
Operating expenses:
Selling, general and administrative 9,962 7,636 18,421 14,010
Research and development 870 653 1,770 1,336
------- ------- ------- -------
10,832 8,289 20,191 15,346
------- ------- ------- -------
Operating income 4,069 1,053 7,082 571
Interest income 214 131 410 259
Other expense 45 95 365 152
------- ------- ------- -------
Income before income taxes 4,238 1,089 7,127 678
Income taxes 1,581 442 2,708 297
------- ------- ------- -------
Net income $ 2,657 $ 647 $ 4,419 $ 381
======= ======= ======= =======
Net income per share:
Basic $ 0.24 $ 0.06 $ 0.40 $ 0.03
======= ======= ======= =======
Diluted $ 0.22 $ 0.06 $ 0.37 $ 0.03
======= ======= ======= =======
Shares used in computing net income
per share:
Basic 11,209 11,071 11,187 11,148
======= ======= ======= =======
Diluted 12,151 11,368 12,048 11,400
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE> 4
DENDRITE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 15,671 $ 15,917
Short-term investments 3,723 2,955
Accounts receivable, net 30,853 24,724
Prepaid expenses and other 2,416 2,222
Deferred tax asset 441 441
-------- --------
Total current assets 53,104 46,259
Property and equipment, net 3,062 3,110
Deferred taxes 667 667
Goodwill, net 489 575
Capitalized software development costs, net 2,443 2,408
-------- --------
$ 59,765 $ 53,019
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,647 $ 2,211
Income taxes payable 978 867
Accrued compensation and benefits 3,219 3,439
Other accrued expenses 5,485 4,352
Deferred revenues 1,596 1,409
-------- --------
Total current liabilities 13,925 12,278
-------- --------
Deferred rent 503 598
-------- --------
Deferred taxes 1,970 1,970
-------- --------
Stockholders' Equity
Preferred Stock, no par value, 10,000,000 shares
authorized, none issued -- --
Common Stock, no par value, 50,000,000 shares
authorized, 11,420,945 and 11,329,774 shares issued
and 11,220,445 and 11,129,274 outstanding 33,965 32,814
Retained earnings 13,687 9,268
Deferred compensation (1,278) (1,141)
Cumulative translation adjustment (1,080) (841)
Less treasury stock, at cost (1,927) (1,927)
-------- --------
43,367 38,173
-------- --------
$ 59,765 $ 53,019
======== ========
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE> 5
DENDRITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 4,419 $ 381
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,398 810
Changes in assets and liabilities:
Increase in accounts receivable (6,354) (2,069)
Increase in prepaid expenses and other (225) (386)
Increase (decrease) in accounts payable and accrued expenses 1,522 (1,341)
Decrease in deferred rent (95) (107)
Increase (decrease) in income taxes payable 111 (451)
Increase in deferred revenues 213 136
-------- --------
Net cash provided by (used in) operating activities 989 (3,027)
-------- --------
Investing activities:
Purchases of short-term investments (2,558) (1,085)
Sale of short-term investments 1,790 6,370
Purchases of property and equipment (596) (587)
Additions to capitalized software development costs (698) (574)
-------- --------
Net cash provided by (used in) investing activities (2,062) 4,124
-------- --------
Financing activities:
Purchase of Treasury Stock -- (1,927)
Issuance of Common Stock 959 96
-------- --------
Net cash provided by (used in) financing activities 959 (1,831)
-------- --------
Effect of foreign exchange rate changes on cash (132) 327
-------- --------
Net decrease in cash and cash equivalents (246) (407)
Cash and cash equivalents, beginning of period 15,917 10,912
-------- --------
Cash and cash equivalents, end of period $ 15,671 $ 10,505
======== ========
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE> 6
DENDRITE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements of Dendrite International, Inc. and its
subsidiaries (collectively, the "Company") included herein are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the three and six month periods
ended June 30, 1998. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The interim operating results of the Company may not be indicative of
operating results for the full year.
2. Net Income Per Share
The Company has presented net income per share pursuant to Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," and the
Securities and Exchange Commission Staff Accounting Bulletin No. 98.
Basic income per share ("Basic EPS") was computed by dividing the net income
for each period by the weighted average number of shares of Common Stock
outstanding for each period. Diluted income per share ("Diluted EPS") was
computed by dividing net income for each period by the weighted average number
of shares of Common Stock and Common Stock equivalents outstanding during each
period. For the three months ended June 30, 1998 and 1997, Common Stock
equivalents used in computing Diluted EPS were 942,000 and 297,000,
respectively. For the six months ended June 30, 1998 and 1997, Common Stock
equivalents used in computing Diluted EPS were 861,000 and 252,000,
respectively.
3. Recently Adopted Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS No. 130 requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net income.
For the three and six months ended June 30, 1998 and 1997, the Company engaged
in numerous transactions involving foreign currency, which resulted in
unrealized gains and losses. Total after-tax comprehensive income for the
quarters ended June 30, 1998 and 1997 was $2.603 million and $594,000,
respectively. Total after-tax comprehensive income for the six months ended June
30, 1998 and 1997 was $4.271 million and $384,000, respectively.
4. Stock Split
On July 21, 1998, the Company's Board of Directors declared a two-for-one
common stock split. The stock split will be distributed in the form of a 100%
stock dividend to stockholders of record as of August 11, 1998. It is
anticipated that such dividend will be payable on August 21, 1998. Share and per
share information included in the accompanying consolidated financial statements
have not been restated to reflect the stock split.
5. Certain Reclassifications
During the three months ended June 30, 1998, the Company determined that costs
associated with certain activities that were previously classified as research
and development expense, should be classified as cost of services, as these
expenditures relate to client specific activities. For consistency of
presentation, prior periods have been reclassified. The reclassification for the
six months ended June 30, 1998 and 1997 was $1.399 million and $1.266 million,
respectively. The reclassification for the three months ended June 30, 1998 and
1997 was $714,000 and $679,000, respectively.
6
<PAGE> 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements
In addition to historical information, this Form 10-Q contains forward-looking
statements which are subject to risks and uncertainties that could cause actual
results to differ materially from those reflected in such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's opinion
only as of the date hereof. The Company undertakes no obligation to revise or
publicly release the results of any revision to these forward-looking
statements.
Overview
The Company succeeded in 1991 to a business co-founded in 1986 by the
Company's current Chairman, President and Chief Executive Officer to provide
comprehensive Electronic Territory Management ("ETM") solutions to be used to
manage, coordinate and control the activities of large sales forces in complex
selling environments, primarily in the ethical pharmaceutical industry. Today,
the Company's solutions combine advanced software products with a wide range of
specialized support services including implementation services, technical and
hardware support services and sales force support services. The Company
develops, implements and services advanced ETM systems in the United States,
Canada, Western Europe, Japan, Australia, New Zealand, Hong Kong and Brazil
through its own sales, support and technical personnel located in offices
worldwide.
The Company generates revenues from two sources: service and license fees.
Service revenues, which account for a substantial majority of the Company's
revenues, consist of fees from a wide variety of contracted services which the
Company makes available to its customers, generally under multi-year contracts.
Customization and implementation fees are generated from services provided to
modify and implement the ETM solution for the customer. Technical and hardware
support fees are derived from services related to the operation of the
customer's server computers and from the provision of ongoing technical and
customer service support including customization of the software following
initial implementation. Sales force support fees are derived from organizing and
managing support for the customer's sales force.
License fees are charged by the Company for use of its proprietary computer
software. Customers generally pay one-time perpetual license fees based upon the
number of users, territory covered and the number of modules in the particular
system licensed by the customer. The Company generally recognizes one-time
license fees as revenue using the percentage of completion method over a period
of time that commences with execution of the license agreement and concludes
with the completion of initial customization, if any. For license contracts that
contain customer acceptance provisions, revenue is not recognized until such
time as the acceptance provisions are satisfied. Certain license revenue relates
to software which the Company considers to be off-the-shelf. These revenues are
generally recognized upon delivery of the software. Additional license fees are
recognized when customers agree to license additional functions or enhancements,
acquire an upgraded version of the Company's software and/or when the maximum
number of users or initial geographic coverage is exceeded.
The United States, the United Kingdom, France and Japan are the Company's main
markets. Approximately 52% and 27% of the Company's total revenues were
generated outside the United States during the three month periods ended June
30, 1997 and 1998, respectively. Approximately 49% and 31% of the Company's
total revenues were generated outside the United States during the six month
periods ended June 30, 1997 and 1998, respectively. This decrease in the
percentage of revenues generated outside the United States was principally due
to very strong revenue growth in the United States Pharmaceutical and CPG
businesses, in addition to a modest revenue decline outside the United States,
concentrated in Europe. Services provided by Dendrite's foreign branches and
subsidiaries are billed in local currency. License fees for Dendrite products
are billed in U.S. dollars regardless of where they originate. Operating results
generated in local currencies are translated into United States dollars at the
average exchange rate in effect for the reporting period.
The efficient operation of the Company's business is dependent in part on
computer software programs and operating systems which it uses internally
(collectively, the "Internal Programs and Systems"). The Company has been
evaluating its Internal Programs and Systems to identify potential Year 2000
compliance problems. These actions are necessary to ensure that the Internal
Programs and Systems will be Year 2000 compliant. It is anticipated that
modification or replacement of some of the Internal Programs and Systems may be
necessary to make such Programs and Systems Year 2000 compliant. The Company is
also communicating with its suppliers and others to coordinate Year 2000
conversion.
Based on present information, the Company believes that it will be able to
achieve such Year 2000 compliance through a combination of modification of some
existing Internal Programs and Systems and the replacement of other Internal
Programs and Systems with new programs and systems that are already Year 2000
compliant. However, no assurance can be given that these efforts will be
successful. The Company expects that the expenses and capital expenditures
associated with achieving Year 2000 compliance will not have a material effect
on its financial results for the remainder of 1998 and 1999.
7
<PAGE> 8
Results of Operations
Three Months Ended June 30, 1997 and 1998
Revenues. Total revenues increased $10.260 million or 57% from $18.067 million
in the three months ended June 30, 1997 to $28.327 million in the three months
ended June 30, 1998.
License fee revenues increased 149% from $1.725 million in the three months
ended June 30, 1997 to $4.299 million in the three months ended June 30, 1998.
This increase was primarily attributable to continued strength in Japan, new
customer wins for the Company's Consumer Business Division and increased sales
of third party software.
Service revenues increased 47% from $16.342 million in the three months ended
June 30, 1997 to $24.028 million in the three months ended June 30, 1998. This
increase was primarily the result of an increase in the Company's installed base
of Dendrite ETM systems at both new and existing customers, the commencement of
major product rollouts, as well as the provision of additional services to the
Company's existing customers.
Cost of Revenues. Cost of revenues increased $4.701 million or 54% from $8.725
million in the three months ended June 30, 1997 to $13.426 million in the three
months ended June 30, 1998.
Cost of license fees increased 161% from $392,000 in the three months ended
June 30, 1997 to $1.024 million in the three months ended June 30, 1998. Cost of
license fees for the three months ended June 30, 1998 represents the
amortization of capitalized software development costs of $332,000 and third
party vendor license fees of $692,000. Cost of license fees for the three months
ended June 30, 1997 represents the amortization of capitalized software
development costs of $272,000 and third party license fees of $120,000.
Cost of services increased 49% from $8.333 million in the three months ended
June 30, 1997 to $12.402 million in the three months ended June 30, 1998. This
increase was primarily due to an increase in staff required to support higher
client activity including the use of higher cost consultants and contractors. As
a percentage of service revenues, cost of services increased from 51% of service
revenues in the three months ended June 30, 1997 to 52% in the three months
ended June 30, 1998. During the first quarter of 1997, there was a $307,000
misclassification of SG&A expense as cost of services, which was corrected in
the second quarter of 1997. If this $307,000 misclassification had not been
corrected in the second quarter, cost of services, as a percentage of service
revenues would have been 53% in the three months ended June 30, 1997.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased
30% from $7.636 million in the three months ended June 30, 1997 to $9.962
million in the three months ended June 30, 1998. This increase was primarily
attributable to increased staff required for sales and support operations. After
adjusting SG&A expenses by $307,000 for the misclassification that was corrected
during the three months ended June 30, 1997, SG&A expenses increased 36%. As a
percentage of revenue, SG&A expenses, after the correction for the
misclassification, decreased from 41% in three months ended June 30, 1997 to 35%
in the three months ended June 30, 1998, due to leveraging the fixed cost
elements in general and administrative expenses.
Research and Development Expenses. Research and development expenses increased
33% from $653,000 in the three months ended June 30, 1997 to $870,000 in the
three months ended June 30, 1998. As a percentage of revenues, research and
development expenses decreased from 4% in the three months ended June 30, 1997
to 3% in the three months ended June 30, 1998. The increase in research and
development expenses during the most recent period was primarily attributable to
increased spending on development of the Company's Consumer Packaged Goods
products, the continued development of Force MultiplieRx(TM) and the development
of the next generation pharmaceutical ETM system.
Provision for Income Taxes. The effective tax rate was reduced to 38%,
retroactive to the first quarter, during the three months ended June 30, 1998.
This decrease was due primarily to the implementation of tax minimization
strategies throughout the world.
8
<PAGE> 9
Six Months Ended June 30, 1997 and 1998
Revenues. Total revenues increased $16.245 million or 47% from $34.709 million
in the six months ended June 30, 1997 to $50.954 million in the six months ended
June 30, 1998.
License fee revenues increased 158% from $2.819 million in the six months
ended June 30, 1997 to $7.270 million in the six months ended June 30, 1998.
This increase was primarily attributable to the recognition of revenue related
to license fees from several significant customer implementations, new customer
wins for the Company's consumer business division and increased sales of third
party software.
Service revenues increased 37% from $31.890 million in the six months ended
June 30, 1997 to $43.684 million in the six months ended June 30, 1998. This
increase was primarily the result of an increase in the Company's installed base
of Dendrite ETM systems at both new and existing customers, the commencement of
major product rollouts, as well as the provision of additional services to the
Company's existing customers.
Cost of Revenues. Cost of revenues increased $4.889 million or 26% from
$18.792 million in the six months ended June 30, 1997 to $23.681 million in the
six months ended June 30, 1998.
Cost of license fees increased 109% from $664,000 in the six months ended June
30, 1997 to $1.385 million in the six months ended June 30, 1998. Cost of
license fees for the six months ended June 30, 1998 represents the amortization
of capitalized software development costs of $664,000 and third party vendor
license fees of $721,000. Cost of license fees for the six months ended June 30,
1997 represents the amortization of capitalized software development costs of
$544,000 and third party vendor license fees of $120,000.
Cost of services increased 23% from $18.128 million in the six months ended
June 30, 1997 to $22.296 million in the six months ended June 30, 1998. This
increase was primarily due to an increase in staff required to support higher
client activity including the use of higher cost consultants and contractors. As
a percentage of service revenues, cost of services decreased from 57% of service
revenues in the six months ended June 30, 1997 to 51% in the six months ended
June 30, 1998. This decrease was primarily the result of increased operational
efficiencies in 1998 as well as unusually high costs in the first quarter of
1997.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased
31% from $14.010 million in the six months ended June 30, 1997 to $18.421
million in the six months ended June 30, 1998. This increase is primarily
attributable to increased staff required for sales and support operations. As a
percentage of revenue, SG&A expenses decreased from 40% in six months ended June
30, 1997 to 36% in the six months ended June 30, 1998, due to leveraging the
fixed cost elements in general and administrative expenses.
Research and Development Expenses. Research and development expenses increased
32% from $1.336 million in the six months ended June 30, 1997 to $1.770 million
in the six months ended June 30, 1998. As a percentage of revenues, research and
development expenses remained relatively constant at 4%. The increase in
research and development expenses during the most recent period was primarily
attributable to increased spending on development of the Company's Consumer
Packaged Goods products, the continued development of Force MultiplieRx(TM) and
the development of the next generation pharmaceutical ETM system.
Other Expense. Other expense increased $213,000 from $152,000 in the six
months ended June 30, 1997 to $365,000 in the six months ended June 30, 1998.
This increase was primarily attributable to a one-time expense associated with
correcting administrative errors by the plan administrator in the Company's
401(k) plan that relates to the 1994 and 1995 plan years. These errors were
found in the first quarter of 1998, and the Company estimated the associated
costs during that period.
Provision for Income Taxes. Provision for Income Taxes. The effective tax rate
was reduced to 38% during the six months ended June 30, 1998. This decrease was
due primarily to the implementation of tax minimization strategies throughout
the world.
9
<PAGE> 10
Liquidity and Capital Resources
On January 16, 1997 the Board of Directors approved a stock buy-back program
initially limited to $3,000,000, which subject to further Board review and
approval could be increased to a maximum of $10,000,000, but not greater than 9%
of the Company's outstanding shares of Common Stock. During the six months ended
June 30, 1997, the Company repurchased 200,500 shares of Common Stock for a
total value of $1,927,000.
The Company has historically financed its operations primarily through cash
generated by operations. Net cash provided by operating activities was $989,000
for the six months ended June 30, 1998 compared to cash used in operating
activities of $3.027 million for the six months ended June 30, 1997. This
increase is due primarily to higher net income during the six months ended June
30, 1998. Accounts receivable grew in 1998 due to growth in the business , but
this was mostly offset by efficient liability management.
Cash used in investing was $2.062 million in the six months ended June 30,
1998 compared to cash obtained from investing of $4.124 million in the six
months ended June 30, 1997. This change was due primarily to the purchase of
short-term investments in the six months ended June 30, 1998 as opposed to the
sale of such investments in the six months ended June 30, 1997 as the Company
attempted to improve yields on its excess cash.
The Company obtained $959,000 of cash from financing activities in the six
months ended June 30, 1998 compared to the utilization of $1.831 million in cash
from financing activities in the six months ended June 30, 1997. The change in
the Company's cash provided from financing activities is due to open-market
purchases of its common stock during the six months ended June 30, 1997 and an
increase in the issuance of common stock primarily from the exercise of employee
stock options during the six months ended June 30, 1998.
The Company maintains a $5.0 million revolving line of credit agreement with
the Chase Manhattan Bank, N.A. The agreement provides for borrowing up to $1.0
million in local currencies directly by the Company or certain of its overseas
subsidiaries and is available to finance working capital needs and possible
future acquisitions. The $5.0 million line of credit is secured by substantially
all of the Company's assets. The $5.0 million line of credit agreement requires
the Company to maintain a minimum consolidated net worth, among other covenants,
measured quarterly, which is equal to the Company's net worth as of December 31,
1994 plus 50% of net income earned after December 31, 1994 and plus the net
proceeds of any stock offering. This covenant has the effect of limiting the
amount of cash dividends the Company may pay. At June 30, 1998, there were no
borrowings outstanding under the agreement.
At June 30, 1998, the Company's working capital was approximately $39.179
million. The Company has no significant capital spending or purchasing
commitments other than normal purchase commitments and commitments under
facility and capital leases.
Management regularly evaluates opportunities to acquire products or businesses
complementary to the Company's operations. Such acquisition opportunities, if
they arise, and are successfully completed, may involve the use of cash or
equity instruments.
Factors that May Affect Future Operating Results
Impact on Company of changes in ethical drug market. A majority of the
Company's ETM systems are currently used in connection with the marketing and
sale of prescription-only drugs ("ethical pharmaceutical products" or "ethical
drugs"). The market currently serviced by the Company is undergoing a number of
significant changes, including (i) consolidations and mergers which may reduce
the number of existing and potential customers of the Company, (ii) the
increasing prescription of generic drugs, in substitution for ethical drugs,
produced by manufacturers which do not use a Company ETM system, (iii) the trend
toward the reclassification of formerly prescription-only drugs to permit their
over-the-counter sale and (iv) competitive pressures on the Company's
pharmaceutical customers resulting from the increasing emphasis in the United
States on the delivery of healthcare through managed care organizations such as
health maintenance organizations and preferred provider organizations,
consolidation of the managed care industry in the United States and other
changes in healthcare delivery systems occurring in other countries. Any one or
more of these changes may adversely affect the Company's business, operating
results or financial condition. The Company may also be materially affected by
legislative enactments which alter the structure of, or increase regulations
governing, the healthcare systems in any of the countries where Company
customers and potential customers are located, including, without limitation,
government mandated price reductions in the price of ethical pharmaceutical
products. There can be no assurance that the Company can respond positively to
all of these and other changes in the marketplace and maintain profitability.
10
<PAGE> 11
Potential for significant fluctuations in quarterly results; seasonality;
lengthy sales and implementation cycle. The Company's quarterly revenues,
expenses and operating results have varied considerably in the past and are
likely to vary from quarter to quarter in the future. Fluctuations in the
Company's revenues depend on a number of factors, some of which are beyond the
Company's control. These factors include, among others, the timing of contracts,
delays in customer installation of the Company's software, the length of sales
cycles, customer budget changes and changes in pricing policy by the Company or
its competitors. For example, the Company incurred a net loss of $3.3 million in
the fourth quarter of 1996, which loss was attributable to, among other things,
the delay of certain new license purchases by an existing customer, the delay of
an existing client's upgrade decision, the postponement of certain
post-production implementations for an existing client in multiple country sites
and increased research and development spending.
The Company establishes its expenditure levels for product development and
other operating expenses based in large part on its expected future revenues. As
a result, should revenues fall below expectations, operating results are likely
to be adversely and disproportionately affected because only a small portion of
the Company's expenses vary with its revenues.
In addition, the Company's quarterly license fees and service revenues may
vary due to seasonal, cyclical and other factors. Selection of an ETM system
often entails an extended decision-making process for the customer because of
the substantial costs and strategic implications associated with acquiring the
system. Senior levels of management are often involved in this process, given
the importance of the decision as well as the risks faced by the customer should
a system fail or not perform as expected. Depending upon the size of the system
and the associated computer hardware and software costs, senior corporate
management or even the board of directors of a customer may make the final
decision to license a Company ETM system. Therefore, decisions to acquire a
Company ETM system involve long selling cycles, typically 12 to 18 months for
larger customers, although sometimes as long as 24 months, and usually require
lengthy periods of evaluation prior to full installation and roll-out. In
addition, the Company's ability to recognize license revenue is affected by the
duration of the customization process, if any. Finally, the Company has
historically realized a greater percentage of its annual license fees and
service revenues in the second half of the year than it does in the first half
because, among other things, the Company's customers typically spend more of
their annual budget authorization for ETM products and services in the second
half of the year. However, the interplay among the foregoing factors means that
actual results for a given year may vary from this seasonal expectation. In the
future, because service revenues tend to be less seasonal and cyclical than
license fees, to the extent the percentage of revenue from service revenues from
existing customers of the Company continues to increase, seasonal and cyclical
trends in the Company's revenues may change.
New products and technological change. The market for ETM systems is
characterized by rapid change and improvements in computer hardware and software
technology. The Company's future success will depend in part on its ability to
enhance its current products, to introduce new products that keep pace with
technological and market developments and to address the increasingly
sophisticated needs of its customers. While the Company expects to continue
doing so, there can be no assurance that the Company will be successful in
developing and marketing in a timely manner product enhancements or new products
that respond to the technological advances by others, or that its products will
adequately and competitively address the needs of the changing marketplace.
Competition with respect to software products has been characterized by
shortening product cycles, and there can be no assurance that the Company will
not be adversely affected by this trend. If the product cycles for the Company's
systems prove to be shorter than management anticipates, the Company's operating
results could be adversely affected. In addition, in order to remain
competitive, the Company may be required to expend a greater percentage of its
revenues on product innovation and development than historically has been the
case, in which case, the Company's gross profit margins and results of
operations could be materially and adversely affected. In addition, products as
complex as those offered by the Company may contain previously undetected errors
or failures. Such errors have occurred in the past and there can be no assurance
that, despite testing by the Company, errors will not be found in new products
resulting in losses or delays which could have a material adverse effect on the
Company's business, operating results or financial condition.
Dependence on major customers. The Company has approximately 30 pharmaceutical
customers (considering all members of an affiliated group to be a single
customer). The Company derived approximately 56%, 58% and 59% of its revenues in
the aggregate in the years ended December 31, 1995, 1996 and 1997, respectively,
from the three largest pharmaceutical customers, two of which had been among the
three largest customers of the Company in terms of revenues in each of those
periods. The Company believes that the costs to its customers of switching to an
ETM system offered by a competitor, or taking significant system management
functions in-house would be substantial. Nevertheless, from time to time in the
past, such a change has been made by some of the Company's customers with
respect to a Company ETM system or all or some of the services offered by the
Company. If such change is made by one or more of the Company's major customers,
the Company's business, operating results or financial condition could be
materially and adversely affected.
11
<PAGE> 12
Risks from competition. Globally, the current market for sales and marketing
information management systems of the type sold by the Company is highly
competitive. Many companies offer sales force automation and ETM systems. In
addition to Dendrite, the Company believes that there are several companies
which supply products automating sales, marketing and customer service functions
and specifically target the pharmaceutical industry. The Company believes at
least four of these companies are actively selling in more than one country. In
addition, the other vertical markets in which the Company markets its products
possess numerous vendors who market and sell sales force automation and ETM
systems. The Company believes that most of its competitors offer a variety of
less configurable software products, which are typically available more rapidly
than Company systems and often at a substantially lower price. In addition,
competition will increase as new competitors enter the market to supply ETM
systems and as existing competitors expand their product lines or consolidate.
The Company expects it may encounter additional competition in the future from
firms offering outsourcing of information technology services, from purveyors of
software products providing specialized applications not offered by the Company,
including enterprise resource planning vendors and database vendors not
currently in this market space to any substantial degree, and from the
development and/or operation of in-house systems by its customers and potential
customers. Many of the Company's competitors and potential competitors have
longer operating histories and significantly greater financial, technical,
sales, marketing and other resources than those of the Company. Some of the
Company's competitors and potential competitors are part of large corporate
groups with significantly greater resources and broader technology bases than
those of the Company. There can be no assurance that the Company will be able to
compete successfully or that competition will not have a material adverse effect
on the Company's business, operating results or financial condition.
Reliance on competitors for market data. Current market data on the sales of
ethical pharmaceutical products is an important element for the operation of
Company ETM systems, which the Company's customers use to guide and organize
their sales forces and marketing efforts. There are currently few sources of
such data in the United States, Europe and the Pacific Rim. Two of the leading
purveyors of such market information in the United States or elsewhere compete
with the Company either directly or through affiliates in the market for ETM
systems. Were these purveyors of market information to require that
pharmaceutical companies also utilize their ETM systems (or those of their
affiliates) instead of the Company's, the Company's business, operating results
and financial condition would be materially and adversely affected.
International operations. Currently, the Company expects the portion of its
business located outside of the United States to continue to account for a
material part of its revenues. Licensing software and providing services in many
foreign countries is subject to risks inherent in international business
activities. Risks include general economic conditions in each such country, the
effect of applicable foreign tax structures, tariff and trade regulations,
difficulties in obtaining local licenses, the difficulty of managing an
organization spread over various jurisdictions, unexpected changes in regulatory
environments, complying with a variety of foreign laws and regulations and any
adverse changes in the political environments in any such countries. In
addition, laws in foreign countries may not always provide protection for the
Company's proprietary rights in its software products. Providing specialized
system support services outside the United States paid for in local currencies
carries the additional risk of currency fluctuation and may also affect the net
income, if any, reported by the Company.
Dependence on key personnel, management of growth. The success of the Company
depends to a significant extent upon the contributions of its executive officers
and key sales, technical and customer service personnel. The Company's future
success also depends on its continuing ability to attract and retain highly
qualified technical and managerial personnel. Competition for such personnel is
intense. The Company has at times experienced difficulty in recruiting qualified
personnel and there can be no assurance that the Company will not experience
such difficulties in the future. Any such difficulties could adversely affect
the Company's business, operating results and financial condition. All of the
Company's executive officers and technical employees and a significant number of
sales employees have entered into non-competition agreements with the Company.
The laws governing such non-competition agreements vary in different
jurisdictions and are evolving. The enforceability of such agreements in any
case will depend upon all of the facts and circumstances, including the
jurisdiction in which enforcement is sought. In some cases these agreements
might be unenforceable, a result that could have a material adverse effect on
the Company.
To manage growth effectively, the Company must continue to strengthen its
operational, financial and management information systems, and expand, train and
manage its work force. There can be no assurance that the Company will be able
to do so on a timely basis. Failure to do so effectively and on a timely basis
could have a material adverse effect upon the Company's business, operating
results or financial condition.
12
<PAGE> 13
Dependence on proprietary technology. The Company relies on a combination of
trade secret, copyright and trademark laws, non-disclosure and other contractual
agreements, and technical measures to protect its proprietary rights in its
products. There can be no assurance that the steps taken by the Company will
prevent misappropriation of this technology. Further, there can be no assurance
that such protective steps will preclude competitors from developing products
with features similar to the Company's products. In addition, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries. The Company believes that its products and trademarks do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the future or that any such claims will not require the
Company to enter into royalty arrangements or result in costly litigation
involving the imposition of damages or injunctive relief against the Company,
any of which could materially and adversely affect the Company's business,
operating results and financial condition.
Year 2000. A substantial amount of current demand for applications software
may be generated by customers in the process of replacing and upgrading
applications in order to accommodate the change in date to the year 2000. Once
such customers have completed such activities, the Company may experience a
significant deceleration in this source of revenue which is expected to
contribute to its 1998 and 1999 annual growth. In addition, the expense and
time associated with remediation efforts by customers to address Year 2000
compliance problems for software products other than the Company's, may cause
such customers to delay the purchase of, or reduce the amount spent on the
Company's products and services. Such a reduction, if it occurs, could have a
material adverse effect on the Company's business, operating results or
financial condition.
Some of the Company's older products may not accurately process dates after
the date December 31, 1999. To the extent any of these products are still in use
in 1999, the Company will continue to attempt to migrate these customers to
products which are year 2000 compliant, although there can be no assurance that
this will occur. A failure to migrate any such customer to a product which is
Year 2000 compliant could adversely affect the Company's business, operating
results or financial condition. In addition, the Company may experience
increased expenses which it cannot recoup from customers in addressing the
migration of current and prospective customers to software that is Year 2000
compliant.
Some customers may attempt to hold the Company responsible for Year 2000
compliance for hardware or software not supplied or created by the Company, but
used in conjunction with one or more of the Company's products. The Company
intends to defend itself vigorously against any such allegation.
Finally, there can be no assurance that the Company will not incur material
expenses in connection with any claim relating to Year 2000 compliance of its
own products or others.
Consumer Business Division. The Company is currently engaged in the marketing
and selling of ETM systems to companies in the over-the-counter pharmaceutical
and consumer packaged goods vertical markets. The selling environment in this
vertical market has competitive and other characteristics that are unique to it.
In addition, the Company believes that the CPG vertical market is composed of
sub-markets each of which may have characteristics unique to such sub-market.
Accordingly, there can be no assurance that the Company will be able to achieve
in these markets the success it has attained in the ethical pharmaceutical
market.
13
<PAGE> 14
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 19, 1998, the Company held its 1998 Annual Meeting of Shareholders
(the "Annual Meeting"). At the Annual Meeting, the following five individuals
were elected to the Company's Board of Directors: John E. Bailye, Bernard M.
Goldsmith, Edward J. Kfoury, Paul A. Margolis and John H. Martinson. In
addition, at the Annual Meeting the shareholders of the Company approved the
following two proposals: (1) A proposal to ratify the appointment of Arthur
Andersen LLP as the Company's independent public accountants for the fiscal
year ending December 31, 1998 and (2) A proposal to approve the Company's 1997
Stock Incentive Plan. The results of the voting in the Company's election of
directors and on the foregoing two proposals are set forth below.
Election of Directors:
<TABLE>
<CAPTION>
Nominee For Withheld
-------------------- --------- --------
<S> <C> <C>
John E. Bailye....................... 6,616,013 11,804
Bernard M. Goldsmith................. 6,609,747 18,070
Edward J. Kfoury..................... 6,616,247 11,570
Paul A. Margolis..................... 6,616,247 11,570
John H. Martinson.................... 6,616,247 11,570
</TABLE>
Ratification of Appointment of Arthur Andersen LLP:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
6,616,117 11,500 200
</TABLE>
Approval of the Company's 1997 Stock Incentive Plan:
<TABLE>
<CAPTION>
For Against Abstain
--------- --------- -------
<S> <C> <C>
5,429,557 1,195,741 2,519
</TABLE>
Item 5. Other Information
On July 21, 1998, the Company's Board of Directors approved a 2-for-1 stock
split of the Company's common stock payable to holders of record of the common
stock as of August 11, 1998.
On July 21, 1998, the Company's Board of Directors approved the Dendrite
International, Inc. Deferred Compensation Plan.
In accordance with recently adopted regulations of the Securities and
Exchange Commission, proxies solicited by the Company's Board of Directors for
the Company's 1999 Annual Meeting of Shareholders may be voted by the named
proxies in their discretion regarding any shareholder proposal before such
meeting; provided that the Company did not have notice of such matter on or
--------
before March 16, 1999.
14
<PAGE> 15
ITEM 6. Exhibits and Reports on Form 8-K
(a) The Company is furnishing the following exhibits in connection with
this report:
10.1 Dendrite International Inc., Deferred
Compensation Plan
10.2 Dendrite International, Inc. Deferred
Compensation Plan Trust Agreement
27 Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K during the quarter
for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act OF 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1998
By:/s/ John E. Bailye
------------------------------------
John E. Bailye, President and
Chief Executive Officer
By: /s/ George T. Robson
------------------------------------
George T. Robson, Senior Vice President
and Chief Financial Officer
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
10.1 Dendrite International, Inc.
Deferred Compensation Plan
10.2 Dendrite International, Inc.
Deferred Compensation Plan
Trust Agreement
27 Financial Data Schedule
</TABLE>
15
<PAGE> 1
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Dendrite International, Inc.
Deferred Compensation Plan
----------------------------------------------------------------------------
<PAGE> 2
----------------------------------------------------------------------------
Dendrite International, Inc.
Deferred Compensation Plan
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purposes..................................................... 1
2. Definitions.................................................. 1
3. Administration............................................... 3
4. Participation................................................ 4
5. Deferrals.................................................... 4
6. Deferral Accounts............................................ 5
7. Settlement of Deferral Accounts.............................. 6
8. Provisions Relating to Section 162(m) of the Code............ 7
9. Statements................................................... 7
10. Amendment/Termination........................................ 7
11. General Provisions........................................... 7
12. Effective Date............................................... 9
</TABLE>
<PAGE> 3
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Dendrite International, Inc.
Deferred Compensation Plan
----------------------------------------------------------------------------
1. PURPOSES. The purposes of this Dendrite International, Inc. Deferred
Compensation Plan (the "Plan") are to provide certain highly compensated
employees of Dendrite International, Inc. (the "Company") and its subsidiaries
with the opportunity to elect to defer receipt of specified portions of
compensation and to have such deferred amounts treated as if invested in
specified investment vehicles.
2. DEFINITIONS. In addition to the terms defined in Section 1 above,
the following terms used in the Plan shall have the meanings set forth below:
(a) "Administrator" shall mean the Administration Committee
set forth in Section 3(b) to whom the Committee has delegated the authority to
take action under the Plan.
(b) "Beneficiary" shall mean any person (which may include
trusts and is not limited to one person) who has been designated by the
Participant in his or her most recent written beneficiary designation filed with
the Company to receive the benefits specified under the Plan in the event of the
Participant's death. If no beneficiary has been designated who survives the
participant's death, then Beneficiary means any person(s) entitled by will or,
in the absence thereof, the laws of descent and distribution to receive such
benefits.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "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)(s) 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
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
<PAGE> 4
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
(iv) the shareholders of the Company approve a plan
of complete liquidation or dissolution of the Company of 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
the 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.
- 2 -
<PAGE> 5
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended. References to any provision of the Code or regulation (including a
proposed regulation) thereunder shall include any successor provisions or
regulations.
(f) "Committee" shall mean the Compensation Committee of the
Board or any other directors of the Company designated as the Committee. Any
function of the Committee may be delegated to the Administrator.
(g) "Deferral Account" shall mean the account or subaccount
established and maintained by the Company for specified deferrals by a
Participant, as described in Sections 6 and 7. Deferral Accounts will be
maintained solely as bookkeeping entries by the Company to evidence unfunded
obligations of the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended. References to any provision of the Exchange Act or rule
thereunder shall include any successor provisions or rules.
(i) "Participant" shall mean any employee of the Company or
any subsidiary or a member of the Board thereof who is designated by the
Committee as an eligible Participant in the Plan and who participates or makes
an election to participate in the Plan.
(j) "Trust" shall mean any trust or trusts established by the
Company as part of the Plan; provided, however, that the assets of such trusts
shall remain subject to the claims of the general creditors of the Company.
(k) "Trustee" shall mean the trustee of a Trust.
(l) "Trust Agreement" shall mean the agreement entered into
between the Company and the Trustee to carry out the purposes of the Plan, as
amended or restated from time to time.
(m) "Valuation Date" shall mean the close of business on the
last business day of each calendar month.
3. ADMINISTRATION
(a) Authority. Both the Committee and the Administrator
(subject to the ability of the Committee to restrict the Administrator) shall
administer the Plan in accordance with its terms, and shall have all powers
necessary to accomplish such purpose, including the power and authority to
construe and interpret the Plan, to define the terms used herein, to prescribe,
amend and rescind rules and regulations, agreements, forms, and notices relating
to the administration of the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. Any actions of the
Committee or the Administrator with respect to the Plan shall be conclusive and
binding upon all persons interested in the Plan, except that any action of the
Administrator will not be binding on the Committee. The Committee and
Administrator may each appoint agents and delegate thereto powers and duties
under the Plan, except as otherwise limited by the Plan.
(b) Administrator. The Administration Committee shall consist
of such number of members as shall be determined by the Committee, each of whom
shall be
- 3 -
<PAGE> 6
appointed by, shall remain in office at the will of, and may be removed, with or
without cause, by the Committee. Any member of the Administration Committee may
resign at any time. No member of the Administration Committee shall be entitled
to act on or decide any matter relating solely to himself or herself or any of
his or her rights or benefits under the Plan. The members of the Administration
Committee shall not receive any special compensation for serving in their
capacities as members of the Administration Committee but shall be reimbursed
for any reasonable expenses incurred in connection therewith. No bond or other
security need be required of the Administration Committee or any member thereof
in any jurisdiction. The initial members of the Administration Committee are the
Company's Chief Executive Officer, Chief Operating Officer, General Counsel,
Vice President of Human Resources and Chief Financial Officer.
(c) Limitation of Liability. Each member of the Committee and
the Administrator shall be entitled to, in good faith, rely or act upon any
report or other information furnished to him or her by any officer or other
employee of the Company or any subsidiary, the Company's independent certified
public accountants, or any executive compensation consultant, legal counsel, or
other professional retained by the Company to assist in the administration of
the Plan. To the maximum extent permitted by law, no member of the Committee or
the Administrator, nor any person to whom ministerial duties have been
delegated, shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of the Plan.
4. PARTICIPATION. The Administrator will notify each person of his or
her participation or eligibility to participate in the Plan not later than 15
days (or such lesser period as may be practicable in the circumstances) prior to
any deadline for filing an election form.
5. DEFERRALS. To the extent authorized by the Committee, a Participant
may elect to defer compensation or awards in the form of cash or other property
to be received from the Company or a subsidiary, including annual base salary,
annual incentive compensation, or as otherwise designated by the Committee;
provided, however, that a Participant who is an employee of the Company or a
subsidiary may defer, with respect to a given year, receipt of only that portion
of the Participant's annual base salary, annual incentive compensation, exceeds
the amount necessary to satisfy Medicare and all other payroll taxes (other than
Federal, state or local income tax withholding) imposed on the wages of such
Participant from the Company and its subsidiaries. In addition to such
limitation, and any terms and conditions of deferral set forth under plans,
programs or arrangements from which receipt of compensation or awards is
deferred, the Committee may impose limitations on the amounts permitted to be
deferred and other terms and conditions on deferrals under the Plan. Any such
limitations, and other terms and conditions of deferral, shall be set forth in
the rules relating to the Plan or election forms, other forms, or instructions
published by the Committee and/or the Administrator.
(a) Elections. Once an election form, properly completed, is
received by the Company, the elections of the Participant shall be irrevocable;
provided, however, that the Committee and/or the Administrator may, in its
discretion, permit a Participant to elect a further deferral of amounts credited
to a Deferral Account by filing a later election form; provided, further, that,
unless otherwise approved by the Committee, any election to further defer
amounts credited to a Deferral Account must be made at least one (1) year prior
to the date such amounts would otherwise be payable. A second redeferral will be
permitted, but only if
- 4 -
<PAGE> 7
made at least one (1) year prior to the date that such amounts would otherwise
be payable and only if the second redeferral period ends at least two (2) years
beyond the original redeferral period.
(b) Date of Election. An election to defer compensation or
awards hereunder must be received by the Administrator prior to the date
specified by the Administrator. Under no circumstances may a Participant defer
compensation or awards to which the Participant has attained, at the time of
deferral, a legally enforceable right to current receipt of such compensation or
awards.
(c) Company Contributions. In addition to the deferrals
elected by Participants, the Company may choose at any time to make
discretionary Company contributions to the Deferral Accounts of Participants in
such amounts as it, in its sole discretion, wishes. Discretionary Company
contributions may be subject to a vesting schedule, if the Committee so
declares, except that any unvested Deferral Account balance will become fully
vested upon a Change in Control.
6. DEFERRAL ACCOUNTS.
(a) Establishment; Crediting of Amounts Deferred. One or more
Deferral Accounts will be established for each Participant, as determined by the
Administrator. The amount of compensation or awards deferred with respect to
each Deferral Account will be credited to such Account as of the date on which
such amounts would have been paid to the Participant but for the Participant's
election to defer receipt hereunder. The amounts of hypothetical income and
appreciation and depreciation in value of such account will be credited and
debited to, or otherwise reflected in, such Account from time to time. Unless
otherwise determined by the Administrator, amounts credited to a Deferral
Account shall be deemed invested in a hypothetical investment as of the date of
deferral.
(b) Hypothetical Investment Vehicles. Amounts credited to a
Deferral Account shall be deemed to be invested, at the Participant's direction,
in one or more investment vehicles as may be specified from time to time by the
Administrator. The Administrator may change or discontinue any hypothetical
investment vehicle available under the Plan in its discretion; provided,
however, that, subject to the authority of the Administrator to disregard the
directions of any Participant, each affected Participant is given the
opportunity, without limiting or otherwise impairing any other right of such
Participant regarding changes in investment directions, to redirect the
allocation of his or her Deferral Account deemed invested in the discontinued
investment vehicle among the other hypothetical investment vehicles, including
any replacement vehicle.
(c) Allocation and Reallocation of Hypothetical Investments. A
Participant may allocate amounts credited to his or her Deferral Account to one
or more of the hypothetical investment vehicles authorized under the Plan.
Subject to the rules established by the Administrator, a Participant may
reallocate amounts credited to his or her Deferral Account as of the Valuation
Date following the Participant's election to one or more of such hypothetical
investment vehicles, by filing with the Administrator a notice, in such form as
may be specified by the Administrator, not later than the 15th of the month
preceding such Valuation Date. The Committee or Administrator may, in its
discretion, restrict allocation into or reallocation by
- 5 -
<PAGE> 8
specified Participants into or out of specified investment vehicles or specify
minimum amounts that may be allocated or reallocated by Participants.
(d) Trusts. The Committee may, in its discretion, establish
one or more Trusts (including sub-accounts under such Trusts), and deposit
therein amounts of cash or other property not exceeding the amount of the
Company's obligations with respect to a Participant's Deferral Account
established under this Section 6. In such case, the amounts of hypothetical
income and appreciation and depreciation of in value of such Deferral Account
shall be equal to the actual income on, and appreciation and depreciation of,
the assets in such Trusts. Other provisions of this Section 6 notwithstanding,
the timing of allocations and reallocations of assets in such a Deferral
Account, and the investment vehicles available with respect to such Deferral
Account, may be varied to reflect the timing of actual investments of the assets
of such Trust and the actual investments available to such Trust.
7. SETTLEMENT OF DEFERRAL ACCOUNTS.
(a) Form of Payment. The Company shall settle a Participant's
Deferral Account, and discharge all of its obligations to pay deferred
compensation under the Plan with respect to such Deferral Account, by payment of
cash or, in the discretion of the Committee, by delivery of other assets having
a fair market value equal to the amount credited to the Deferral Account. Any
forfeited amounts will be held in the trust to offset future contributions and
directed by the Committee.
(b) Timing of Payments. Payments in settlement of a Deferral
Account shall be made as soon as practicable after the date or dates (including
upon the occurrence of specified events), and in such number of installments, as
may be directed by the Participant in his or her election relating to such
Deferral Account, except that in the event of termination of employment,
distribution of the Participant's Deferral Account will commence as soon as
practicable, in the form previously selected. If the total distribution to be
made is less than $25,000, then the form of distribution in all cases will be a
lump sum.
(c) Financial Emergency and Other Payments. Other provisions
of the Plan notwithstanding, if, upon the written application of a Participant,
the Administrator determines that the Participant has a financial emergency of
such a substantial nature and beyond the individual's control that payment of
amounts previously deferred under the Plan is warranted, the Committee may
direct the payment to the Participant of all or a portion of the balance of a
Deferral Account and the time and manner of such payment. Such withdrawals may
be made, upon approval of the Administrator, only for the following reasons: the
Participant's or dependent's illness or accident, casualty loss of the
Participant's property, or other similar circumstances. In addition, a
Participant may at any time request a distribution of some or all of his or her
Deferral Account (with a minimum distribution amount of $25,000) for any reason;
if such distribution is approved by the Committee, however, then ten percent
(10%) of the amount deducted from the Participant's Deferral Account will be
forfeited and not paid to the Participant, and the Participant may make no
further deferrals for the balance of that calendar year or the following
calendar year.
- 6 -
<PAGE> 9
8. PROVISIONS RELATING TO SECTION 162(m) OF THE CODE.
Compliance with Section 162(m) of the Code. It is the intent
of the Company that any compensation (including any award) deferred under the
Plan by a person who is, with respect to the year of payout, deemed by the
Committee to be a "covered employee" within the meaning of Section 162(m) of the
Code and regulations thereunder, which compensation constitutes "qualified
performance-based compensation" within the meaning of Section 162(m) of the Code
and regulations thereunder, shall not, as a result of deferral hereunder, become
compensation with respect to which the Company in fact would not be entitled to
a tax deduction under Section 162(m) of the Code. Accordingly, unless otherwise
determined by the Committee, if any compensation would become so disqualified
under Section 162(m) as a result of deferral hereunder, the terms of such
deferral shall be automatically modified to the extent necessary to ensure that
the compensation would not, at the time of payout, be so disqualified.
9. STATEMENTS. The Administrator will furnish statements to each
Participant reflecting the amount credited to a Participant's Deferral Accounts
and transactions therein not less frequently than once each calendar year.
10. AMENDMENT/TERMINATION. The Committee may, with prospective or
retroactive effect, amend, alter, suspend, discontinue, or terminate the Plan at
any time without the consent of Participants, stockholders, or any other person;
provided, however, that, without the consent of a Participant, no such action
shall materially and adversely affect the rights of such Participant with
respect to any rights to payment of amounts credited to such Participant's
Deferral Account. Notwithstanding the foregoing, the Committee may, in its sole
discretion, terminate the Plan (in whole or in part) and distribute to
Participants (in whole or in part) the amounts credited to their Deferral
Accounts.
11. GENERAL PROVISIONS.
(a) Limits on Transfer of Awards. Other than by will or the
laws of descent and distribution, no right, title or interest of any kind in the
Plan shall be transferable or assignable by a Participant or his or her
Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment,
attachment, levy, execution or other legal or equitable process, nor subject to
the debts, contracts, liabilities or engagements, or torts of any Participant or
his or her Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge,
garnish, attach or take any other action subject to legal or equitable process
or encumber or dispose of any interest in the Plan shall be void.
(b) Receipt and Release. Payments (in any form) to any
Participant or Beneficiary in accordance with the provisions of the Plan shall,
to the extent thereof, be in full satisfaction of all claims for the
compensation or awards deferred and relating to the Deferral Account to which
the payments relate against the Company or any subsidiary thereof, the
Committee, or the Administrator, and the Administrator may require such
Participant or Beneficiary, as a condition to such payments, to execute a
receipt and release to such effect.
(c) Unfunded Status of Awards: Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for deferred compensation and
Participants shall rely solely on the unsecured promise of the Company for
payment hereunder. With respect to any payment
- 7 -
<PAGE> 10
not yet made to a Participant under the Plan, nothing contained in the Plan
shall give a Participant any rights that are greater than those of a general
unsecured creditor of the Company; provided, however, that the Committee may
authorize the creation of Trusts, including but not limited to the Trusts
referred to in Sections 6 and 7 hereof, or make other arrangements to meet the
Company's obligations under the Plan, which Trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(d) Compliance. A Participant in the Plan shall have no right
to receive payment (in any form) with respect to his or her Deferral Account
until legal and contractual obligations of the Company relating to establishment
of the Plan and the making of such payments shall have been complied with in
full. In addition, the Company shall impose such restrictions on any interest
constituting a security as it may deem advisable in order to comply with the
Securities Act of 1933, as amended, the requirements of the New York Stock
Exchange or any other applicable stock exchange or automated quotation system,
any state securities laws applicable to such a transfer, any provision of the
Company's Certificate of Incorporation or Bylaws, or any other law, regulation,
or binding contract to which the Company is a party.
(e) Other Participant Rights. No provision of the Plan or
transaction hereunder shall confer upon any Participant any right to be employed
by the Company or a subsidiary thereof, or to interfere in any way with the
right of the Company or a subsidiary to increase or decrease the amount of any
compensation payable to such Participant. Subject to the limitations set forth
in Section 13(a) hereof, the Plan shall inure to the benefit of, and be binding
upon, the parties hereto and their successors and assigns.
(f) Tax Withholding. The Company and any subsidiary shall have
the right to deduct from amounts otherwise payable in settlement of a Deferral
Account any sums that federal, state, local or foreign tax law requires to be
withheld with respect to such payment.
(g) Governing Law. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of New Jersey, without giving effect to
principles of conflicts of laws, and applicable provisions of federal law.
(h) Limitation. A Participant and his or her Beneficiary shall
assume all risk in connection with any decrease in value of the Deferral Account
and neither the Company, the Committee nor the Administrator shall be liable or
responsible therefor.
(i) Construction. The captions and numbers preceding the
sections of the Plan are included solely as a matter of convenience of reference
and are not to be taken as limiting or extending the meaning of any of the terms
and provisions of the Plan. Whenever appropriate, words used in the singular
shall include the plural or the plural may be read as the singular.
(j) Severability. In the event that any provision of the Plan
shall be declared illegal or invalid for any reason, said illegality or
invalidity shall not affect the remaining provisions of the Plan but shall be
fully severable, and the Plan shall be construed and enforced as if said illegal
or invalid provision had never been inserted herein.
- 8 -
<PAGE> 11
(k) Status. The establishment and maintenance of, or
allocations and credits to, the Deferral Account of any Participant shall not
vest in any Participant any right, title or interest in and to any Plan assets
or benefits except at the time or times and upon the terms and conditions and to
the extent expressly set forth in the Plan and in accordance with the terms of
the Trust.
12. EFFECTIVE DATE. The Plan shall be effective as of September 1,
1998.
- 9 -
<PAGE> 1
DENDRITE INTERNATIONAL, INC.
DEFERRED COMPENSATION PLAN
TRUST AGREEMENT
This Agreement is made this 21st day of July, 1998, by and between Dendrite
International, Inc. (the "Company") and First American Trust Company (the
"Trustee").
WHEREAS, the Company has adopted the Dendrite International, Inc. Deferred
Compensation Plan; and
WHEREAS, the Company will incur liability under the terms of such Plan
with respect to the individuals participating in such Plan; and
WHEREAS, the Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the
claims of the Company's creditors in the event of the Company's Insolvency, as
herein defined, until paid to Plan participants and their beneficiaries in such
manner and at such times as specified in the Plan; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of
1974; and
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST
(a) The Company hereby deposits with the Trustee in trust certain assets,
which, together with future contributions and earnings, shall become the
principal of the Trust to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
<PAGE> 2
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes of Plan participants and general
creditors as herein set forth. Plan participants and their beneficiaries shall
have no preferred claim on, or any beneficial ownership interest in, any assets
of the Trust. Any rights created under the Plan and this Trust Agreement shall
be mere unsecured contractual rights of Plan participants and their
beneficiaries against the Company. Any assets held by the Trust will be subject
to the claims of the Company's general creditors under federal and state law in
the event of Insolvency, as defined in Section 3(a) herein.
(e) The Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement. Neither the Trustee nor any
Plan participant or beneficiary shall have any right to compel such additional
deposits.
SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES
(a) The Company shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment Schedule.
The Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plan and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by the Company.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Company or such party as it
shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) The Company may make payment of benefits directly to Plan participants
or their beneficiaries as they become due under the terms of the Plan. The
Company shall notify the Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan, the Company shall make the balance of each such payment as
it falls due. The Trustee shall notify the Company where principal and earnings
are not sufficient.
2
<PAGE> 3
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARIES WHEN THE COMPANY IS INSOLVENT
(a) The Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii) the Company is subject
to a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent,
the Trustee shall determine whether the Company is Insolvent and, pending
such determination, the Trustee shall discontinue payment of benefits to
Plan participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to
be a creditor alleging that the Company is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent. The Trustee may
in all events rely on such evidence concerning the Company's solvency as
may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Company's
solvency.
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or
their beneficiaries and shall hold the assets of the Trust for the benefit
of the Company's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan participants or their beneficiaries
to pursue their rights as general creditors of the Company with respect to
benefits due under the Plan or otherwise.
(4) The Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined that the Company is
not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the
3
<PAGE> 4
terms of the Plan for the period of such discontinuance, less the aggregate
amount of any payments made to Plan participants or their beneficiaries by the
Company in lieu of the payments provided for hereunder during any such period
of discontinuance.
SECTION 4. PAYMENTS TO THE COMPANY
Except as provided in Section 3 hereof, the Company shall have no right or
power to direct the Trustee to return to the Company or to divert to others any
of the Trust assets before all payment of benefits have been made to Plan
participants and their beneficiaries pursuant to the terms of the Plan.
SECTION 5. INVESTMENT AUTHORITY
The Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by the Company. All rights associated with assets
of the Trust shall be exercised by the Trustee or the person designated by the
Trustee, and shall in no event be exercisable by or rest with Plan participants.
The Company shall have the right at anytime, and from time to time in its
sole discretion, to substitute assets of equal fair market value for any asset
held by the Trust. This right is exercisable by the Company in a nonfiduciary
capacity without the approval or consent of any person in a fiduciary capacity.
SECTION 6. DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY THE TRUSTEE
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 30 days following the close of each calendar
year and within 30 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
4
<PAGE> 5
SECTION 8. RESPONSIBILITY OF THE TRUSTEE
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant
to a direction, request or approval given by the Company which is contemplated
by, and in conformity with, the terms of the Plan or this Trust and is given in
writing by the Company. In the event of a dispute between the Company and a
party, the Trustee may apply to a court of competent jurisdiction to resolve
the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE
The Company shall pay all administrative and the Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
5
<PAGE> 6
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless the
Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company without advance notice.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 7 days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) and (b) of this section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR
(a) If the Trustee resigns or is removed in accordance with Section
10(a) or (b) hereof, the Company may appoint any third party, such as a bank
trust department or other party that may be granted corporate the Trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The appointment shall be effective when accepted in writing by the
new Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by the Company or the
successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for,
and the Company shall indemnify and defend the successor Trustee from, any claim
or liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes successor
Trustee.
SECTION 12. AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plan.
6
<PAGE> 7
Upon termination of the Trust any assets remaining in the Trust shall be
returned to the Company.
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, the Company may
terminate this Trust prior to the time all benefit payments under the Plan have
been made. All assets in the Trust at termination shall be returned to the
Company.
SECTION 13. MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of New Jersey, except to the extent that federal law controls.
SECTION 14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be September 1, 1998.
DENDRITE INTERNATIONAL, INC.,
AS GRANTOR
/s/ Christopher J. French
---------------------------------------
By: Christopher J. French
Vice President, General Counsel
FIRST AMERICAN TRUST COMPANY,
AS TRUSTEE
/s/ Denise C. Mehus
---------------------------------------
By: Denise C. Mehus
Vice President
7
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,671
<SECURITIES> 3,723
<RECEIVABLES> 30,853
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<PP&E> 7,657
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0
0
<COMMON> 33,965
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<TOTAL-LIABILITY-AND-EQUITY> 59,765
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