<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1999
REGISTRATION NO. 333-71337
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DENDRITE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW JERSEY 22-2786386
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
1200 MT. KEMBLE AVENUE
MORRISTOWN, NEW JERSEY 07960-6797
(973) 425-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHRISTOPHER J. FRENCH
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
1200 MT. KEMBLE AVENUE
MORRISTOWN, NEW JERSEY 07960
(973) 425-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT S. RISOLEO KEITH F. HIGGINS
SULLIVAN & CROMWELL ROPES & GRAY
125 BROAD STREET ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10004 BOSTON, MASSACHUSETTS 02110
(212) 558-4000 (617) 951-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be registered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion. Dated March 26, 1999.
3,250,000 Shares
[LOGO]
DENDRITE INTERNATIONAL, INC.
Common Stock
----------------------
Dendrite International, Inc. is offering 2,750,000 of the shares to be sold
in the offering. The selling stockholders identified in this prospectus are
offering an additional 500,000 shares. Dendrite will not receive any of the
proceeds from the sale of the shares being sold by the selling stockholders.
The common stock is quoted on the Nasdaq National Market under the symbol
"DRTE". The last reported sale price of the common stock on March 23, 1999 was
$20.75 per share.
See "Risk Factors" beginning on page 5 to read about certain factors you
should consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- ------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Dendrite...................... $ $
Proceeds, before expenses, to the selling stockholders...... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 487,500 shares from the selling stockholders at the initial public
offering price less the underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
----------------------
Prospectus dated , 1999.
<PAGE> 3
[DESCRIPTION OF GRAPHICS]
Dendrite(R), [logo](R), ForceAnalyzeRx(TM), ForceCompanion(TM),
ForceMultiplieRx(TM), ForceOne(R), ForcePharma(TM), J6(TM), J Force(TM),
NOMAD'S(TM), SalesPlus(TM), Series 4(TM), Series 5(TM) and Series 6(TM) are
either trademarks or registered trademarks of Dendrite International, Inc. All
other servicemarks, trademarks and trade names referred to in this prospectus
are the property of their respective owners.
1
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the other information
in this prospectus, including the more detailed information regarding our
company and the common stock being sold in this offering and our consolidated
financial statements and related notes. Unless otherwise indicated, we have
adjusted all share and per share data in this prospectus to reflect a
two-for-one stock split of the common stock. The stock split became effective on
August 21, 1998.
DENDRITE INTERNATIONAL, INC.
We are a leading worldwide supplier of a comprehensive range of sales force
software products and support services to the pharmaceutical industry. We also
supply our solutions to manufacturers of consumer packaged goods, which are
branded, non-durable goods used by individual consumers. Our sales force
effectiveness solutions are designed to help our customers increase sales and
improve the profitability of their operations by allowing them to:
- - improve their use of sales, customer and market information; and
- - manage, coordinate and control their sales activities more efficiently in
complex selling environments.
Historically, we have focused our solutions on large sales forces within
the prescription-only pharmaceutical industry. We believe that our extensive
knowledge of the complex and unique selling processes in this industry and our
demonstrated ability to meet our customers' business needs have made Dendrite
the world's largest supplier of sales force effectiveness solutions to the
prescription-only pharmaceutical industry, based on the number of licensed
users.
Our pharmaceutical customers include:
Eli Lilly; Johnson & Johnson; Kissei; Parke-Davis; Pfizer; SmithKline Beecham;
and Takeda. Our customers in the consumer packaged goods market include:
Bacardi-Martini; Gillette; and Rayovac.
The software products we currently offer include:
- - FORCEPHARMA. ForcePharma is our new sales force software product targeted at
large, multinational pharmaceutical companies. ForcePharma is designed to
increase sales force productivity by reducing the time and money our customers
spend managing their sales forces and by increasing their ability to respond
rapidly to market changes.
- - SALESPLUS. SalesPlus is our sales force software product targeted at
mid-range pharmaceutical companies that do not require all the features and
flexibility of ForcePharma.
- - FORCEONE. ForceOne is our sales force software product designed for
manufacturers of consumer packaged goods.
- - FORCEANALYZERX AND FORCEMULTIPLIERX. These software products allow users to
analyze data, such as prescription trends, and produce reports based on the
results of these analyses. These products also provide customers with timely
information that they can use in developing sales strategies.
Most of our revenues come from a broad range of services that enable our
customers to maximize the effectiveness of their Dendrite software products.
These services include software implementation, technical and hardware support
and sales force support. We typically provide these services under multi-year
agreements. For the years ended December 31, 1996, 1997 and 1998, services
represented approximately 87%, 90% and 89% of our total revenues.
Our business strategy is to use our leading software products and
international operations to satisfy both the local and global needs of our
customers. Key elements of this strategy are to:
- - STRENGTHEN OUR EXISTING CUSTOMER RELATIONSHIPS. We have a substantial
customer base among major multinational
2
<PAGE> 5
pharmaceutical companies. We constantly seek to expand our relationships with
customers by increasing their use of our existing products and services,
developing new products and services and broadening these relationships to
include additional affiliates of our customers.
- - ENHANCE OUR GLOBAL LEADERSHIP. We intend to capitalize on the trend among
companies to select one global provider of sales force software products and
services, rather than multiple vendors. We believe that our product design and
scope, our network of 13 offices worldwide and our experience in implementing
these solutions in over 15 countries will allow us to capitalize on this
trend.
- - UTILIZE NEW TECHNOLOGIES TO IMPROVE OUR SALES FORCE SOFTWARE PRODUCTS. Our
current software products take advantage of recent technological advancements,
such as multi-tier architectures, relational database management systems,
built-in configuration tools and application development software. We intend
to continue to improve our software products by developing product
enhancements as new technologies become available.
Our executive offices are located at 1200 Mt. Kemble Avenue, Morristown,
N.J. 07960-6797. Our telephone number is (973) 425-1200.
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by the selling stockholders named in this prospectus to purchase
additional shares in the offering.
<TABLE>
<S> <C>
Shares offered by Dendrite.................................. 2,750,000 shares
Shares offered by the selling stockholders.................. 500,000 shares
Shares outstanding after the offering....................... 25,706,497 shares
Nasdaq National Market symbol............................... "DRTE"
Use of Proceeds............................................. For working capital
and other general
corporate purposes.
</TABLE>
The number of shares outstanding after the offering is based on shares
outstanding as of December 31, 1998 and excludes:
- - 3,786,700 shares that may be issued upon exercise of outstanding options that
have a weighted average exercise price of $10.11 per share; and
- - 268,127 shares reserved for future grants under our stock incentive and stock
purchase plans.
See Note 6 of "Notes to Consolidated Financial Statements" for more information
about our stock option and other stock-based plans.
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<PAGE> 6
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated selected financial data for each of the five fiscal years
in the period ended December 31, 1998 are derived from our consolidated
financial statements which have been audited and reported upon by Arthur
Andersen LLP, independent public accountants. You should read the selected
consolidated financial data below together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes and other financial information included
elsewhere in this prospectus and the documents incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees.............................................. $ 6,917 $ 6,042 $ 8,774 $ 7,707 $ 12,827
Services.................................................. 32,509 48,080 57,472 70,739 99,691
------- ------- ------- ------- --------
39,426 54,122 66,246 78,446 112,518
Costs of revenues:
Cost of license fees...................................... 1,450 712 832 1,758 2,314
Cost of services.......................................... 15,652 22,714 31,544 36,894 47,558
------- ------- ------- ------- --------
17,102 23,426 32,376 38,652 49,872
------- ------- ------- ------- --------
Gross margin.............................................. 22,324 30,696 33,870 39,794 62,646
Operating expenses:
Selling, general and administrative....................... 16,392 21,252 26,440 29,905 39,853
Research and development.................................. 1,703 2,274 6,834 2,676 3,687
Write-off of in-process research and development.......... -- -- 2,640 -- 1,230
------- ------- ------- ------- --------
18,095 23,526 35,914 32,581 44,770
------- ------- ------- ------- --------
Operating income (loss)................................... 4,229 7,170 (2,044) 7,213 17,876
Interest income............................................. 37 544 1,167 529 1,090
Other expense............................................... (361) (33) (391) (201) (317)
------- ------- ------- ------- --------
Income (loss) before income taxes......................... 3,905 7,681 (1,268) 7,541 18,649
Income taxes................................................ 1,578 2,987 644 2,931 7,382
------- ------- ------- ------- --------
Net income (loss)........................................... $ 2,327 $ 4,694 $(1,912) $ 4,610 $ 11,267
======= ======= ======= ======= ========
Net income (loss) per share:
Basic..................................................... $ 0.34 $ 0.33 $ (0.09) $ 0.21 $ 0.50
======= ======= ======= ======= ========
Diluted................................................... $ 0.12 $ 0.23 $ (0.09) $ 0.20 $ 0.46
======= ======= ======= ======= ========
Shares used in computing net income (loss) per share:
Basic..................................................... 6,810 14,202 22,112 22,262 22,580
======= ======= ======= ======= ========
Diluted................................................... 18,666 20,762 22,112 23,036 24,623
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1998
------------------------------------- -------------------------
1994 1995 1996 1997 ACTUAL AS ADJUSTED
------- ------- ------- ------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 5,008 $28,655 $30,432 $33,981 $47,963 $101,480
Total assets................................................ 20,480 45,267 49,215 53,019 74,815 128,332
Capital lease obligations, less current portion............. 33 -- -- -- 355 355
Redeemable Series A convertible preferred stock............. 6,976 -- -- -- -- --
Stockholders' equity........................................ 1,695 32,310 35,176 38,173 56,670 110,187
</TABLE>
The balance sheet data, as adjusted, gives effect to our sale of 2,750,000
shares of common stock, at an assumed initial offering price of $20.75 per share
and after deducting the underwriting discount and estimated offering expenses
that we will pay. See "Use of Proceeds" and "Capitalization".
4
<PAGE> 7
RISK FACTORS
OUR BUSINESS IS HEAVILY DEPENDENT ON THE PHARMACEUTICAL INDUSTRY
Most of our sales force software products and services, also referred to as
sales force effectiveness or SFE solutions, are currently used in connection
with the marketing and sale of prescription-only drugs. This market is
undergoing a number of significant changes. These include:
- - consolidations and mergers which may reduce the number of our existing and
potential customers;
- - reclassification of formerly prescription-only drugs to permit their
over-the-counter sale;
- - competitive pressures on our pharmaceutical customers resulting from the
continuing shift to delivery of healthcare through managed care organizations;
and
- - changes in law, such as government mandated price reductions for prescription-
only drugs, that affect the healthcare systems in the countries where our
customers and potential customers are located.
We cannot assure you that we can respond effectively to any or all of these
and other changes in the marketplace. Our failure to do so could have a material
adverse effect on our business, operating results or financial condition. See
"Business -- Industry Overview" for a discussion of the pharmaceutical industry
sales environment.
OUR QUARTERLY RESULTS OF OPERATIONS MAY FLUCTUATE SIGNIFICANTLY AND MAY NOT MEET
MARKET EXPECTATIONS
Our results of operations may vary from quarter to quarter due to lengthy
sales and implementation cycles for our products, our fixed expenses in relation
to our fluctuating revenues and variations in our customers' budget cycles, each
of which is discussed below. As a result, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. It is possible that in some future period our results of
operations may be below the expectations of the public market analysts and
investors. If this happens, the price of our common stock may decline. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our quarterly operating results.
OUR LENGTHY SALES AND IMPLEMENTATION CYCLES MAKE IT DIFFICULT TO PREDICT OUR
QUARTERLY REVENUES
The selection of a sales force software product often entails an extended
decision-making process because of the strategic implications and substantial
costs associated with a customer's license of the software. Given the importance
of the decision, senior levels of management often are involved and, in some
instances, the board of directors may be involved in this process. As a result,
the decision-making process typically takes nine to twelve months, although in
some cases it may take even longer. Accordingly, we cannot control or predict
the timing of our execution of contracts with customers.
In addition, an implementation process of three to six months is customary
before the software is rolled out to a customer's sales force. However, if a
customer were to delay or extend its implementation process, our quarterly
revenues may decline below expected levels and could adversely affect our
results of operations.
OUR FIXED COSTS MAY LEAD TO FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS IF
REVENUES FALL BELOW EXPECTATIONS
We establish our expenditure levels for product development, sales and
marketing and some of our other operating expenses based in large part on our
expected future revenues and anticipated competitive conditions. In particular,
we frequently add staff in advance of new business to permit adequate time for
training. If the new business is subsequently delayed or canceled, we will have
incurred expenses without the associated revenue. In addition, we may increase
sales and marketing
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<PAGE> 8
expenses if competitive pressures become greater than we currently anticipate.
Since only a small portion of our expenses varies directly with our actual
revenues, our operating results and profitability are likely to be adversely and
disproportionately affected if our revenues fall below expectations.
OUR BUSINESS IS AFFECTED BY VARIATIONS IN OUR CUSTOMERS' BUDGET CYCLES
We have historically realized a greater percentage of our license fees and
service revenues in the second half of the year than in the first half because,
among other things, our customers typically spend more of their annual budget
authorization for SFE solutions in the second half of the year. However, the
relationship between the amounts spent in the first and second halves of a year
may vary from year to year and from customer to customer. In addition, changes
in our customers' budget authorizations may reduce the amount of revenues we
receive from the license of additional software or the provision of additional
services. As a result, our operating results could be adversely affected.
WE DEPEND ON A FEW MAJOR CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES
We derive a significant portion of our revenues from a limited number of
customers (considering all affiliates of each customer as part of that
customer). Approximately 56% of our total revenues in 1998 came from Pfizer,
Johnson & Johnson and Parke-Davis. Approximately 59% of our total revenues in
1997 came from Pfizer, Johnson & Johnson and Rhone-Poulenc Rorer. Approximately
58% of our total revenues in 1996 came from Pfizer, Eli Lilly and Rhone-Poulenc
Rorer. We believe that the costs to our customers of switching to a competitor's
software product, or of taking significant system management functions in-house,
are substantial. Nevertheless, some of our customers have switched, and in the
future other customers may switch, to software products and/or services offered
by our competitors. If any of our major customers were to make such a change,
our business, operating results or financial condition would be materially and
adversely affected.
WE MAY BE UNABLE TO SUCCESSFULLY INTRODUCE NEW PRODUCTS OR RESPOND TO
TECHNOLOGICAL CHANGE
The market for sales force software products changes rapidly because of
frequent improvements in computer hardware and software technology. Our future
success will depend, in part, on our ability to:
- - use available technologies and data sources to develop new products and
services and to enhance our current products and services;
- - introduce new solutions that keep pace with developments in our target
markets; and
- - address the changing and increasingly sophisticated needs of our customers.
We cannot assure you that we will successfully develop and market new
products or product enhancements that respond to technological advances in the
marketplace, or that we will do so in a timely fashion. We also cannot assure
you that our products will adequately and competitively address the needs of the
changing marketplace.
Competition for software products has been characterized by shortening
product cycles. We may be materially and adversely affected by this trend if the
product cycles for our products prove to be shorter than we anticipate. If that
happens, our business, operating results or financial condition could be
adversely affected.
To remain competitive, we also may have to spend more of our revenues on
product research and development than we have in the past. As a result, our
results of operations could be materially and adversely affected.
Further, our software products are technologically complex and may contain
previously undetected errors or failures. Such errors have occurred in the past
and we cannot assure you that, despite our testing, our new products will be
free from errors. Errors that result in losses or delays could have a material
adverse effect on our business, operating results or financial condition.
6
<PAGE> 9
WE ARE EXPOSED TO RISKS ASSOCIATED WITH THE YEAR 2000 -- YEAR 2000 READINESS
DISCLOSURE
DEMAND FOR OUR SOFTWARE PRODUCTS AND SERVICES MAY DECLINE BEFORE AND AFTER THE
YEAR 2000
A substantial amount of demand for our software may come from customers in
the process of replacing and upgrading software applications to accommodate the
change in date to the Year 2000. This demand has contributed to our 1998 sales
growth and we expect it to contribute to our 1999 sales growth. Once customers
have completed these activities, we may experience a deceleration in revenue
growth. In addition, the expense and time associated with remediation efforts by
customers to address Year 2000 compliance problems for software products other
than ours may cause our customers to delay the purchase of, or reduce the amount
they spend on, our products and services, both before and after January 1, 2000.
Such reductions could have a material adverse effect on our business, operating
results or financial condition.
OUR YEAR 2000 REMEDIATION EFFORTS MAY NOT BE SUCCESSFUL
As part of our Year 2000 compliance plan, we have assessed the readiness of
our internal computer software programs and operating systems. We believe our
programs and systems will be substantially Year 2000 compliant by the end of the
second quarter of 1999. However, if additional defects, including defects in
hardware, are identified or if necessary modifications and conversions are not
made, or are not completed in a timely manner, the Year 2000 problem could have
a material adverse effect on our business, operating results or financial
condition.
WE MAY INCUR MATERIAL EXPENSES IN CONNECTION WITH ANY CLAIM RELATING TO YEAR
2000 COMPLIANCE OF OUR OWN PRODUCTS OR THE PRODUCTS OF THIRD PARTIES
We believe most of the sales force software products that we currently
offer to our customers, prior to any customization, are Year 2000 compliant. We
cannot assure you, however, that our current products do not contain undetected
errors or defects associated with Year 2000 date functionality that may result
in material costs to us.
Some of our older products will not, and some may not, accurately process
dates after December 31, 1999. To the extent any of these products are still in
use in 1999, we will continue to attempt to migrate our customers to products
that are Year 2000 compliant. We cannot assure you that this will occur. A
failure to migrate any customer to a product that is Year 2000 compliant could
adversely affect our business, operating results or financial condition. We may
also experience increased expenses which we cannot recoup from current customers
in addressing their migration to software that is Year 2000 compliant. We may
also incur additional expenses associated with remediating software products of
our current customers.
In addition, some of our customers may attempt to hold us responsible for
Year 2000 compliance of hardware or software not supplied or created by us, but
used in conjunction with one or more of our products. For example, our
customers' computer hardware and software, with which our software must
interface, may not properly handle date information after the Year 2000 without
error or interruption.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Readiness Disclosure" for detailed
information on our state of readiness, potential risks and contingency plans
regarding the Year 2000 issue.
INCREASED COMPETITION MAY RESULT IN PRICE REDUCTIONS AND DECREASED DEMAND FOR
OUR PRODUCTS AND SERVICES
We believe there are approximately ten other companies that sell sales
force software products and specifically target the pharmaceutical industry,
including:
- - four competitors that are actively selling sales force software products in
more than one country; and
- - three competitors that also offer sales force support services.
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<PAGE> 10
We believe that most of our competitors offer sales force software products
and/or services that do not address the variety of customer needs that our
solutions address. However, these competing solutions may cost less than our
solutions. We also face competition from many vendors that market and sell sales
force automation and SFE solutions in the consumer packaged goods or CPG market.
In addition, we also compete with various companies that provide support
services similar to our services. We believe our ability to compete depends on
many factors, some of which are beyond our control, including:
- - the number and success of new market entrants supplying competing sales force
products or support services;
- - expansion of product lines by, or consolidation among, our existing
competitors; and
- - development and/or operation of in-house sales force software products or
services by our customers and potential customers.
Some of our competitors and potential competitors are part of large
corporate groups and have longer operating histories and significantly greater
financial, sales, marketing, technology and other resources than we have. We
cannot assure you that we will be able to compete successfully with these
companies or that competition will not have a material adverse effect on our
business, operating results or financial condition. See
"Business -- Competition" for detailed information regarding the competitive
environment in which we operate.
SOME OF OUR CUSTOMERS RELY ON OUR COMPETITORS FOR MARKET DATA
Current market data on the sales of prescription-only pharmaceutical
products is an important element for the operation of our sales force software
products in the prescription-only pharmaceutical industry. Our customers use
this data to guide and organize their sales forces and marketing efforts. Some
of the leading purveyors of this market information compete with us either
directly or through affiliates or may compete with us in the future. If these
purveyors of market information require pharmaceutical companies to use their
sales force products and/or services, our business, operating results and
financial condition may be materially and adversely affected.
OUR INTERNATIONAL OPERATIONS HAVE RISKS THAT OUR DOMESTIC OPERATIONS DO NOT
The sale of our products and services in foreign countries accounts for,
and is expected in the future to account for, a material part of our revenues.
These sales are subject to risks inherent in international business activities,
including:
- - any adverse change in the political or economic environments in these
countries;
- - economic instability;
- - any adverse change in tax, tariff and trade or other regulations;
- - the absence or significant lack of legal protection for intellectual property
rights;
- - exposure to exchange rate risk for service revenues which are denominated in
currencies other than U.S. dollars; and
- - difficulties in managing an organization spread over various jurisdictions.
OUR SUCCESS DEPENDS ON RETAINING OUR KEY SENIOR MANAGEMENT TEAM AND ON
ATTRACTING AND RETAINING QUALIFIED PERSONNEL
Our future success depends, to a significant extent, upon the contributions
of our executive officers and key sales, technical and customer service
personnel. We maintain a $3 million key man insurance policy on John E. Bailye,
our President and Chief Executive Officer, the proceeds of which are payable to
Dendrite. Our future success also depends on our continuing ability to attract
and retain highly qualified technical and managerial personnel. Competition for
such personnel is intense. We have at times experienced difficulties in
recruiting qualified personnel and we may experience such difficulties in the
future. Any such difficulties could adversely affect our business, operating
results or financial condition. See
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<PAGE> 11
"Management" for detailed information concerning our key personnel.
OUR INABILITY TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
To manage our growth effectively, we must continue to strengthen our
operational, financial and management information systems and expand, train and
manage our work force. However, we may not be able to do so effectively or on a
timely basis. Failure to do so could have a material adverse effect upon our
business, operating results or financial condition.
OUR BUSINESS DEPENDS ON PROPRIETARY TECHNOLOGY THAT WE MAY NOT BE ABLE TO
PROTECT COMPLETELY
We rely on a combination of trade secret, copyright and trademark laws,
non-disclosure and other contractual agreements and technical measures to
protect our proprietary technology. We cannot assure you that the steps we take
will prevent misappropriation of this technology. Further, protective actions we
have taken or will take in the future may not prevent competitors from
developing products with features similar to our products. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries. We have, on occasion, in response to a request by our
customer, entered into agreements which require us to place our source code in
escrow to secure our service and maintenance obligations.
Further, we believe that our products and trademarks do not infringe upon
the proprietary rights of third parties. However, third parties may assert
infringement claims against us in the future that may result in the imposition
of damages or injunctive relief against us. In addition, any such claims may
require us to enter into royalty arrangements. Any of these results could
materially and adversely affect our business, operating results or financial
condition.
WE HAVE LIMITED EXPERIENCE IN MARKETING TO THE CONSUMER PACKAGED GOODS MARKET
We market and sell SFE solutions to companies in the CPG market. The
selling environment in this market has unique characteristics that differentiate
it from the pharmaceutical market. In addition, we believe that the CPG market
is composed of sub-markets, each of which may have unique characteristics.
Accordingly, we cannot assure you that we will be able to replicate in this
market the success we have achieved in the ethical pharmaceutical market.
PROVISIONS OF OUR CHARTER DOCUMENTS AND
NEW JERSEY LAW MAY DISCOURAGE AN ACQUISITION OF DENDRITE
Provisions of our Restated Certificate of Incorporation, our By-laws and
New Jersey law may make it more difficult for a third party to acquire us. For
example, the Board of Directors may, without the consent of the stockholders,
issue preferred stock with rights senior to those of the common stock.
OUR COMMON STOCK MAY BE SUBJECT TO PRICE FLUCTUATIONS
The market price of our common stock may be significantly affected by the
following factors:
- - the announcement or the introduction of new products by us or our competitors;
- - quarter-to-quarter variations in our operating results and changes in earnings
estimates by analysts;
- - market conditions in the technology, healthcare and other growth sectors; and
- - general consolidation in the healthcare information industry which may result
in the market perceiving us or other comparable companies as potential
acquisition targets.
Further, the stock market has experienced on occasion extreme price and
volume fluctuations. The market prices of the equity securities of many
technology companies have been especially volatile and often have been unrelated
to the operating performance of such companies. These broad market fluctuations
may have a material
9
<PAGE> 12
adverse effect on the market price of our common stock. See "Price Range of
Common Stock".
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements that we believe
are within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act") and Section 21-E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. For this purpose, any statements that are not
statements of historical fact may be deemed to be forward-looking statements,
including the statements under "Summary", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" regarding our
strategy, future operations, financial position and objectives of management.
Those statements in this prospectus containing the words "believes",
"anticipates", "plans", "expects" and similar expressions constitute
forward-looking statements, although not all forward-looking statements contain
such identifying words. These forward-looking statements are based on our
current expectations, assumptions, estimates and projections about our company
and the pharmaceutical and consumer packaged goods industries. All
forward-looking statements involve risks and uncertainties, including those
risks identified under "Risk Factors", many of which are beyond our control.
Although we believe that the assumptions underlying our forward-looking
statements are reasonable, any of the assumptions could be inaccurate and actual
results may differ from those indicated by the forward-looking statements
included in this prospectus, as more fully described under "Risk Factors". In
light of the significant uncertainties inherent in the forward-looking
statements included in this prospectus, you should not consider the inclusion of
such information as a representation by us or anyone else that we will achieve
our objectives and plans. Moreover, we assume no obligation to update these
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting such forward-looking statements.
USE OF PROCEEDS
We estimate that the net proceeds from our sale of 2,750,000 shares of
common stock will be approximately $53.5 million, at an assumed initial public
offering price of $20.75 per share and after deducting the underwriting discount
and estimated offering expenses that we will pay. We will not receive any
proceeds from the sale of common stock by the selling stockholders. See "Selling
Stockholders".
We intend to use the net proceeds of the offering for working capital and
other general corporate purposes, which may include research and development, as
well as possible acquisitions of businesses, products and technologies that are
complementary to our business. Although we have from time to time evaluated
possible acquisitions of business products and technologies, we currently have
no agreements to make any acquisitions. Pending such uses, we will invest the
net proceeds in United States government securities and other short-term,
investment grade, interest bearing instruments, repurchase agreements or high
grade corporate notes.
10
<PAGE> 13
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"DRTE". The following table sets forth for the periods indicated the high and
low sale prices for our common stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------------- -------------
<S> <C> <C>
1997:
First Quarter............................................. $ 5.69 $ 3.38
Second Quarter............................................ 8.63 4.06
Third Quarter............................................. 10.75 7.31
Fourth Quarter............................................ 11.00 7.81
1998:
First Quarter............................................. $ 15.38 $ 9.44
Second Quarter............................................ 19.00 12.78
Third Quarter............................................. 27.88 15.50
Fourth Quarter............................................ 29.50 16.25
1999:
First Quarter (through March 23, 1999).................... $ 31.75 $ 20.75
</TABLE>
- ---------------
On March 23, 1999, the last reported sale price of our common stock as
reported by the Nasdaq National Market was $20.75 per share. As of March 23,
1999 there were approximately 95 holders of record of our common stock.
DIVIDEND POLICY
We have never paid any cash dividends on our capital stock and we do not
intend to pay any cash dividends on our common stock in the foreseeable future.
Our line of credit agreement with The Chase Manhattan Bank, N.A. requires us to
maintain a minimum net worth measured quarterly which is equal to our net worth
as of December 31, 1997 plus 50% of our net income earned after January 1, 1998
and plus 75% of the net proceeds to us of any stock offerings. This covenant
effectively limits the amount of cash dividends we may pay. As of December 31,
1998, and assuming the completion of this offering, we had approximately
$83,944,000 available for the payment of dividends under this covenant. See Note
4 of "Notes to Consolidated Financial Statements" for a discussion of our line
of credit agreement.
11
<PAGE> 14
CAPITALIZATION
The following table sets forth Dendrite's capitalization as of December 31,
1998 on an actual basis and on an as adjusted basis to give effect to our
receipt of the estimated net proceeds from our sale of 2,750,000 shares of
common stock, at an assumed initial public offering price of $20.75 per share
and after deducting the underwriting discount and estimated offering expenses
that we will pay.
You should read this information together with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
AS
ACTUAL ADJUSTED
------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Capitalized lease obligation -- excluding current portion... $ 355 $ 355
Stockholders' equity:
Preferred Stock, no par value, 10,000,000 shares
authorized; none issued and outstanding................ -- --
Common Stock, no par value, 100,000,000 shares authorized;
23,357,497 shares issued and 22,956,497 shares
outstanding, on an actual basis; 26,107,497 shares
issued and 25,706,497 shares outstanding, on an
adjusted basis......................................... 40,050 93,567
Retained earnings......................................... 20,535 20,535
Deferred compensation..................................... (1,494) (1,494)
Cumulative translation adjustment......................... (494) (494)
Less treasury stock, at cost.............................. (1,927) (1,927)
----------- -----------
Total stockholders' equity............................. 56,670 110,187
----------- -----------
Total capitalization................................... $ 57,025 $ 110,542
=========== ===========
</TABLE>
The numbers of issued and outstanding shares are based on shares issued and
outstanding as of December 31, 1998 and exclude:
- - 3,786,700 shares of common stock that may be issued upon exercise of
outstanding stock options that have a weighted average exercise price of
$10.11 per share; and
- - 268,127 shares reserved for further grants under our stock incentive and stock
purchase plans.
For the period from January 1, 1999 through March 23, 1999, 514,250 shares
of common stock were issued upon exercise of outstanding stock options, no
shares were purchased, stock awards for 1,000 shares of common stock were
granted and stock options for 137,000 shares of common stock were granted.
See Note 6 of "Notes to Consolidated Financial Statements" for more
information about our stock option and other stock-based plans.
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of the financial condition and
results of operations of Dendrite together with the consolidated financial
statements and the related notes included elsewhere in this prospectus.
OVERVIEW
We succeeded in 1991 to a business co-founded in 1986 by John E. Bailye,
our current President and Chief Executive Officer. The business was established
to provide SFE solutions that would enable companies to manage, coordinate and
control the activities of large sales forces in complex selling environments,
primarily in the prescription-only pharmaceutical industry. Today, our solutions
combine software products with a wide range of specialized support services.
These services include software implementation, technical and hardware support
and sales force support. We develop, implement and service sales force software
products in the United States, Canada, Western Europe, Japan, Australia, New
Zealand and Brazil through our own sales, support and technical personnel
located in 13 offices worldwide.
We generate revenues from two sources: fees from support services and
license fees. Service revenues, which account for a substantial majority of our
revenues, consist of fees from a wide variety of contracted services which we
make available to our customers, generally under multi-year contracts. We
generate implementation fees from services provided to configure and implement
the sales force software products for our customers. We receive technical and
hardware support fees for services related to, among other things, the operation
of our customers' server computers, maintenance of our customers' databases,
asset control and maintenance for our customers' remote hardware and ongoing
technical support. Technical and hardware support fees also include fees for
software maintenance services such as software defect resolution, performance
enhancements and, in some cases, product upgrades. We charge fees for these
maintenance services based on a percentage of applicable license fees, plus any
customization fees. We receive sales force support fees for organizing and
managing support of our customers' sales force, including training, telephone
support and data analysis services. Ongoing support fees are generally
negotiated at the commencement of a contract. However, it is our experience that
our larger customers increase the amount of services they purchase from us over
time. Fees for these additional services are typically based on the labor and
materials used to provide the applicable service.
We charge our customers license fees to use our proprietary computer
software. Customers generally pay one-time perpetual license fees based upon the
number of users, the territory covered and the number of modules, or features,
in the particular software licensed by the customer.
Historically, we have generally recognized license fees as revenue using
the percentage of completion method over a period of time that begins with
execution of the license agreement and ends with the completion of initial
customization and installation, if any. However, we believe that with some of
our newer sales force software products, such as, ForcePharma and SalesPlus, our
customers will not require customization and therefore we may be able to
recognize license fees from these products upon delivery.
We recognize additional license fees when customers agree to license
additional functions or enhancements, acquire an upgraded version of Dendrite's
software and/or when the maximum permitted number of users or initial geographic
coverage is exceeded. All license fees, domestic and export, are included under
the heading "License Fees -- United States" in Note 10 of "Notes to Consolidated
Financial Statements".
13
<PAGE> 16
The United States, the United Kingdom and France are our main markets. We
generated approximately 52% of our total revenues outside the United States
during the year ended December 31, 1996; approximately 42% during the year ended
December 31, 1997; and approximately 27% during the year ended December 31,
1998. This decrease in the percentage of revenues generated outside the United
States during 1998 was principally due to very strong revenue growth in our
pharmaceutical and CPG businesses in the United States.
We bill services provided by our foreign branches and subsidiaries in local
currency. License fees for our products are generally billed in U.S. dollars
regardless of where they originate. Foreign license fees are shown as United
States export revenues in Note 10 of "Notes to Consolidated Financial
Statements". Operating results generated in local currencies are translated into
U.S. dollars at the average exchange rate in effect for the reporting period.
Our operating profits by geographic segments are shown in Note 10 of "Notes
to Consolidated Financial Statements". Our geographic operating profits are
affected primarily by our use of technical and support personnel to support
service revenues, costs associated with opening new or expanding existing
facilities and our ability to increase service revenues faster than the growth
in selling, general and administrative expenses.
14
<PAGE> 17
RESULTS OF OPERATIONS
<TABLE>
<S> <C>
The following table sets forth our
results of operations expressed as a
percentage of total revenues for the
periods indicated:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
License fees.............................................. 13% 10% 11%
Services.................................................. 87 90 89
--- --- ---
100 100 100
Costs of Revenues:
Cost of license fees...................................... 1 2 2
Cost of services.......................................... 48 47 42
--- --- ---
49 49 44
--- --- ---
Gross Margin........................................... 51 51 56
Operating Expenses:
Selling, general and administrative....................... 40 38 36
Research and development.................................. 10 4 3
Write-off in-process research and development............. 4 -- 1
--- --- ---
54 42 40
--- --- ---
Operating income (loss)................................ (3) 9 16
Other income................................................ 1 1 1
--- --- ---
Income (loss) before income taxes...................... (2) 10 17
Income taxes................................................ 1 4 7
--- --- ---
Net Income (loss)........................................... (3)% 6% 10%
=== === ===
</TABLE>
Certain reclassifications have been made to prior year amounts to conform
with current year presentations. During the second quarter of 1998, we
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, all prior periods have been reclassified.
YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Total revenues increased $34,072,000 or 43% from $78,446,000 in
1997 to $112,518,000 in 1998.
License fee revenues increased 66% from $7,707,000 in 1997 to $12,827,000
in 1998. This increase was primarily attributable to the recognition of revenue
related to license fees from several significant contracts in the pharmaceutical
division, sales to new customers in our consumer business division and increased
sales of third party software.
Service revenues increased 41% from $70,739,000 in 1997 to $99,691,000 in
1998. This increase was primarily the result of an increase in our installed
base of sales force software products at both new and existing customers, the
commencement of major product rollouts, as well as the provision of additional
services to our existing customers.
COST OF REVENUES. Cost of revenues increased $11,220,000 or 29% from
38,652,000 in 1997 to $49,872,000 in 1998.
Cost of license fees increased 32% from $1,758,000 in 1997 to $2,314,000 in
1998. Cost of license fees for 1998 represents the
15
<PAGE> 18
amortization of capitalized software development costs of $1,392,000 and third
party vendor license fees of $922,000. Cost of license fees for 1997 represents
the amortization of capitalized software development costs of $1,100,000 and
third party vendor license fees of $658,000. The increase in the amortization of
capitalized software development costs in 1998 was due to the increase in gross
capitalized software development costs in 1998 as compared to 1997. The increase
in third party vendor license fees in 1998 was attributable to the increase in
third party software sales in 1998.
Cost of services increased 29% from $36,894,000 in 1997 to $47,558,000 in
1998. This increase was primarily due to an increase in staff required to
support greater client activity including the use of higher cost consultants and
contractors. As a percentage of service revenues, however, cost of services
decreased from 52% of service revenues in 1997 to 48% in 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 associated with the carry-over
effect of expenses initially incurred in the fourth quarter of 1996 as discussed
under "Years Ended December 31, 1996 and 1997 -- Cost of Revenues".
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses
increased 33% from $29,905,000 in 1997 to $39,853,000 in 1998. This increase was
primarily attributable to increased staff required for sales and support
operations. As a percentage of revenue, SG&A expenses decreased from 38% in 1997
to 36% in 1998, due to leveraging the fixed cost elements in general and
administrative expenses over a higher revenue base.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 38% from $2,676,000 in 1997 to $3,687,000 in 1998. As a percentage of
revenues, research and development expenses remained relatively constant. The
increase in research and development expenses during the most recent period was
primarily attributable to increased spending on development of our CPG products,
the continued development of ForceMultiplieRx and the development of our next
generation pharmaceutical sales force software product, ForcePharma. With
respect to future research and development expenses, subject to market
conditions, we currently anticipate that such expenses will be approximately 4%
to 6% of revenues. See the heading under "Risk Factors" entitled "Our quarterly
results of operations may fluctuate significantly and may not meet market
expectations" and the heading under "Risk Factors" entitled "We may be unable to
successfully introduce new products or respond to technological change".
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. We incurred a
one-time charge of $1,230,000 to record the write-off of in-process research and
development costs resulting from the acquisition of Associated Business
Computing N.V., a Belgian company, and an affiliated company (collectively,
"ABC"). This amount represents the estimated fair values, based on an
independent appraisal, related to in-process research and development projects
which had not yet reached technological feasibility.
PROVISION FOR INCOME TAXES. The effective tax rate, excluding the impact
of the write-off of in-process research and development which is not tax
deductible, was reduced to 37% during 1998 as opposed to 39% during 1997. This
decrease was due primarily to the implementation of tax minimization strategies
throughout the world.
ACQUISITION OF ABC. On July 24, 1998, we acquired 100% of the capital
stock of ABC for a combination of cash and stock equivalent to approximately
$4,013,000 and transaction costs of $150,000. The acquisition has been accounted
for using the purchase method of accounting, whereby the purchase price is
allocated to the assets and liabilities of ABC based on their respective fair
market values at the acquisition date. The excess of the purchase price over the
fair value of the net assets acquired was assigned to
16
<PAGE> 19
identifiable intangibles. We assigned $1,230,000 to in-process research and
development and such amount was written off in the accompanying statement of
operations. We also recorded $850,000 as capitalized software and $2,226,000 as
goodwill. ABC's results of operations have been included in our Consolidated
Financial Statements from the date of acquisition.
YEARS ENDED DECEMBER 31, 1996 AND 1997
REVENUES. Total revenues increased $12,200,000 or 18% from $66,246,000 in
1996 to $78,446,000 in 1997.
License fee revenues decreased 12% from $8,774,000 in 1996 to $7,707,000 in
1997. This decrease was primarily attributable to the recognition of revenue
related to license fees for a major European client during 1996, partially
offset by the inclusion of $796,000 in revenue associated with the resale of
third party software during 1997 versus $112,000 in revenue associated with the
resale of third party software during 1996.
Service revenues increased 23% from $57,472,000 in 1996 to $70,739,000 in
1997. This increase was primarily the result of an increase in our installed
base of sales force software products with new and existing customers and the
provision of additional services to our existing customers, largely in the U.S.,
where the service revenue increase was $11,585,000 or 39%.
COST OF REVENUES. Cost of revenues increased 19% from $32,376,000 in 1996
to $38,652,000 in 1997.
Cost of license fees increased 111% from $832,000 in 1996 to $1,758,000 in
1997. In 1997, the cost of license fees represents the amortization of
capitalized costs of $1,100,000 and third party vendor license fees of $658,000.
In 1996, the cost of license fees represents the amortization of capitalized
costs of $739,000 and third party vendor license fees of $93,000.
Cost of services increased 17% from $31,544,000 in 1996 to $36,894,000 in
1997, primarily due to an increase in the number of service representatives and
technical staff from the prior year. The increase was necessary to support the
increased client activity during the year. As a percentage of service revenues,
cost of services decreased from 55% of service revenues in 1996 to 52% of
service revenues in 1997. This decrease was due to certain events which occurred
in 1996, including:
- - multiple customer delayed implementations for which we had hired personnel for
training, customer service and technical support;
- - costs associated with retaining a significant number of independent
contractors to complete client deliverables;
- - delayed customer license purchase and upgrade decisions; and
- - increased research and development spending.
As a result of these factors, we incurred a net loss of $3.3 million in the
fourth quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses
increased 13% from $26,440,000 in 1996 to $29,905,000 in 1997. As a percentage
of revenue, SG&A expenses decreased from 40% in 1996 to 38% in 1997. This
decrease was attributable to the fixed nature of certain SG&A costs, such as
rent and corporate salaries, as revenues increase.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 61%
from $6,834,000 in 1996 to $2,676,000 in 1997. As a percentage of revenues,
research and development expenses decreased from 10% for the year ended December
31, 1996 to 4% for the year ended December 31, 1997. The decrease in research
and development expenses in 1997 was consistent with our intentions, as peak
development efforts associated with several new software products decreased as
these software products neared completion.
17
<PAGE> 20
PROVISION FOR INCOME TAXES. The effective tax rate was reduced to 39% for
the year ended December 31, 1997 as compared to 47% for the year ended December
31, 1996, excluding the impact of the write-off of in-process research and
development which is not tax deductible. The reduction was due to the higher
base of net income relative to the amount of non-deductible expenses in the year
ended December 31, 1997 as compared to the year ended December 31, 1996.
18
<PAGE> 21
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data expressed in U.S. dollars for our eight most recently ended
fiscal quarters. This data has been derived from our unaudited consolidated
financial statements and, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation in accordance with generally accepted accounting principles.
Our results of operations for a particular quarter are not necessarily
indicative of our results of operations for any future period. Our quarterly
results have varied considerably in the past and are likely to vary from quarter
to quarter in the future. See the heading under "Risk Factor" entitled "Our
quarterly results of operations may fluctuate significantly and may not meet
market expectations".
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
1997 1997 1997 1997 1998 1998 1998 1998
-------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License fees............... $ 1,094 $ 1,725 $ 2,370 $ 2,518 $ 2,971 $ 4,299 $ 1,116 $ 4,442
Services................... 15,548 16,342 17,998 20,851 19,656 24,028 29,352 26,653
------- ------- ------- ------- ------- ------- ------- -------
16,642 18,067 20,368 23,369 22,627 28,327 30,468 31,095
Costs of Revenues:
Cost of license fees..... 273 392 729 365 361 1,024 379 550
Cost of services......... 9,795 8,333 8,795 9,971 9,894 12,402 13,645 11,616
------- ------- ------- ------- ------- ------- ------- -------
10,068 8,725 9,524 10,336 10,255 13,426 14,024 12,166
------- ------- ------- ------- ------- ------- ------- -------
Gross margin........... 6,574 9,342 10,844 13,033 12,372 14,901 16,444 18,929
Operating Expenses:
Selling, general, and
administrative......... 6,373 7,636 7,678 8,217 8,459 9,962 10,280 11,153
Research and
development............ 683 653 606 734 899 870 847 1,069
Write-off of in-process
research and
development............ -- -- -- -- -- -- 1,230 --
------- ------- ------- ------- ------- ------- ------- -------
7,056 8,289 8,284 8,951 9,358 10,832 12,357 12,222
------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss).............. (482) 1,053 2,560 4,082 3,014 4,069 4,087 6,707
Interest income............ 128 131 100 169 196 214 280 399
Other income (expense)..... (57) (95) (21) (27) (321) (45) 117 (68)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes
(benefit).............. (411) 1,089 2,639 4,224 2,889 4,238 4,484 7,038
Income taxes (benefit)..... (145) 442 1,047 1,587 1,127 1,581 2,043 2,631
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).......... $ (266) $ 647 $ 1,592 $ 2,637 $ 1,762 $ 2,657 $ 2,441 $ 4,407
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share:
Basic.................... $ (0.01) $ 0.03 $ 0.07 $ 0.12 $ 0.08 $ 0.12 $ 0.11 $ 0.19
======= ======= ======= ======= ======= ======= ======= =======
Diluted.................. $ (0.01) $ 0.03 $ 0.07 $ 0.11 $ 0.07 $ 0.11 $ 0.10 $ 0.18
======= ======= ======= ======= ======= ======= ======= =======
Shares used in computing
net income (loss) per
share:
Basic.................... 22,450 22,142 22,201 22,252 22,324 22,418 22,705 22,883
======= ======= ======= ======= ======= ======= ======= =======
Diluted.................. 22,450 22,736 23,226 23,316 23,900 24,302 24,818 25,107
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
19
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations primarily through cash
generated by operations. Net cash provided by operating activities was
$24,206,000 for the year ended December 31, 1998, compared to cash provided by
operating activities of $3,318,000 for the year ended December 31, 1997. This
increase was due primarily to higher net income, as well as more efficient
accounts receivable and liability management during the year ended December 31,
1998, compared to the year ended December 31, 1997.
Cash used in investing activities was $12,565,000 in the year ended
December 31, 1998, compared to cash obtained from investing activities of
$3,301,000 in the year ended December 31, 1997. This increase was due primarily
to the increase in short-term investments as well as the purchase of ABC in the
year ended December 31, 1998.
On January 16, 1997, Dendrite's 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 Dendrite's outstanding shares of common stock. During the
twelve month period ending December 31, 1997, Dendrite repurchased 401,000
shares of common stock for a value of $1,927,000. Dendrite did not repurchase
any shares of common stock during the period ending December 31, 1998.
We obtained $3,610,000 of cash from financing activities in the year ended
December 31, 1998, compared to the use of $1,331,000 in cash from financing
activities in the year ended December 31, 1997. The change in our cash provided
from financing activities was due to an increase in the issuance of common
stock, primarily from the exercise of employee stock options during the year
ended December 31, 1998 and open-market purchases of our common stock during the
year ended December 31, 1997.
We recently entered into a $15,000,000 revolving line of credit agreement
with The Chase Manhattan Bank, N.A. The agreement is available to finance
working capital needs and possible future acquisitions. The $15,000,000 line of
credit agreement requires us to maintain a minimum consolidated net worth, among
other covenants, measured quarterly, which is equal to our net worth as of
December 31, 1997 plus 50% of our net income earned after January 1, 1998 and
plus 75% of the net proceeds to us of any stock offering. This covenant
effectively limits the amount of cash dividends we may pay. At December 31,
1998, there were no borrowings outstanding under the agreement.
Our working capital was approximately $33,981,000 at December 31, 1997 and
$47,963,000 at December 31, 1998. We have no significant capital spending or
purchasing commitments other than normal purchase commitments and commitments
under facility and capital leases.
We regularly evaluate opportunities to acquire products or businesses
complementary to our operations. Such acquisition opportunities, if they arise,
and are successfully completed, may involve the use of cash or equity
instruments. We currently have no agreements to make any acquisitions.
YEAR 2000 READINESS DISCLOSURE
The efficient operation of our business is dependent in part on our
internal computer software and operating systems (collectively, our "Internal
Programs and Systems"). Since 1997, as part of our Year 2000 compliance plan, we
have been evaluating our Internal Programs and Systems to identify potential
Year 2000 compliance problems. We have tested our Internal Programs and Systems
to verify Year 2000 compliance. As a result of the testing, we have determined
that some of our Internal Programs and Systems are not Year 2000 compliant. We
have begun and will continue to modify or replace some of our Internal Programs
and Systems to make them Year 2000 compliant. We are also communicating with our
suppliers and others to coordinate Year 2000 conversion and are requesting
assurances from all software vendors from which we may purchase or license
software that such software will
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correctly process all date information at all
times.
To date, we have spent approximately $178,000 to evaluate, test and
remediate, if necessary, our Internal Programs and Systems for Year 2000
compliance problems and we expect to spend up to an additional $50,000 through
the end of second quarter of 1999. We will fund these costs with cash from our
operations. To date, we have not spent any material amount on evaluating the
Year 2000 compliance status of our sales force software products licensed to
customers. Although we do not anticipate any future material expenditures, our
customers may require us to incur additional expenses associated with
remediating their software products. We expect that the expenses and capital
expenditures associated with achieving Year 2000 compliance will not have a
material adverse effect on our business, results of operations or financial
condition.
We believe that we will be able to achieve 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. We expect to have our Year 2000
compliance program substantially completed by the end of the second quarter of
1999. However, we cannot assure you that these efforts will be successful or
completed in a timely manner.
We believe most of our sales force software products that we currently
offer to customers are Year 2000 compliant. We define "Year 2000 compliant" to
mean that the applicable Dendrite product is capable of recognizing and
processing date data beyond the Year 2000 as belonging to the correct century,
so long as all products (for example, hardware, firmware, and software including
interfacing programs, operating systems, and database engines) used with the
software are Year 2000 compliant and properly exchange date data with our
products.
Some of our older products will not, and some may not, accurately process
dates beyond December 31, 1999. To the extent any of these products are still in
use in 1999, we will continue to attempt to migrate our customers to products
which are Year 2000 compliant. We cannot assure you that this will occur. A
failure to migrate any such customer to a product which is Year 2000 compliant
could adversely affect our business, operating results or financial condition.
We may also experience increased expenses which we cannot recoup from current
customers in addressing their migration to software that is Year 2000 compliant.
We have strongly encouraged each customer to have its product tested by us for
Year 2000 compliance.
Because of our relatively advanced state of readiness, we have not yet
formulated a reasonably likely worst case scenario. During the second quarter of
1999, as we assess our state of readiness for January 1, 2000, we expect to
formulate this scenario and to prepare a contingency plan, if warranted. For a
discussion of the risks associated with the Year 2000, please see the heading
under "Risk Factors" entitled "We are exposed to risks associated with the Year
2000 -- Year 2000 readiness disclosure".
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BUSINESS
DENDRITE INTERNATIONAL, INC.
We are a leading worldwide supplier of a comprehensive range of sales force
software products and support services to the pharmaceutical industry. We also
supply our solutions to manufacturers of consumer packaged goods. Our sales
force effectiveness solutions are designed to help our customers increase sales
and improve the profitability of their operations by allowing them to:
- - improve their use of sales, customer and market information; and
- - manage, coordinate and control their sales activities more efficiently in
complex selling environments.
Historically, we have focused our solutions on large sales forces within
the prescription-only pharmaceutical industry. We believe that our extensive
knowledge of the complex and unique selling processes in this industry and our
demonstrated ability to meet our customers' business needs have made Dendrite
the world's largest supplier of sales force effectiveness solutions to the
prescription-only pharmaceutical industry, based on the number of licensed
users.
Our pharmaceutical customers include: Eli Lilly; Johnson & Johnson; Kissei;
Parke-Davis; Pfizer; SmithKline Beecham; and Takeda. Our customers in the
consumer packaged goods market include: Barcardi-Martini; Gillette; and Rayovac.
Most of our revenues come from a broad range of services that enable our
customers to maximize the effectiveness of their Dendrite software products.
These services include software implementation, technical and hardware support
and sales force support. We typically provide these services under multi-year
agreements. For the years ended December 31, 1996, 1997 and 1998, services
represented approximately 87%, 90% and 89% of our total revenues.
INDUSTRY OVERVIEW
PHARMACEUTICAL INDUSTRY SALES ENVIRONMENT
Pharmaceutical companies have traditionally marketed prescription-only
pharmaceutical products to physicians rather than to patients. A pharmaceutical
sales representative typically calls on physicians within a designated
geographic territory. However, due in part to the specialized knowledge required
to explain the attributes of each product, each sales representative handles
only a limited number of pharmaceutical products. This specialization has led to
a marketing process in which large sales forces, often organized as multiple
divisions of one company, handle different products in overlapping territories.
As a result, individual physicians may be called upon by representatives from
different sales forces within the same company, resulting in a need for careful
coordination of these sales force activities. Sales forces can range in size
from as few as 50 representatives in smaller European countries to several
thousand in the United States. Effective sales and marketing also requires
coordination of diverse home office functions, such as distribution of product
literature, sales call follow-up activities and organization of educational
programs for physicians.
The complexity of managing sales forces also has been increased by a number
of changes in the pharmaceutical market. These include:
- - the efforts to control increases in the cost of healthcare;
- - the expansion of sales and marketing activities by pharmaceutical companies to
non-physician participants, such as governmental or private healthcare
organizations, insurance companies and other third party payers; and
- - the reclassification of formerly prescription-only drugs to permit
over-the-counter or OTC availability.
While these changes have not reduced the need to market to individual
physicians, they
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have introduced new levels and magnitudes of complexity to the sales and
marketing process. In order to make informed sales management decisions,
pharmaceutical companies require accurate, well organized and coordinated
information drawn from diverse data sources.
CPG INDUSTRY SALES ENVIRONMENT
CPG companies sell through multiple retail channels, including:
- - retail outlets;
- - food services;
- - travel and hospitality;
- - cosmetic services;
- - route sales and delivery;
- - mail order; and
- - on-line shopping.
To market their products, CPG manufacturers use a variety of promotional
initiatives such as coupon offers, local, regional and national advertisements
and in-store creative displays and special shelf tags. In addition, CPG
manufacturers study the traffic patterns of consumers and the placement of their
products within a retail outlet in order to assess the effect of these
initiatives. This assessment process requires consistent and thorough evaluation
by both the retailer and the manufacturer.
We generally market our products to several vertical markets within the CPG
industry, such as confectionaries, beverages, tobacco, cosmetics, health and
beauty aids and OTC drugs. Our CPG products are targeted at manufacturers whose
sales representatives call on retail outlets. These products enable sales
representatives to manage all aspects of their call reporting obligations,
including the collection of pricing, promotions and product placement
information. In addition, our sales force software products can integrate sales
information from multiple data sources. By using our sales force software
products, CPG manufacturers can measure the effect of their promotional
activities and can effectively plan and execute sales strategies in ways that
bring them significant competitive benefits.
THE EVOLUTION OF ADVANCED SFE SOLUTIONS
Sales and marketing expenses are often among the highest operating costs
for companies competing in complex selling environments, particularly for
pharmaceutical companies. Historically, sales organizations in the
pharmaceutical and CPG industries relied on written reports and paper filing
systems as the primary tools for dealing with sales force management. The need
for effective management and control of sales activities led to efforts to
automate sales force deployment and management. With advances in portable
computer equipment, automation became a viable option to improve the efficiency
of sales and marketing activities. Pharmaceutical companies were among the early
adopters of these automated products because of the complexity of the
pharmaceutical sales process, the need to integrate disparate data streams, and
the large size and widespread organization of their sales forces.
Sales force automation, or SFA, products using portable computers and
software were developed to keep field sales records up-to-date, and allowed
sales representatives to record and report their calling activities as a first
step in coordinating sales and marketing efforts. These software products,
however, offered limited capability for interaction and coordination among field
representatives or with sales management, and generally failed to meet the needs
of industries with complex sales and marketing requirements.
Pharmaceutical companies and other organizations operating in complex
selling environments sought software products that could provide greater
capacity for such interaction and coordination and that could also assist
management in organizing and presenting sales-related data. For example, these
entities needed tools to help sales representatives identify their most urgent
or valuable prospects, and to enable them to adjust their selling patterns to
address the opportunities and needs of their sales territories in progressively
shorter time periods. This need led to an evolution of SFA software products to
the more interconnected
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sales force software products and support services.
Sales force software products use territory-based data to allow increased
interaction between sales force managers and other corporate management
information systems. However, early sales force software products could not
dynamically handle the new and often voluminous data necessary to make decisions
in today's complex selling environments. Specifically, these sales force
software products did not have sufficient functionality to permit management to
reset priorities and to redeploy sales representatives in response to rapidly
changing market conditions.
We believe that sales force software products must evolve into
comprehensive information systems that are increasingly integral to the overall
management of the business. In addition, sales force software products must be
able to measure the effect of, and interface with, all other promotional tools
used by a customer to target physicians. As the complexity of these systems
increases, so does the need for specially trained personnel to operate, refine
and enhance them.
THE DENDRITE SOLUTION
We develop and market a comprehensive range of sales force software
products and support services. These solutions enable our customers, among other
things, to:
- - realign sales territories;
- - reallocate sales personnel on a customer or formulary basis; and
- - redeploy sales and marketing resources more rapidly and more precisely.
Our software products integrate and process large volumes of time-sensitive
sales-related data for use in developing sales strategies. Our current sales
force software product offerings allow customers to select many different
combinations of features for different types of sales forces. Our current
product offerings typically do not require customization in order to be
implemented. In some circumstances, they are configured to address data, market
and other specific customer requirements.
We also offer a broad range of support services that enable our customers
to maximize the effectiveness of their Dendrite software products. These
services include software implementation, technical and hardware support and
sales force support. We provide these services worldwide through our 13 offices
in the United States, Europe, the Pacific Rim and Latin America. We dedicate
groups of service personnel to assist our customers in designing, implementing
and maintaining the system and to provide continuous system support.
THE DENDRITE STRATEGY
Our business strategy is to use our leading software products and
international operations to satisfy both the local and global needs of our
customers. Key elements of this strategy are to:
- - STRENGTHEN OUR EXISTING CUSTOMER RELATIONSHIPS. We have a substantial
customer base among major multinational pharmaceutical companies. We
constantly seek to expand our relationships with customers by increasing their
use of our existing products and services, developing new products and
services and broadening these relationships to include additional affiliates
of our customers.
- - ENHANCE OUR GLOBAL LEADERSHIP. We intend to capitalize on the trend among
companies to select one global provider of sales force software products and
support services, rather than multiple vendors. We believe that our product
design and scope, our network of 13 offices worldwide and our extensive
experience in implementing these solutions in over 15 countries will allow us
to capitalize on this trend.
- - UTILIZE NEW TECHNOLOGIES TO IMPROVE OUR SALES FORCE SOFTWARE PRODUCTS. Our
current software products take advantage of recent technological advancements,
such as multi-tier architectures, relational database management systems,
built-in configuration tools and application development software. We intend
to
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continue to improve our software products by developing product enhancements
as new technologies become available.
PRODUCTS AND SERVICES
PHARMACEUTICAL SALES FORCE SOFTWARE PRODUCTS
We currently offer our pharmaceutical customers three primary software
products: ForcePharma; SalesPlus; and J Force. We also offer our pharmaceutical
customers an additional Windows CE(TM)-based software product, known as
ForceCompanion.
FORCEPHARMA. We recently introduced ForcePharma, our new sales force
software product targeted at large multinational pharmaceutical customers, and,
to date, have entered into licensing agreements with four customers. ForcePharma
can be configured to support sales representatives and managers at all levels
within a sales organization.
The table below describes the principal functions available for the
ForcePharma product:
FORCEPHARMA CLIENT FUNCTIONALITY
CUSTOMER MANAGEMENT
Provides an accurate, up-to-date picture of
customer and business opportunities. Allows quick
and accurate completion of call reports.
CUSTOMER TARGETING
Allows end user to generate lists using specific
database queries easily adapted to the user's
needs. Allows sales activity to be concentrated
on the most important customers.
PLANNER
Allows end user to plan and record activity and
optimize scheduling and coordination of
promotional activities.
SAMPLE MANAGEMENT
Allows end user to track inventory and perform
adjustments, including transfers and returns.
MEETINGS
Allows planning, recording and management of
group selling events, such as dinner meetings,
speaker programs, symposia, etc.
SYNCHRONIZATION MANAGER
Allows end user to synchronize multiple databases
in one communications session.
FORCEPHARMA SYSTEM CONFIGURATOR AND BACK OFFICE ADMINISTRATOR
SYSTEM CONFIGURATOR
Creates interfaces, permits modifications for
existing end users and allows the end user to
select the language to be used.
BACK OFFICE ADMINISTRATOR
Permits definition of business rules and allows
administration of sales force composition and
pre-configured drop down boxes.
The ForcePharma product can be configured to address a customer's specific
business requirements, including the creation of new data structures. New
functions, which integrate fully with the existing configuration, can be added
over time, therefore allowing the customer to acquire a system that is capable
of evolving as the customer's business requirements change. A typical major
pharmaceutical customer will select a configuration depending on the structure
of the customer's sales force, the geographic region involved and the type of
pharmaceutical sales data available. Each function is offered with specific
continuing support services.
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ForcePharma software product offers an enhanced user-friendly graphical
interface through a Microsoft(R) Windows environment and uses object-oriented
programming technology to enhance the modular properties of this product. This
product also contains features capable of analyzing both territory-based and
prescriber-level prescription sales data. This data permits priority targeting
of physicians and others who influence the pharmaceutical prescription process.
The majority of our installed base consists of Series 6 and, to a lesser
extent, Series 5 and Series 4 software products, the predecessor products to
ForcePharma. ForcePharma offers greater functionality than these predecessor
products. Customers licensed to use Series 6 and Series 5 products accounted for
approximately 92% of the sales representatives licensed to use our
pharmaceutical sales force software products as of December 31, 1997 and 91% as
of December 31, 1998.
We are presently marketing to all of our customers a migration path that
will enable them to upgrade to the ForcePharma product. There can be no
assurance that any such migration will occur. The primary considerations for
customers determining whether to upgrade include the enhanced ability of
ForcePharma to address their evolving business needs and the significant cost of
making the transition to a competitor's product.
Our Series 4 product is a DOS-based product. Customers licensed to use
Series 4 accounted for approximately 8% of the sales representatives licensed to
use our pharmaceutical sales force software products as of December 31, 1997 and
6% as of December 31, 1998. We have in the past supported users of our Series 4
products. However, we now consider this product mature and have advised our
customers that we will not support it in the future.
We price our pharmaceutical sales force software products based on the
geographic area in which a customer uses our software products, the software
configuration and the total number of users. We also charge additional one-time
fees to install the software and annual fees for continuing services.
SALESPLUS. In July 1998, we acquired ABC, a Belgian-based developer and
provider of a software product known as SalesPlus, which is marketed to
mid-range European pharmaceutical companies. We are currently marketing this
software product for license under the SalesPlus name to our pharmaceutical
customers in Europe and, through a new strategic business unit, SalesPlus
Americas, in the United States. Dendrite configures SalesPlus prior to sale,
which saves our customers the time and costs associated with configuration. This
product is offered to those prescription-only pharmaceutical customers whose
business needs do not require all of the features of the ForcePharma product.
Like ForcePharma, this product supports all levels within a sales organization.
J FORCE. We are now also offering for license in Japan a new SFE product
called J Force, which we developed specifically for the Japanese market. This
product contains functionality similar to that of ForcePharma, but has graphical
user interface and local market requirements that reflect the unique
characteristics of the Japanese prescription-only pharmaceutical market.
FORCECOMPANION. We also offer ForceCompanion, a Windows CE(TM)-based
palmtop solution for remote use by pharmaceutical company sales representatives.
This software product furnishes a sales representative with physician profiles,
an appointment diary and signature capture for pharmaceutical sample management.
CPG INDUSTRY PRODUCTS
FORCEONE. In May 1996, we acquired SRCI S.A. ("SRCI"), France's largest
provider of custom-designed sales force software products for the CPG market.
SRCI's core product, NOMAD'S, was translated into English and we began to market
the product in the United States and Canadian markets under the name ForceOne in
the fourth quarter of 1996. ForceOne contains most of the same basic features as
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our ForcePharma product, as well as features specifically created for the CPG
industry. ForceOne can be configured to support field sales representatives,
their managers and key account managers. The structure of our license,
implementation and ongoing service fees for our CPG customers is generally
similar to that of our pharmaceutical customers.
ANALYTICAL TOOLS
We currently offer certain analytical software and reporting tools under
the ForceMultiplieRx and ForceAnalyzeRx product names, which may be used either
with our sales force software products or on a stand-alone basis. These software
products allow users to analyze data, such as prescription trends, and produce
reports based on the results of these analyses. These products also provide
customers with timely information that they can use in developing sales
strategies. The custom applications that we design with these products address a
wide variety of client business needs, including sales, market research,
clinical trials, new product launch analyses and sales reporting.
The back-end database for ForceMultiplieRx is populated with real time
third party prescription data. This data may be integrated with both internal
and external data sources to provide a customer with timely market information,
including physician prescribing patterns and their responsiveness to customer
sales and marketing efforts.
SERVICES
Our customers often enter into agreements covering software implementation,
technical and hardware support and sales force support services. Virtually all
customers sign a software maintenance agreement that covers, among other things,
software defect resolution.
For the year ended December 31, 1998, service revenues represented
approximately 89% of our total revenues. As a result of providing these ongoing
services, we have developed long-term strategic relationships with these
customers. For example, it is generally our experience that once we begin
supplying SFE solutions to our larger customers, we continue to provide support
services to them beyond the expiration of the initial service agreement. In
addition, as these relationships develop, our customers generally increase the
amount of support services they purchase from us. These relationships have
accounted for some of the increase in our service-related revenues.
The complexity and size of the sales data and market research databases
being integrated and manipulated by our software products require highly
specialized information systems skills, particularly as new sources of data must
be integrated. The creation of a customer's database requires loading third
party data onto a central server or servers and encoding that data with
proprietary Dendrite data links. This encoding process allows the data to be
integrated into a functional sales-related database used by Dendrite's sales
force software products. We initially perform these services during installation
and, if requested, may continue to manage these information systems over time.
Many companies choose not to employ the information systems staff needed to
manage these large, complex databases and consider the outsourcing of these
tasks to us as both economically and operationally advantageous.
We offer the full range of support services to all of our customers.
However, because customers of our SalesPlus and ForceOne products often require
less functionality, we expect to sell fewer support services to these customers
than to our ForcePharma customers.
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The following table outlines the principal services we offer:
IMPLEMENTATION SERVICES
PROJECT MANAGEMENT
Plan the configuration, if applicable, and
implementation of a Dendrite sales force software
product.
DATA MODELING
Create the customer's specific version of the
Dendrite data model.
CONFIGURATION
Configure software, if applicable, to meet
customer requirements for the software components
of a Dendrite sales force software product.
DATABASE MODELING
Create the customer's integrated database,
including:
- loading and linking third party prescription
sales data, market research and other
materials;
- identifying geographic and/or functional (e.g.,
formulary) segments; and
- allocating third party data by territory or
other functional segment.
REMOTE COMPUTER HARDWARE
PREPARATION
Load data onto customer's remote computer
hardware (e.g., laptop and notebook computers)
for training, testing and use.
TRAINING
Instruct on use and capabilities of Dendrite
sales force software products.
TECHNICAL AND HARDWARE SUPPORT SERVICES
PROJECT MANAGEMENT
Design, structure and manage technical support
for Dendrite sales force software products.
SOFTWARE CUSTOMIZATION
Modify source code to meet customer's needs.
DATABASE MAINTENANCE
Continue to support the customer's database,
including:
- loading and linking new releases of third party
data purchased by the customer; and
- identifying new functional segments for data
analysis.
SOFTWARE CODE MAINTENANCE
Provide software defect resolution and issue
performance updates, feature changes and, in
certain circumstances, new versions of products.
SERVER SUPPORT
Operate and maintain server computers.
ASSET MANAGEMENT
Provide asset control and maintain remote
computer hardware, including recapture of data on
defective equipment and replacement of defective
equipment.
BUSINESS INTERRUPTION
SERVICES Develop business interruption plan for management
of any unforeseen interference with Dendrite's
provision of ongoing support services, including
coordinating the retention of a disaster recovery
provider for the customer's servers.
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YEAR 2000 COMPLIANCE
TESTING Test customer's sales force automation production
environment to determine whether it is Year 2000
compliant (i.e., accurately recognizes and
processes dates beyond December 31, 1999). This
testing covers not only the applicable Dendrite
product, but also much of the related hardware,
third party software and associated interfaces.
SALES FORCE SUPPORT SERVICES
PROJECT MANAGEMENT
Design, organize and manage support for customer
sales forces.
RETRAINING
Provide ongoing training on use and capabilities
of Dendrite sales force software products.
TERRITORY REALIGNMENT
Assist the customer in planning and executing
realignments of sales territories or functional
(e.g., formulary-based) segments to allow more
effective resource allocation.
TELEPHONE SUPPORT SERVICES
Provide direct customer service telephone support
for Dendrite sales force and certain third party
software products, seven days a week and in many
foreign languages.
DATA ANALYSIS
Provide pro-active prescription data analysis at
a territory and physician level to a customer's
sales representatives to improve sales and
promotional campaigns.
When a customer licenses a Dendrite sales force software product, we
typically establish an implementation services group for that customer, as well
as a separate support service group composed of both customer support and
technical support personnel who are primarily dedicated to servicing that
customer. However, for customers with smaller sales forces or sales forces with
specialized needs, such as non-home country language capability, the service
group may have responsibility for more than one client. Our service groups are
usually located at our facility in the country where a significant portion of
the customer's sales force is located. This proximity to our customers allows
the service group to provide assistance using a common language.
Typically, we provide services under a multi-year contract. In North
America, we enter into service agreements directly with our customers. Outside
North America, we enter into service agreements through our local wholly owned
subsidiary or branch. Depending upon the size of the customer and the scope of
services to be performed, a dedicated service group may be comprised of five to
100 persons.
SOFTWARE CONFIGURATION
Our pharmaceutical sales force software products are configured to allow
information access and communication among geographically dispersed sales and
marketing personnel and regional and home offices. The core of the configuration
is a central database server, which stores the customer information and
integrates and controls all data flow from external points. Most of the servers
used by our customers are manufactured by IBM, Compaq, Hewlett-Packard or Sun
Microsystems and run on UNIX(TM) or Windows NT(R) operating systems. Servers are
purchased or leased by Dendrite's customers or leased for them by Dendrite. Some
smaller customers lease space on our servers located in various offices
worldwide.
Remote databases are stored on laptop and palmtop computers used by sales
representatives in the field and updated regularly over telephone lines via
modem. Regional sales managers using personal
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computers may access the server via wide area networks. Our customers are
responsible for selecting computer equipment and for deciding when to upgrade or
replace it.
Our pharmaceutical sales force software products permit a sales
representative to send updated information to the central database server.
Similarly, the sales representative can receive information concerning upcoming
calls as well as additional sales efforts planned by other sales representatives
within the same company. This server, in most cases located at one of our
facilities, contains the customer's own database of sales-related information
which is generally maintained and operated for the customer by us.
Our pharmaceutical sales force software products are designed to provide
information to those involved in sales and sales management and also to all
other levels within each sales organization including its senior management. For
example, information directly related to sales, such as travel and expense
reports, may be provided to the finance and personnel departments. Similarly,
representatives in the field can provide information concerning a physician that
can assist managed care sales personnel. These systems create the linkage which
connects a customer's sales and management functions with other business
departments.
Our CPG software products are generally configured in a manner similar to
our pharmaceutical software products. However, CPG sales representatives are
more likely to use handheld or palmtop computing devices than laptop and desktop
personal computers.
CUSTOMERS
Our customers include major multinational pharmaceutical companies,
including: Eli Lilly; Johnson & Johnson; Kissei; Parke-Davis; Pfizer;
Smith-Kline Beecham; and Takeda. In addition, in the CPG market, our customers
include: Bacardi-Martini; Gillette; and Rayovac.
Revenues from Pfizer, Eli Lilly and Rhone-Poulenc Rorer (considering all
affiliates of each customer as part of that customer) in the aggregate accounted
for 58% of our revenues for the year ended December 31, 1996. Revenues from
Pfizer, Johnson & Johnson and Rhone-Poulenc Rorer in the aggregate accounted for
59% of our revenues for the year ended December 31, 1997. Revenues from Pfizer,
Johnson & Johnson and Parke-Davis accounted for 56% of our revenues for the year
ended December 31, 1998. The loss of all or a significant part of the business
of any of these customers would have a material adverse affect on us. See the
heading under "Risk Factors" entitled "We depend on a few major customers for a
significant portion of our revenues".
SALES AND MARKETING
We actively market our sales force software products and services to
prescription-only pharmaceutical and CPG companies in the United States, Western
Europe and the Pacific Rim using regional and local sales and marketing
personnel. Sales presentations are typically made to the customer's management
information services department or sales department. The selection of a sales
force software product often entails an extended decision-making process that
typically takes 9 to 12 months. This process may involve senior levels of
management and, in some cases, the board of directors. For a discussion of the
associated risks, see the heading under "Risk Factors" entitled "Our quarterly
results of operations may fluctuate significantly and may not meet market
expectations -- Our lengthy sales and implementation cycles make it difficult to
predict quarterly revenues".
We work with a potential customer to identify its business requirements in
light of its markets, sales organization and operating structure. We draw upon
our broad product functionality and our experience in the applicable vertical
market to provide a comprehensive, yet highly targeted SFE solution.
The positive response of our customers' sales representatives can influence
the decisions of those customers to license
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additional functionality and/or to contract for expanded support services.
Accordingly, we try to address the concerns of sales personnel during the
training portion of our implementation services. We also promptly respond to
customer communications and evaluate them for indications of potential systemic
problems or changing market trends.
We believe that our relationships with existing customers create additional
sales and marketing opportunities. Further, we believe that our network of
international offices allows us to serve our existing customers in new
locations. Many of our prescription-only pharmaceutical customers also have
over-the-counter operations that provide us with additional sales opportunities.
Finally, we occasionally have entered into several arrangements with
business partners to market our products and/or services jointly. In addition,
we occasionally resell computer hardware and third-party software.
RESEARCH AND DEVELOPMENT
We continue to take advantage of new technologies in developing new
products and services. We charged to expense approximately $6.8, $2.7 and $3.7
million of research and development in the years ended December 31, 1996, 1997
and 1998.
We have capitalized certain costs related to the development of new
software products and the enhancement of existing software products consistent
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed".
Capitalized software development costs net of accumulated amortization were
$2,408,000 at December 31, 1997 and $3,503,000 at December 31, 1998.
COMPETITION
The current market for sales force software products and support services
is highly competitive. Many companies offer SFA and SFE products and/or services
in the prescription-only pharmaceutical and CPG industries. We believe that
there are approximately ten other companies that sell sales force software
products and specifically target the pharmaceutical industry, including:
- - four competitors that are actively selling in more than one country; and
- - three competitors that also offer sales force support services.
We believe that most of our competitors offer sales force software products
and/or services that do not address the variety of customer needs that our
solutions address. However, these competing solutions may cost less than our
solutions.
SFA software products differ greatly in terms of functionality, flexibility
and the type of hardware platform supported. Vendors of SFA software products
also generally do not provide support services to the same extent as SFE
vendors. We believe that our sales force software products and support services
offer customers a more comprehensive solution than SFA software products. We
believe that potential competitors must incur significant expense in order to
develop an integrated, configurable solution for the problems presented by
complex multinational selling environments. While we believe SFA software
products are a less compelling solution, these software products, nonetheless,
often cost less than SFE solutions. We also face competition from many vendors
that market and sell SFA and sales force software products in the CPG market. In
addition, we also compete with many companies that provide support services
similar to our services.
Our sales force products and services compete with others principally on
the basis of the following factors:
- - product flexibility and configuration;
- - platform configuration;
- - name recognition;
- - global competence;
- - service standards;
- - breadth of customer base; and
- - technical support and service.
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<PAGE> 34
We believe our SFE solutions compete favorably with respect to these
factors, and that we are positioned to maintain our market leadership position
through innovative new product and application developments and continued focus
on support services. Some of our existing competitors, as well as a number of
potential market entrants, have larger technical staffs, larger marketing and
sales organizations and greater financial resources than we do.
In the prescription-only pharmaceutical vertical market, two of our
competitors, IMS Health Strategic Technologies and TVF (Cegedim), own and
control, either directly or through affiliated entities, proprietary data
collection systems. It may be possible for a competitor to gain a competitive
advantage in the pricing of its sales force software products with respect to
customers who are interested in purchasing the data it or its affiliates
collect. In addition, as new data sources emerge, companies providing such data
may enter the SFE market and provide SFE solutions to our customers directly.
We believe that competition will increase as new competitors enter the
market to supply sales force software products and/or services and as existing
competitors expand their product lines or consolidate. We also expect that we
may encounter additional competition in the future from firms offering
outsourcing of information technology services and from vendors of software
products providing specialized applications not offered by us, including
enterprise resource planning vendors and data base vendors. We also face
potential competition from our customers and potential customers who may elect
to design and install or to operate their own sales force management systems.
For a discussion of the competitive risks we face in our business, see the
heading under "Risk Factors" entitled "Increased competition may result in price
reductions and decreased demand for our products and services".
PROPRIETARY RIGHTS
We rely on a combination of methods to protect our proprietary intellectual
technology. These include:
- - trade secret, copyright and trademark laws;
- - license agreements with customers containing confidentiality provisions;
- - confidentiality agreements with consultants, vendors and suppliers; and
- - non-disclosure agreements with each of our executive officers and technical
employees.
Existing United States copyright laws provide only limited protection and
even less protection may be available under foreign laws. See the heading under
"Risk Factors" entitled "Our business depends on proprietary technology that we
may not be able to protect completely".
EMPLOYEES
As of December 31, 1998, we employed 771 employees: 507 in the United
States; 210 in Europe; 46 in the Pacific Rim; and 8 in Brazil.
We believe that relations with our employees are good. Our employees
generally are not part of any collective bargaining unit except for our
employees in France who are subject to a national collective bargaining
agreement. We believe that our future growth and success will depend upon our
ability to attract and retain skilled and motivated personnel which is becoming
progressively more difficult for many technology and services companies in many
countries. See the heading under "Risk Factors" entitled "Our success depends on
retaining our key senior management team and on attracting and retaining
qualified personnel".
FACILITIES
We lease a 101,500 square foot building, which serves as our corporate
headquarters in Morristown, New Jersey; a 26,280 square foot building in Basking
Ridge, New Jersey, which houses customer support personnel;
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<PAGE> 35
and a 5,000 square foot warehouse in Somerset, New Jersey. We also lease a total
of 47,800 square feet in twelve locations in Australia, Belgium, Brazil, France,
Germany, Italy, Japan, New Zealand, Spain and the United Kingdom for local
management, sales offices and customer support operations. We believe that our
existing U.S. corporate facilities will become insufficient for our needs in
1999, but that adequate space will be available as needed.
Servers located at our facilities are commonly maintained in a secured area
and are often subject to regular audit and inspection by our customers. We
maintain database servers located at our facilities for substantially all of our
U.S. customers and for a substantial majority of our international customers.
For these customers, we offer a business interruption service which is intended
to protect these customers' businesses in the event of any unforeseen
interruption, interference or disruption of our provision of customer support
services. As part of this offering, we will assist a customer in developing a
business interruption plan, which will include the coordination of the
customer's retention of a disaster recovery provider.
LEGAL PROCEEDINGS
We are occasionally involved in litigation relating to personnel and other
claims arising in the ordinary course of our business. We are not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business.
33
<PAGE> 36
MANAGEMENT
The executive officers and directors of the Company and their respective
ages and positions as of the date of this prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John E. Bailye............................ 45 President, Chief Executive Officer, Director and
Chairman of the Board
R. Bruce Savage........................... 50 Executive Vice President and Chief Operating
Officer
George T. Robson.......................... 51 Executive Vice President and Chief Financial
Officer
Teresa F. Winslow......................... 43 Senior Vice President for U.S. Operations
Mark H. Cieplik........................... 44 Senior Vice President, Worldwide Sales
Jean LaHaie............................... 43 Senior Vice President, SalesPlus Strategic
Business Unit
Christopher J. French..................... 39 Vice President, General Counsel and Secretary
Thierry Durand............................ 38 Vice President, Europe
Bernard M. Goldsmith...................... 55 Director
Edward J. Kfoury.......................... 60 Director
Paul A. Margolis.......................... 45 Director
John H. Martinson......................... 51 Director
Terence H. Osborne........................ 60 Director
</TABLE>
MR. JOHN E. BAILYE has served as President, Chief Executive Officer and
Director since the Company's incorporation in March 1987 and, since October
1991, as Chairman of the Board. Prior to March 1987, Mr. Bailye served as a
market researcher at Foresearch Pty., Limited, a consulting company to the
pharmaceutical industry in Australia. In 1976, Mr. Bailye acquired Foresearch
and served as its Managing Director, until he sold the company in 1986. Mr.
Bailye holds a Bachelor of Commerce in Finance, Marketing and Business from the
University of New South Wales.
MR. R. BRUCE SAVAGE has served as Executive Vice President and Chief
Operating Officer since September 1994. From June 1993 until September 1994, Mr.
Savage served as Vice President, Europe/Asia and, from September 1988 to June
1993, as Vice President, Europe. He also served as General Manager for Dendrite
New Zealand from 1986 to 1987, and as the General Manager of Dendrite Australia
and Dendrite New Zealand from 1987 until September 1988. Prior to joining the
Company, Mr. Savage spent 15 years in the pharmaceutical industry working for
Ciba Geigy (NZ) Limited as Manager of Sales and Marketing. Mr. Savage holds a
Bachelor's degree from Nelson College.
MR. GEORGE T. ROBSON has served as Executive Vice President since February
1999, 1999 and as Senior Vice President and Chief Financial Officer since June
1997. Prior to joining the Company, Mr. Robson served as Senior Vice President
and Chief Financial Officer of H&R Block, Inc. from January 1996 to May 1997,
and as Treasurer of such corporation from June 1996 to May 1997. In addition,
Mr. Robson served as Senior Vice President of Unisys Corporation from April 1991
to January 1996, and as Chief Financial Officer of such corporation from January
1990 until January 1996. Mr. Robson holds a B.S. in Economics from the Wharton
School of the University of Pennsylvania and an M.S. in Management Science from
the State University of New York.
MS. TERESA F. WINSLOW has served as Senior Vice President for U.S.
Operations since June 1997. Ms. Winslow served as Senior Vice President for the
Pfizer Pharmaceutical Global Account Group from September 1996 to June 1997, as
Vice
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<PAGE> 37
President, Sales and Business Development from September 1994 to September 1996,
as Executive Director, International Sales from August 1993 to September 1994,
and as Director of Marketing and Sales, Americas from October 1991 to August
1993. From 1983 to 1991, Ms. Winslow served in various positions at Schering
Laboratories, a division of Schering-Plough Corporation, most recently as
National Sales director. Ms. Winslow is a registered pharmacist. She holds a
B.S. in Pharmacy from the Philadelphia College of Pharmacy and Science.
MR. MARK H. CIEPLIK has served as Senior Vice President, Worldwide Sales
since June 1997. Prior to joining the Company, Mr. Cieplik served as Vice
President, Americas of Interleaf, Inc. from May 1995 to May 1997. In addition,
Mr. Cieplik served as Director, North America Major Accounts for System Software
Associates Inc. from December 1991 to April 1995, and served in various
capacities for IBM Corporation from 1976 until 1991. Mr. Cieplik holds a B.S. in
Marketing from Millikin University.
MR. JEAN LAHAIE has served as Senior Vice President since December 1998. He
is responsible for the SalesPlus Strategic Business Unit. In addition, Mr.
LaHaie served from September 1996 to December 1998 as Senior Vice President,
Business Development, from April 1996 to September 1996 as Vice President,
Product Development, from October 1993 to April 1996 as Executive Director,
Corporate Technical Services, from February 1993 to October 1993 as Director of
Operations, Corporate Technical Services, from April 1992 to February 1993 as
Group Business Director, from July 1991 to April 1992 as Business Director for a
Dendrite service group, and from July 1990 to July 1991 as Project Manager for a
Dendrite service group. Prior to joining the Company, Mr. LaHaie spent nine
years at American Cyanamid Corporation in positions ranging from Industrial
Engineering Manager to International Business Manager for the Middle East and
the Far East. Mr. LaHaie is a graduate of Montreal University Polytechnic
Institute and of McGill Graduate School of Business.
MR. CHRISTOPHER J. FRENCH has served as Vice President and General Counsel
since January 1996, and as Secretary since July 1996. Prior to joining the
Company, Mr. French was an associate at Skadden, Arps, Slate, Meagher & Flom
from 1987 to 1996. Mr. French holds a B.S. in Economics from the Wharton School
of the University of Pennsylvania and a J.D. from Fordham University School of
Law.
MR. THIERRY DURAND has served as Vice President, Europe since July 1997.
Mr. Durand also served as General Manager, France from January 1993 to July 1997
and as a Business Manager in France from September 1992 to September 1993. Mr.
Durand holds a Bachelor's degree, a Master's degree in Economics and a Ph.D in
Computer Sciences and Economy from the University of Lyon. Mr. Durand also holds
an M.B.A. from the University of San Francisco ISG, Paris.
MR. BERNARD M. GOLDSMITH has served as a Director since May 1996. In 1986,
he founded The Updata Group, Inc., an investment banking firm focused on mergers
and acquisitions in the information technology industry. Mr. Goldsmith currently
serves as Managing Director of The Updata Group, Inc. Mr. Goldsmith also founded
Updata Software Company, where he served as Chief Executive Officer from 1986 to
1988 and CGA Computer, Inc., where he served as Chairman and Chief Executive
Officer from 1968 to 1986. Mr. Goldsmith is also a director of Compuware
Corporation and several privately held companies.
MR. EDWARD J. KFOURY has served as a Director since July 1997. Prior to
joining the Company, Mr. Kfoury served as a division President and Vice
President of IBM Corporation from 1988 through 1993 and in various other
positions with IBM Corporation from 1963 to 1988. Mr. Kfoury is also a director
of Mapics, Inc. and five privately held companies. In addition, Mr. Kfoury is a
director of the Nature Conservancy, an advisory trustee of the Maine Audobon
Society, and President of Rangeley Lakes Heritage Trust.
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<PAGE> 38
MR. PAUL A. MARGOLIS has served as a Director since July 1993. Mr. Margolis
is President of Longworth Management Company, Inc., his personal investment
management company. Mr. Margolis is a director of Marcam Corporation, an
applications software and services company for manufacturers which he co-founded
in 1980, and a member of Longworth Capital L.L.C. Mr. Margolis is also Chairman
of the Board of Obtech, Inc., POMS Corporation and Big Brother Association of
Greater Boston, and Past Chairman of the Open Applications Group, Inc., a
non-profit software industry organization. He previously worked as an
independent business consultant and, prior to that, as Manufacturing Manager for
Keltron Corporation. Mr. Margolis holds a B.A. from Brown University and an
M.B.A. from Harvard Business School.
MR. JOHN H. MARTINSON has served as a Director since September 1991. In
1986, he founded the Edison Venture Fund. He currently serves as Managing
Partner of Edison Partners I, II, III and IV and as President of Edison
Management Corporation. Mr. Martinson is also a director of Best Software, Inc.
and eight privately held companies. He is former Chairman of the New Jersey
Technology Council and President-elect of the National Venture Capital
Association. Mr. Martinson holds a B.S. in Aeronautics from the United States
Air Force Academy, an M.S. in Astronautics from Purdue University and an M.B.A.
from Southern Illinois University.
MR. TERENCE H. OSBORNE has served as a Director since August 1998. Mr.
Osborne served as Chairman of Dr. Solomon's Group PLC from 1996 until 1998. Mr.
Osborne also served as President and Chief Operating Officer of System Software
Associates ("SSA"), a computer software company, from November 1994 until
October 1996. From October 1992 until November 1994, he served as SSA's General
Manager and Vice President -- Europe. Prior to joining SSA, he was employed by
IBM Corporation in various capacities since 1961, including vice president level
positions in both the United States and Europe. Mr. Osborne is also Chairman of
Prime Response, Inc. and Cimax International and a director of Mapics, Inc. and
Firepond, Inc.
36
<PAGE> 39
SELLING STOCKHOLDERS
The table below sets forth the beneficial ownership of the Company's common
stock by the selling stockholders as of the date of this prospectus and
following the sale of shares of common stock offered hereby.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING NUMBER OF AFTER OFFERING
----------------------- SHARES -----------------------
NAME OF SELLING STOCKHOLDER NUMBER PERCENTAGE TO BE OFFERED NUMBER PERCENTAGE
- --------------------------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
John E. Bailye................... 3,390,491 14.68% 300,000 2,890,491 11.18%
Carinya Holding Company.......... 649,000 2.83 150,000 499,000 1.94
Bailye Family Foundation......... 56,000 * 50,000 6,000 *
</TABLE>
* Less than 1% of the outstanding shares of common stock.
Except as indicated herein, and as provided by applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock.
The applicable percentage of ownership prior to completion of the offering
is based on 22,956,497 shares of common stock outstanding as of December 31,
1998. The applicable percentage ownership after completion of this offering
includes 2,750,000 shares of common stock offered hereby and assumes that the
option granted to the Underwriters to purchase additional shares is not
exercised.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission"). For purposes of
calculating beneficial ownership, common stock subject to options currently
exercisable or exercisable on or prior to 60 days after the date of this
prospectus are deemed outstanding for computing the percentage ownership of the
person holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
The numbers and percentages of Mr. Bailye's ownership stated in the table
include:
- - options exercisable for 142,000 shares of common stock currently exercisable
or exercisable within 60 days of the date of this prospectus;
- - 649,000 shares held by the Carinya Holdings Company; and
- - 56,000 shares held by the Bailye Family Foundation.
Mr. Bailye disclaims beneficial ownership of the shares owned of record by
Carinya and by the Foundation, except to the extent of the partnership interests
in Carinya held by Mr. Bailye and his spouse.
Carinya is a general partnership consisting of Mr. Bailye, Mr. Bailye's
wife, and trusts for the benefit of each of their two minor children, the
trustees of which are Mr. Bailye's parents and Mrs. Bailye's parents,
respectively, as general partners. The partnership agreement provides that the
voting power with respect to shares owned by the partnership resides with the
majority vote of all partners other than Mr. Bailye.
The Foundation is a trust established exclusively to provide financial
support for charitable organizations, which are exempt institutions under
Section 501(c)(3) of the Internal Revenue Code. Mr. Bailye and his spouse
constitute two of the three trustees of the Foundation.
37
<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
Following this offering, the total amount of our authorized capital stock
will consist of 100,000,000 shares of no par value common stock, and 10,000,000
shares of no par value preferred stock without designation. Upon the completion
of this offering, based on the number of shares outstanding as of December 31,
1998, 25,706,497 shares of common stock will be issued and outstanding, and no
shares of preferred stock will be outstanding. As of March 23, 1999, there were
approximately 95 holders of record.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally
available therefor. Upon the liquidation, dissolution or winding-up of Dendrite,
holders of common stock are entitled to receive ratably the net assets of
Dendrite available for distribution after the payment of all debts and other
liabilities of Dendrite, subject to the prior rights of the holders of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered hereby will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of holders of shares of any class or series of preferred
stock that the Board of Directors may designate and issue in the future. There
will be no shares of preferred stock outstanding immediately following the
consummation of this offering.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 10,000,000 shares of preferred stock in one or more
classes and one or more series within each class and to fix the relative rights,
preferences, and limitations of the shares within each such class and series,
including the dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, conversion rights and preemptive rights and
the number of shares constituting any series. The Board of Directors may retain
the authority, pursuant to our Restated Certificate of Incorporation and subject
to certain limitations prescribed by law, without further stockholder action, to
redesignate the preferred stock as undesignated shares of stock. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could adversely affect the
voting and other rights of holders of common stock, and, under certain
circumstances, make it more difficult or costly for a third party to acquire, or
discourage a third party from attempting to acquire, control of us. We have no
present plans to issue any shares of preferred stock.
NEW JERSEY LAW AND CERTAIN CHARTER PROVISIONS
We are subject to the New Jersey Shareholders Protection Act, which
prohibits a publicly held New Jersey corporation from engaging in a "business
combination" with an "interested stockholder" for a period of five years after
the date of the transaction in which the interested stockholder became an
interested stockholder, unless:
- -the business combination is approved by the Board of Directors in a prescribed
manner;
- -two-thirds of the shares not beneficially owned by the interested stockholder
vote in favor of the business combination; or
- -the combination meets certain objective tests designed to ensure the
stockholders receive a fair price for their shares.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an
38
<PAGE> 41
"interested stockholder" is a person who together with affiliates and
associates, owns, or within the five years preceding the date of such
determination did own, 10% or more of the New Jersey corporation's voting stock.
Our Restated Certificate of Incorporation, as permitted by New Jersey law,
eliminates the personal liability of each of the directors and officers to us or
our stockholders for monetary damages for breaches of the director's or
officer's duty of care or other duties as a director or officer, except
liabilities for any breach of duty based upon an act or omission:
- -in breach of such person's duty of loyalty to the corporation or its
stockholders;
- - not in good faith or involving a knowing violation of law; or
- - resulting in receipt by such person of an improper personal benefit.
In addition, our Restated By-laws provide broad indemnification rights to
directors and officers so long as the director or officer acted in a manner
believed in good faith to be in or not opposed to our best interest, and with
respect to criminal proceedings if the director had no reasonable cause to
believe his or her conduct was unlawful. We believe that the protection provided
by these provisions will help us attract and retain qualified individuals to
serve as officers and directors. These provisions also will limit the remedies
available to a stockholder who is dissatisfied with a Board decision protected
by these provisions, and such stockholder's only remedy may be to bring a suit
to prevent the Board's action.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of our common stock is Continental Stock
Transfer & Trust Company.
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed upon for
Dendrite by Sullivan & Cromwell, New York, New York. Certain matters relating to
the offering will also be passed upon for Dendrite by Buchanan Ingersoll
Professional Corporation, Princeton, New Jersey, and for the Underwriters by
Ropes & Gray, Boston, Massachusetts. Sullivan & Cromwell and Ropes & Gray may
rely upon the opinion of Buchanan Ingersoll as to all matters governed by New
Jersey law.
EXPERTS
Our consolidated financial statements of our as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998,
included and incorporated by reference in this prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in this prospectus in reliance upon the authority of said firm as
experts in giving said reports.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act, and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. You may read and copy all or any portion of the
Registration Statement or any reports, statements or other information we file
at the Commission's public reference room at 450 Fifth Street, N.W., Room 1024,
Judiciary Plaza, Washington, D.C. 20549, as well as the Commission's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10045 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
39
<PAGE> 42
Illinois 60611. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the Commission. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our Commission filings, including the Registration Statement, are also
available to you on the Commission Internet site (http://www.sec.gov). Our
common stock is quoted on the Nasdaq National Market. Reports, proxy and
information statements and other information concerning our company can also be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006. We will provide without charge to each
person to whom this prospectus has been delivered, upon written or oral request
of such person, a copy (without exhibits other than exhibits specifically
incorporated by reference) of any or all documents incorporated by reference
into this prospectus. Requests for such copies should be directed to 1200 Mt.
Kemble Avenue, Morristown, New Jersey 07960-6797, Attention: Secretary,
telephone number (973) 425-1200. We have filed with the Commission a
Registration Statement on Form S-3 (including all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with respect to
the common stock offered hereby. This prospectus, which constitutes a part of
the Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. For further information with respect to our company and
our common stock, reference is made to the Registration Statement and the
exhibits and schedules thereto. Statements contained in this prospectus
regarding the contents of any agreement or other document filed as an exhibit to
the Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K for the fiscal year ended December 31, 1998
filed by the Company (File No. 0-26138) with the Commission pursuant to the
Exchange Act is incorporated by reference herein and made a part hereof.
All documents we have filed pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of the initial filing of the
Registration Statement of which this prospectus forms a part and prior to the
termination of the offering of the common stock made hereby shall be deemed
incorporated by reference in this prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein by reference, or contained in
this prospectus, shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
40
<PAGE> 43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Dendrite International, Inc.:
We have audited the accompanying consolidated balance sheets of Dendrite
International, Inc. (a New Jersey corporation) and Subsidiaries as of December
31, 1997 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dendrite International, Inc.
and Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
January 27, 1999
F-2
<PAGE> 45
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $15,917 $31,298
Short-term investments................................. 2,955 9,614
Accounts receivable, net............................... 24,724 17,082
Prepaid expenses and other............................. 2,222 3,090
Prepaid taxes.......................................... -- 921
Deferred tax asset..................................... 441 467
------- -------
Total current assets.............................. 46,259 62,472
PROPERTY AND EQUIPMENT, net................................. 3,110 5,267
DEFERRED TAXES.............................................. 667 1,077
GOODWILL, net............................................... 575 2,496
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net................. 2,408 3,503
------- -------
$53,019 $74,815
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 2,211 $ 2,002
Income taxes payable................................... 867 122
Accrued compensation and benefits...................... 3,439 4,012
Other accrued expenses................................. 4,352 6,953
Deferred revenues...................................... 1,409 1,420
------- -------
Total current liabilities......................... 12,278 14,509
------- -------
DEFERRED RENT............................................... 598 392
------- -------
CAPITALIZED LEASE OBLIGATIONS............................... -- 355
DEFERRED TAXES.............................................. 1,970 2,889
------- -------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares
authorized, none issued............................... -- --
Common stock, no par value, 100,000,000 shares
authorized, 22,659,548 and 23,357,497 shares issued
and 22,258,548 and 22,956,497 outstanding............. 32,814 40,050
Retained earnings...................................... 9,268 20,535
Deferred compensation.................................. (1,141) (1,494)
Accumulated other comprehensive income................. (841) (494)
Less treasury stock, at cost........................... (1,927) (1,927)
------- -------
Total stockholders' equity........................ 38,173 56,670
------- -------
$53,019 $74,815
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 46
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
REVENUES:
License fees.......................................... $ 8,774 $ 7,707 $ 12,827
Services.............................................. 57,472 70,739 99,691
------- ------- --------
66,246 78,446 112,518
------- ------- --------
COSTS OF REVENUES:
Cost of license fees.................................. 832 1,758 2,314
Cost of services...................................... 31,544 36,894 47,558
------- ------- --------
32,376 38,652 49,872
------- ------- --------
Gross margin..................................... 33,870 39,794 62,646
------- ------- --------
OPERATING EXPENSES:
Selling, general and administrative................... 26,440 29,905 39,853
Research and development.............................. 6,834 2,676 3,687
Write-off of in-process research and development...... 2,640 -- 1,230
------- ------- --------
35,914 32,581 44,770
------- ------- --------
Operating income (loss).......................... (2,044) 7,213 17,876
INTEREST INCOME............................................ 1,167 529 1,090
OTHER EXPENSE.............................................. (391) (201) (317)
------- ------- --------
Income (loss) before income taxes................ (1,268) 7,541 18,649
INCOME TAXES............................................... 644 2,931 7,382
------- ------- --------
NET INCOME (LOSS).......................................... $(1,912) $ 4,610 $ 11,267
======= ======= ========
NET INCOME (LOSS) PER SHARE:
Basic................................................. $ (0.09) $ 0.21 $ 0.50
======= ======= ========
Diluted............................................... $ (0.09) $ 0.20 $ 0.46
======= ======= ========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE:
Basic................................................. 22,112 22,262 22,580
======= ======= ========
Diluted............................................... 22,112 23,036 24,623
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 47
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
----------------- RETAINED DEFERRED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT EARNINGS COMPENSATION INCOME INCOME TREASURY STOCK
------ ------ -------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995........ 21,352 $26,809 $ 6,570 $ (502) $ (567) $ --
Issuance of common stock......... 376 1,094 -- (838) -- --
Amortization of deferred
compensation................... -- -- -- 113 -- --
Issuance of common stock from
consummation of public
offering, net of offering
costs.......................... 600 4,295 -- -- -- --
Comprehensive income:
Net loss......................... -- -- (1,912) -- -- $(1,912) --
Other comprehensive income:
Realization of gain on short-term
investments.................... -- -- -- -- (14) (14) --
Currency translation adjustment.. -- -- -- -- 128 128 --
-------
Comprehensive income............. $(1,798)
------- ------- ------- ------- ------- ======= -------
BALANCE, DECEMBER 31, 1996........ 22,328 32,198 4,658 (1,227) (453) --
Issuance of common stock......... 332 616 -- (20) -- --
Amortization of deferred
compensation................... -- -- -- 106 -- --
Purchase of 401,000 shares of
treasury stock................. (401) -- -- -- -- (1,927)
Comprehensive income:
Net income....................... -- -- 4,610 -- -- $ 4,610 --
Other comprehensive income:
Currency translation adjustment.. -- -- -- -- (388) (388) --
-------
Comprehensive income............. $ 4,222
------- ------- ------- ------- ------- ======= -------
BALANCE, DECEMBER 31, 1997........ 22,259 32,814 9,268 (1,141) (841) (1,927)
Issuance of common stock......... 697 5,876 -- (394)
Amortization of deferred
compensation................... -- -- -- 41 --
Stock option income tax
benefits....................... -- 1,360 -- -- --
Comprehensive income:
Net income....................... -- -- 11,267 -- -- $11,267 --
Other comprehensive income:
Currency translation adjustment.. -- -- -- -- 347 347 --
-------
Comprehensive income............. $11,614
------- ------- ------- ------- ------- ======= -------
BALANCE, DECEMBER 31, 1998........ 22,956 $40,050 $20,535 $(1,494) $ (494) $(1,927)
======= ======= ======= ======= ======= =======
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, DECEMBER 31, 1995........ $32,310
Issuance of common stock......... 256
Amortization of deferred
compensation................... 113
Issuance of common stock from
consummation of public
offering, net of offering
costs.......................... 4,295
Comprehensive income:
Net loss......................... (1,912)
Other comprehensive income:
Realization of gain on short-term
investments.................... (14)
Currency translation adjustment.. 128
Comprehensive income.............
-------
BALANCE, DECEMBER 31, 1996........ 35,176
Issuance of common stock......... 596
Amortization of deferred
compensation................... 106
Purchase of 401,000 shares of
treasury stock................. (1,927)
Comprehensive income:
Net income....................... 4,610
Other comprehensive income:
Currency translation adjustment.. (388)
Comprehensive income.............
-------
BALANCE, DECEMBER 31, 1997........ 38,173
Issuance of common stock......... 5,482
Amortization of deferred
compensation................... 41
Stock option income tax
benefits....................... 1,360
Comprehensive income:
Net income....................... 11,267
Other comprehensive income:
Currency translation adjustment.. 347
Comprehensive income.............
-------
BALANCE, DECEMBER 31, 1998........ $56,670
=======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 48
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $(1,912) $ 4,610 $ 11,267
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 2,037 2,740 3,020
Deferred income taxes (benefit)........................ (304) 808 160
Write-off of in-process research and development....... 2,640 -- 1,230
Changes in assets and liabilities, net of effect from
acquisition:
(Increase) decrease in accounts receivable........... (3,193) (6,137) 7,114
Increase in prepaid expenses and other............... (253) (669) (904)
(Increase) decrease in prepaid income taxes.......... (1,397) 1,397 --
Increase in accounts payable and accrued expenses.... 2,461 1,092 2,886
Increase (decrease) in deferred rent................. 262 (128) (206)
Increase (decrease) in income taxes payable.......... (1,931) 283 (427)
(Increase) decrease in deferred revenues............. (1,174) (678) 66
------- ------- --------
Net cash provided by (used in) operating
activities...................................... (2,764) 3,318 24,206
------- ------- --------
INVESTING ACTIVITIES:
Purchases of short-term investments....................... (8,271) (3,800) (13,552)
Sales of short-term investments........................... 10,805 9,266 6,893
Purchases of businesses, net of cash acquired............. (2,965) -- (2,295)
Purchases of property and equipment....................... (772) (1,246) (1,974)
Additions to capitalized software development costs....... (1,296) (919) (1,637)
------- ------- --------
Net cash provided by (used in) investing
activities...................................... (2,499) 3,301 (12,565)
------- ------- --------
FINANCING ACTIVITIES:
Payments on capital lease obligations..................... -- -- (93)
Issuance of Common stock from consummation of public
offering, net of offering costs........................ 4,295 -- --
Purchase of treasury stock................................ -- (1,927) --
Issuance of common stock.................................. 256 596 3,703
------- ------- --------
Net cash provided by (used in) financing
activities...................................... 4,551 (1,331) 3,610
------- ------- --------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH............. 94 (283) 130
------- ------- --------
NET INCREASE (DECREASE) IN CASH............................. (618) 5,005 15,381
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 11,530 10,912 15,917
------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $10,912 $15,917 $ 31,298
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 49
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Dendrite International, Inc. and Subsidiaries (the "Company") provides
comprehensive Sales Force Effectiveness solutions used to manage, coordinate and
control the activities of large sales forces in complex selling environments
primarily within the ethical pharmaceutical industry. The Company also markets
its products in the consumer packaged goods market. The Company's solutions
combine proprietary software products with extensive system support services.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Dendrite
International, Inc. and its wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation. Pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation,"
substantially all assets and liabilities of the Company's wholly-owned
international subsidiaries are translated at their respective period-end
currency exchange rates and revenues and expenses are translated at average
currency exchange rates for the period. The resulting translation adjustments
are accumulated in a separate component of stockholders' equity. All foreign
currency transaction gains and losses are included in other expense on the
accompanying statements of operations and are immaterial in each year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company generally recognizes license fees as revenue using the
percentage-of-completion method over a period of time that commences with the
execution of the license agreement and ends with the completion of initial
customization and installation, if any. Some of the Company's newer products do
not require initial customization. If the customer does not request such
customization, the Company generally recognizes the license fees from these
products upon delivery, assuming the services to be provided are not essential
to the functionality of the software. The Company's software licensing
agreements provide for a warranty period (typically 180 days from the date of
execution of the agreement). The portion of the license fee associated with the
warranty period is unbundled from the license fee and is recognized ratably over
the warranty period. The Company does not recognize any license fees unless
persuasive evidence of an arrangement exists, the license amount is fixed and
determinable and collectability is probable.
The Company recognizes license fees from certain third party software
embedded into the product when the related license fees are recognized. The cost
of third party software is included in cost of license fees in the accompanying
statements of operations. For the years ended December 31, 1996, 1997 and 1998,
the Company recorded $112,000, $796,000 and $1,208,000,
F-7
<PAGE> 50
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, of license fees and $93,000, $658,000 and $922,000, respectively,
of cost of license fees relating to third party software.
Revenues from services are recognized as the services are performed.
Revenues from customer maintenance, support and data server rental agreements
are recognized ratably over the terms of the agreements.
Services are generally provided under multiyear contracts. The contracts
specify the payment terms, which are generally over the term of the contract and
generally provide for termination in the event of breach, as defined in the
contract.
Deferred Revenues
Deferred revenues represent amounts collected from or invoiced to customers
in excess of revenues recognized. Such amounts are recognized as revenue when
the related significant performance obligations have been satisfied.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental Cash Flow Information
For the years ended December 31, 1996 and 1997, the Company paid no
interest. For the year ended December 31, 1998, the Company paid interest of
$10,000. For the years ended December 31, 1996, 1997 and 1998, the Company paid
income taxes of $4,346,000, $422,000 and $7,528,000, respectively.
F-8
<PAGE> 51
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table lists noncash assets that were acquired and liabilities
that were assumed as a result of the acquisitions discussed in Note 2:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1998
---------- -----------
<S> <C> <C>
Noncash assets:
Accounts receivable..................................... $ 823,000 $ 301,000
Prepaid expenses........................................ 31,000 59,000
Property and equipment.................................. 91,000 408,000
Capitalized software development costs.................. -- 850,000
Goodwill................................................ 860,000 2,226,000
---------- -----------
1,805,000 3,844,000
Assumed liabilities:
Accounts payable........................................ (488,000) (294,000)
Income taxes payable.................................... -- (121,000)
Accrued compensation and benefits....................... (250,000) --
Other accrued expenses.................................. (613,000) (396,000)
Deferred revenues....................................... (129,000) (107,000)
Deferred taxes.......................................... -- (323,000)
---------- -----------
Net noncash assets acquired.......................... 325,000 2,603,000
Write-off of in-process research and development.......... 2,640,000 1,230,000
Purchase price paid in stock......................... -- (1,538,000)
---------- -----------
Cash paid, net of cash acquired...................... $2,965,000 $ 2,295,000
========== ===========
</TABLE>
Short-Term Investments
The Company follows SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Management determines the appropriate
classification of debt and equity securities at the time of purchase and
reevaluates such designation as of each balance sheet date. The Company invests
in highly rated corporate bonds and municipal bonds. At December 31, 1997 and
1998, all marketable securities have been classified as available-for-sale.
Available-for-sale securities are carried at fair value, based on quoted market
prices, with unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. Realized gains and losses, computed using
specific identification, and declines in value determined to be permanent are
recognized in the statement of operations.
Property and Equipment
Fixed assets are stated at cost. Depreciation and amortization are provided
generally on the straight-line basis over the estimated useful lives of the
respective assets, which range from 3 to 15 years. Leasehold improvements are
amortized using the straight-line method over the estimated useful lives of the
assets or the lease terms, whichever are shorter. Maintenance, repairs and minor
replacements are charged to expense as incurred.
Capitalized Software Development Costs
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes
certain costs related to the
F-9
<PAGE> 52
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development of new software products or the enhancement of existing software
products for sale or license. These costs are capitalized from the point in time
that technological feasibility has been established, as evidenced by a working
model or a detailed working program design, to the point in time that the
product is available for general release to customers. Capitalized software
development costs are amortized on a product by product basis over the greater
of the ratio of current revenues to total anticipated revenues or on a
straight-line basis over the estimated economic lives of the products (no longer
than four years), beginning with the release to the customer. Research and
development costs incurred prior to establishing technological feasibility and
costs incurred subsequent to general product release to customers are charged to
expense as incurred. The Company continually evaluates whether events or
circumstances have occurred that indicate that the remaining useful lives of the
capitalized software development costs should be revised or that the remaining
balance of such assets may not be recoverable. As of December 31, 1998,
management believes that no revisions to the remaining useful lives or
write-down of capitalized development costs is required.
Capitalized software development costs are net of accumulated amortization
of $3,041,000 and $4,433,000 at December 31, 1997 and 1998, respectively. The
Company capitalized software development costs of $1,296,000, $919,000 and
$2,487,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
Included in the 1998 additions to capitalized software development costs are
$850,000 of costs related to the acquisition of Associated Business Computing
N.V. and an affiliated company (collectively "ABC"). Amortization of capitalized
software development costs for the years ended December 31, 1996, 1997 and 1998,
was $739,000, $1,100,000 and $1,392,000, respectively, and is included in cost
of license fees in the accompanying consolidated statements of operations.
Intangible Assets
Goodwill of $3,086,000 is being amortized on a straight-line basis over
five to seven years (see Note 2). Amortization of goodwill for the years ended
December 31, 1996, 1997 and 1998 was $113,000, $172,000 and $305,000,
respectively.
Impairment of Long-Lived Assets
The Company follows SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
reviews its long-lived assets, including property and equipment, capitalized
software development costs and goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. To determine recoverability of its long-lived assets, the
Company evaluates the probability that future undiscounted net cash flows,
without interest charges, will be less than the carrying amount of the assets.
Impairment is measured at fair value.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates
that are expected to be in effect when the differences reverse.
At December 31, 1998, there were approximately $3,581,000 of accumulated
undistributed earnings of subsidiaries outside the United States that are
considered to be reinvested
F-10
<PAGE> 53
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indefinitely. If such earnings were remitted to the Company, applicable U.S.
federal income and foreign withholding taxes may be partially offset by foreign
tax credits.
Major Customers
In the year ended December 31, 1996, the Company derived approximately 36%
and 14% of its revenues from its two largest customers. In the year ended
December 31, 1997, the Company derived approximately 33%, 15% and 11% from its
three largest customers, two of which were the Company's largest customers in
1996. In the year ended December 31, 1998, the Company derived approximately 36%
and 12% of its revenues from its two largest customers, both of which were among
the Company's three largest customers in 1997.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade receivables. The
Company invests its excess cash with large banks. The Company's customer base
principally comprises companies within the ethical pharmaceutical industry. The
Company does not require collateral from its customers.
Net Income (Loss) Per Share
The Company has presented net income (loss) 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 (loss) per share (Basic EPS) was computed by dividing the net
income (loss) for each year by the weighted average number of shares of common
stock outstanding for each year. Diluted income (loss) per share (Diluted EPS)
was computed by dividing net income (loss) for each year by the weighted average
number of shares of common stock and common stock equivalents outstanding during
each year.
The computation of shares used for Basic EPS and Diluted EPS is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1996 1997 1998
--------------------------------------- --------------------------------------- -----------
LOSS SHARES PER-SHARE INCOME SHARES PER-SHARE INCOME
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR)
----------- ------------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)........ $(1,912) $4,610 $11,267
Basic EPS................ 22,112 $(0.09) 22,262 $0.21
Effect of dilutive
securities
Stock options............ -- 774
------ ------
Diluted EPS.............. 22,112 $(0.09) 23,036 $0.20
====== ====== ====== =====
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998
-------------------------
SHARES PER-SHARE
(DENOMINATOR) AMOUNT
------------- ---------
<S> <C> <C>
Net income (loss)........
Basic EPS................ 22,580 $0.50
Effect of dilutive
securities
Stock options............ 2,043
------
Diluted EPS.............. 24,623 $0.46
====== =====
</TABLE>
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
and is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Management believes that SFAS 133 will have no impact on the Company's
consolidated financial statements.
F-11
<PAGE> 54
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Recapitalization
In August 1998, the Company amended its articles of incorporation to
reflect a 2-for-1 split of its common shares and to change the number of
authorized common shares to 100,000,000. All references in the consolidated
financial statements to the number of shares and to per share amounts have been
retroactively restated to reflect these changes.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with current year presentation.
During the second quarter of 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 related to client specific activities. For consistency of
presentation, prior periods have been reclassified. The reclassification for the
years ended December 31, 1996 and 1997 was $1,913,000 and $2,540,000.
2. ACQUISITIONS:
On May 1, 1996, the Company acquired 100% of the capital stock of SRCI,
S.A. ("SRCI") for approximately $3,198,000 and transaction costs of $302,000.
The purchase was accounted for under the purchase method of accounting, whereby
the purchase price is allocated to the assets acquired and liabilities assumed
of SRCI based on their fair market values at the acquisition date. The excess of
purchase price over the fair value of net assets acquired was assigned to
identifiable intangibles. The Company assigned $2,640,000 to in-process research
and development and such amount was written off in the accompanying consolidated
statements of operations. The Company also recorded $860,000 as goodwill. SRCI's
results of operations have been included in the Company's consolidated financial
statements from the date of acquisition.
On July 24, 1998, the Company acquired 100% of the capital stock of ABC for
approximately $4,013,000 and transaction costs of $150,000. The purchase was
accounted for under the purchase method of accounting, whereby the purchase
price is allocated to the assets and liabilities assumed of ABC based on their
respective fair market values at the acquisition date. The excess of purchase
price over the fair value of net assets acquired was assigned to identifiable
intangibles. The Company assigned $1,230,000 to in-process research and
development and such amount was written-off in the accompanying consolidated
statements of operations. The Company also recorded $2,226,000 as goodwill.
ABC's results of operations have been included in the Company's financial
consolidated statements from the date of acquisition.
F-12
<PAGE> 55
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
---- ----
<S> <C> <C>
Computer hardware and other equipment.......... $ 4,861,000 $ 7,471,000
Furniture and fixtures......................... 1,573,000 1,692,000
Leasehold improvements......................... 870,000 1,557,000
----------- -----------
7,304,000 10,720,000
Less -- Accumulated depreciation and
amortization................................. (4,194,000) (5,453,000)
----------- -----------
$ 3,110,000 $ 5,267,000
=========== ===========
</TABLE>
4. REVOLVING LINE OF CREDIT:
During the year ended December 31, 1998, the Company amended its revolving
line of credit agreement with a bank which provides for borrowings of up to
$15,000,000 and is available to finance working capital needs and possible
future acquisitions. The agreement requires, among other covenants, that the
Company maintain a minimum consolidated net worth, measured quarterly, which is
equal to the Company's net worth as of December 31, 1997 plus 50% of the
Company's net income earned after January 1, 1998, and 75% of the net proceeds
of any stock offerings. This covenant has the effect of limiting the amount of
cash dividends the Company may pay. As of December 31, 1998, approximately
$43,806,000 was available for the payment of dividends under this covenant. The
line of credit expires on November 30, 2001. The Company has never had any
borrowings under this revolving line of credit.
5. INCOME TAXES:
The components of income (loss) before income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Domestic................................. $(1,211,000) $5,990,000 $18,209,000
Foreign.................................. (57,000) 1,551,000 440,000
----------- ---------- -----------
$(1,268,000) $7,541,000 $18,649,000
=========== ========== ===========
</TABLE>
F-13
<PAGE> 56
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current Provision:
Federal................................... $ 575,000 $1,933,000 $6,893,000
State..................................... -- -- --
Foreign................................... 373,000 190,000 329,000
--------- ---------- ----------
948,000 2,123,000 7,222,000
Deferred Provision (Benefit):
Federal................................... (149,000) 71,000 (199,000)
State..................................... 102,000 389,000 399,000
Foreign................................... (257,000) 348,000 (40,000)
--------- ---------- ----------
(304,000) 808,000 160,000
--------- ---------- ----------
$ 644,000 $2,931,000 $7,382,000
========= ========== ==========
</TABLE>
The reconciliation of the statutory Federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate................................. (34.0)% 34.0% 34.0%
Impact of foreign subsidiaries subject to higher tax
rates.................................................... 0.2 0.1 --
Impact of enacted change in German tax rates on deferred
tax assets............................................... 4.6 -- --
State income taxes, net of federal tax benefit............. (5.0) 4.8 3.4
Nondeductible expenses..................................... 3.8 0.6 0.8
Write-off of in-process research and development........... 81.1 -- 2.5
Tax credits utilized....................................... -- (0.6) (1.2)
----- ---- ----
50.7% 38.9% 39.5%
===== ==== ====
</TABLE>
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
---- ----
<S> <C> <C>
Gross deferred tax asset:
Depreciation and amortization.................. $ 303,000 $ 426,000
Foreign net operating loss..................... 1,021,000 1,309,000
Accruals and revenues not currently
deductible.................................. 87,000 234,000
Other.......................................... 418,000 334,000
----------- -----------
$ 1,829,000 $ 2,303,000
=========== ===========
Gross deferred tax liability:
Capitalized software development costs......... $ (598,000) $(1,357,000)
Other.......................................... (2,093,000) (2,291,000)
----------- -----------
$(2,691,000) $(3,648,000)
=========== ===========
</TABLE>
F-14
<PAGE> 57
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recorded a deferred tax asset of $1,309,000 reflecting the
benefit of approximately $3,000,000 in foreign loss carryforwards, which expire
in varying amounts commencing in 2000. Realization is dependent on generating
sufficient foreign taxable income prior to the expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
6. EQUITY PLANS:
STOCK OPTION PLANS
The Company has three stock option plans that provide for the granting of
options, the awarding of stock and the purchase of stock. Options granted under
the three stock option plans generally vest over a four-year period and are
exercisable over a period not to exceed ten years both as determined by the
Board of Directors. Incentive stock options are granted at fair value.
Nonqualified options are granted at exercise prices determined by the Board of
Directors.
Information with respect to the options under the three stock option plans
is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE AGGREGATE
SHARES PER SHARE PROCEEDS
------ -------------- ---------
<S> <C> <C> <C>
Outstanding December 31, 1995........... 1,169,500 $0.315-$ 9.56 $ 1,831,337
Granted............................... 448,000 $8.155-$15.75 5,711,726
Exercised............................. (368,500) $0.315-$ 5.00 (256,138)
Canceled.............................. (117,500) $1.35 -$15.75 (1,021,855)
--------- ------------- -----------
Outstanding December 31, 1996........... 1,131,500 $0.315-$15.75 6,265,070
Granted............................... 2,910,000 $3.969-$10.47 20,745,667
Exercised............................. (261,750) $0.315-$ 5.00 (189,644)
Canceled.............................. (213,000) $0.315-$15.75 (1,969,909)
--------- ------------- -----------
Outstanding December 31, 1997........... 3,566,750 $0.315-$15.75 $24,851,184
Grants................................ 1,114,000 $9.500-$22.72 18,924,692
Exercises............................. (557,300) $0.500-$15.75 (3,125,920)
Terminations.......................... (336,750) $ 3.97-$15.75 (2,357,250)
--------- ------------- -----------
Outstanding December 31, 1998........... 3,786,700 $ 0.32-$22.72 38,292,706
========= ============= ===========
</TABLE>
At December 31, 1998, there were 1,026,800 options exercisable at
$1.35-$15.75 per share. The aggregate exercise price of these options was
$7,313,519 as of December 31, 1998.
The Company adopted the disclosure requirement of SFAS No. 123, "Accounting
for Stock-Based Compensation," effective for the Company's December 31, 1996
financial statements. The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its plans. Accordingly,
compensation cost has been computed for the stock option plans based on the
intrinsic value of the stock option at the date of grant, which represents the
difference between the exercise price and the fair value of the Company's stock.
As the exercise price of the stock options equaled the fair value of the
Company's stock at the date of option
F-15
<PAGE> 58
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issuance, no compensation cost has been recorded in the accompanying statements
of operations. Had compensation cost for the three option plans and the employee
stock purchase plan been determined consistent with SFAS No. 123, the Company's
net income (loss) and net income (loss) per share would have been adjusted to
the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income (loss):
As reported............................ $(1,912,000) $4,610,000 $11,267,000
Pro forma.............................. $(2,404,000) $2,335,000 $ 5,468,000
Basic income (loss) per share:
As reported............................ $(.09) $.21 $.50
Pro forma.............................. $(.11) $.10 $.24
Diluted income (loss) per share:
As reported............................ $(.09) $.20 $.46
Pro forma.............................. $(.11) $.10 $.23
</TABLE>
Because the SFAS No. 123 method of accounting is not required to be applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. The weighted average fair value of options granted was $8.67, $4.93 and
$10.97 for the years ended December 31, 1996, 1997 and 1998, respectively.
Information with respect to the options outstanding under the three stock
option plans at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING NUMBER
EXERCISE PRICE EXERCISE CONTRACTUAL OF VESTED
PER SHARE SHARES PRICE LIFE SHARES
- -------------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C>
$1.35-$3.96 531,750 $ 3.00 7.57 298,750
$5.00-$6.37 680,500 $ 5.90 8.07 205,500
$8.00-$11.875 1,605,750 $ 9.88 8.68 425,550
$13.25-$20.94 696,700 $15.53 9.19 97,000
$21.00-$22.72 272,000 $22.07 9.73 --
--------- ------ --- ---------
3,786,700 $10.11 9.01 1,026,800
========= ====== === =========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in 1996, 1997 and 1998: risk-free interest rates ranging from 5.4% to
6.9% based on the rate in effect on the date of grant; no expected dividend
yield; expected lives of 6.0 years for the options; and expected volatility of
70%.
EMPLOYEE STOCK PURCHASE PLAN
In 1997, the Company established an employee stock purchase plan that
provides full-time employees the opportunity to purchase shares at 85% of fair
value on dates determined by the Board of Directors, up to a maximum 10% of
their eligible compensation or $21,250, whichever is less. There were 300,000
shares available for purchase under this plan, of which 42,236 and 55,858 were
purchased in 1997 and 1998, respectively.
F-16
<PAGE> 59
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ANNIVERSARY STOCK PLAN
The Company grants 200 shares of the Company's common stock to all
employees who commenced employment prior to December 31, 1998 in July following
their fifth anniversary of employment. The cost of the anniversary stock plan is
accrued over the employment period of the employees.
7. SAVINGS AND DEFERRED COMPENSATION PLANS:
The Company maintains Employee Savings Plans (the "Plans") that cover
substantially all of its full-time U.S. and U.K. employees. All eligible
employees may elect to contribute a portion of their wages to the Plans, subject
to certain limitations. In addition, the Company contributes to the Plans at the
rate of 50% of the employee's contributions up to a maximum of 3% of the
employee's salary. The Company's contributions to the Plans were $222,000,
$212,000 and $308,000 in the years ended December 31, 1996, 1997 and 1998,
respectively.
The Company also maintains a noncontributory pension plan that covers
substantially all of its full-time Japanese employees. All contributions to this
pension plan are made by the Company in accordance with prescribed statutory
requirements. The Company's contributions to the Plan were $56,000, $76,000 and
$74,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
In 1998, the Company created a deferred compensation plan. Under the plan,
eligible, highly compensated employees, as defined, can elect to defer a portion
of their compensation and determine the nature of the investments which will be
used to calculate earnings on the deferred amounts. The Company will record the
deferrals as a liability and intends to place a corresponding amount into a
trust fund.
8. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities and equipment under various operating
leases with remaining noncancelable lease terms generally in excess of one year.
Rent expense was $3,709,000, $4,867,000 and $5,537,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. Future minimum rental payments
at December 31, 1998, on these leases are as follows:
<TABLE>
<S> <C>
1999................................................ $ 7,088,000
2000................................................ 4,057,000
2001................................................ 2,218,000
2002................................................ 1,650,000
2003................................................ 1,170,000
Thereafter.......................................... 972,000
-----------
$17,155,000
===========
</TABLE>
From time to time the Company is involved in certain legal actions arising
in the ordinary course of business. In the Company's opinion, the outcome of
such actions will not have a material adverse effect on the Company's financial
position or results of operations.
9. RELATED-PARTY TRANSACTIONS:
The Company paid approximately $78,000 and $33,000 in the years ended
December 31, 1996 and 1997, respectively, to an entity owned by the President
and Chief Executive Officer of the Company for rental and usage of an aircraft.
F-17
<PAGE> 60
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. GEOGRAPHIC SEGMENT DATA:
See Note 1 for a brief description of the Company's business. The Company
is organized by geographic locations and has two reportable segments: the United
States and Europe. All license fees are recorded in the United States; service
fees are recorded in the location in which the sale originates and the service
is performed. All transfers between geographic areas have been eliminated from
consolidated net sales. Operating income consists of total net sales recorded in
the location less operating expenses and does not include interest income, other
expense or income taxes. This data is presented in accordance with SFAS No. 131
"Disclosure About Segments of an Enterprise and Related Information".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
United States............................. $38,521,000 $49,039,000 $ 85,650,000
All Other................................. 27,725,000 29,407,000 26,870,000
----------- ----------- ------------
$66,246,000 $78,446,000 $112,520,000
=========== =========== ============
Operating income (loss):
United States............................. $(1,940,000) $ 5,889,000 $ 17,757,000
All Other................................. (104,000) 1,324,000 119,000
----------- ----------- ------------
$(2,044,000) $ 7,213,000 $ 17,876,000
=========== =========== ============
Identifiable assets:
United States............................. $35,911,000 $38,293,000 $ 58,938,000
All Other................................. 13,304,000 14,726,000 14,620,000
----------- ----------- ------------
$49,215,000 $53,019,000 $ 73,558,000
=========== =========== ============
</TABLE>
F-18
<PAGE> 61
UNDERWRITING
The Company, the selling stockholders and the underwriters for the offering
(the "Underwriters") named below have entered into an underwriting agreement
with respect to the shares being offered. Subject to certain conditions, each
Underwriter has severally agreed to purchase the number of shares indicated in
the following table. Goldman, Sachs & Co., Bear, Stearns & Co. Inc. and
Hambrecht & Quist LLC are the representatives of the Underwriters.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Goldman, Sachs & Co. .......................................
Bear, Stearns & Co. Inc.....................................
Hambrecht & Quist LLC.......................................
---------
Total.................................................. 3,250,000
=========
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 487,500
shares from the selling stockholders to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the Underwriters by the Company and the selling
stockholders. Such amounts are shown assuming both no exercise and full exercise
of the Underwriters' option to purchase 487,500 additional shares.
<TABLE>
<CAPTION>
Paid by the Company
-------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............ $ $
Total................ $ $
</TABLE>
<TABLE>
<CAPTION>
Paid by the Selling Stockholders
--------------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............ $ $
Total................ $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial offering price, the representatives may change the offering price and
the other selling terms.
The Company and the selling stockholders have agreed with the Underwriters
not to dispose of or hedge any of their common stock or securities convertible
into or exchangeable for shares of common stock during the period from the date
of this prospectus continuing through the date 90 days after the date of this
prospectus, except with the prior written consent of the representatives. This
agreement does not apply to any existing employee stock plans.
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
U-1
<PAGE> 62
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise. Goldman, Sachs &
Co. has provided investment advisory services to the Company from time to time.
The Company and selling stockholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
The Company estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $550,000.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended, during the business day prior to
the pricing of the offering before the commencement of offers or sales of the
common stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid of
such security; if all independent bids are lowered below the passive market
makers' bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
U-2
<PAGE> 63
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 2
Risk Factors........................ 5
Forward-looking Statements.......... 10
Use of Proceeds..................... 10
Price Range of Common Stock......... 11
Dividend Policy..................... 11
Capitalization...................... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 13
Business............................ 22
Management.......................... 34
Selling Stockholders................ 37
Description of Capital Stock........ 38
Validity of Common Stock............ 39
Experts............................. 39
Available Information............... 39
Incorporation of Certain Documents
by Reference...................... 40
Index to Consolidated Financial
Statements........................ F-1
Underwriting........................ U-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,250,000 Shares
DENDRITE INTERNATIONAL, INC.
Common Stock
-------------------------
DENDRITE INT'L LOGO
-------------------------
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following are the estimated expenses of the issuance and distribution
of the securities being registered, all of which will be paid by the Registrant.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 28,511
NASD filing fee............................................. 10,756
Nasdaq National Market fee.................................. 17,500
Printing and engraving expenses............................. 70,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 100,000
Blue sky fees and expenses (including attorneys' fees)...... 10,000
Transfer Agent's and Registrar's Fees....................... 12,500
Miscellaneous............................................... 50,773
--------
Total.................................................. $550,000
========
</TABLE>
- ---------------
* All amounts are estimated except for the SEC registration fee and NASD filing
fee.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 14A:3-5 of the New Jersey Business Corporation Act (the "NJBCA")
gives the Company power to indemnify each of its directors and officers against
expenses and liabilities in connection with any proceeding involving him by
reason of his being or having been a director or officer if (a) he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Company and (b) with respect to any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful. However, in a
proceeding by or in the right of the Company, there shall be no indemnification
in respect of any liabilities or expenses if the officer or director shall have
been adjudged liable to the Company unless the court in such proceeding
determines he is entitled to indemnity for such liabilities and/or expenses.
Furthermore, no indemnification shall be made to or on behalf of a director or
officer if a judgment or other final adjudication adverse to such director or
officer establishes that his acts or omissions (a) were in breach of his duty of
loyalty to the Company and its shareholders, (b) were not in good faith or
involved a knowing violation of law or (c) resulted in receipt by the director
or officer of an improper personal benefit. The NJBCA defines an act or omission
in breach of a person's duty of loyalty as an act or omission which that person
knows or believes to be contrary to the best interests of the Company or its
shareholders in connection with a matter in which he has a material conflict of
interest. If a director or officer is successful in a proceeding, the statute
mandates that the Company indemnify him against expenses.
The Company's Restated Certificate of Incorporation, as permitted by New
Jersey law, eliminates the personal liability of the directors and officers to
the Company or its shareholders for monetary damages for breaches of such
director's or officer's duty of care or other duties as a director or officer;
except liabilities for any breach of duty based upon an act or omission (a) in
breach of such person's duty of loyalty to the corporation or its shareholders,
(b) not in good faith or involving a knowing violation of law or (c) resulting
in receipt by such person of an improper personal benefit. In addition, the
Company's Restated By-laws provide broad indemnification rights to directors and
officers so long as the director or officer acted in a manner
II-1
<PAGE> 65
believed in good faith to be in or not opposed to the best interest of the
Company and with respect to criminal proceedings if the director had no
reasonable cause to believe his or her conduct was unlawful. The Company
believes that the protection provided by these provisions will help the Company
attract and retain qualified individuals to serve as officers and directors.
These provisions also will limit the remedies available to a shareholder who is
dissatisfied with a Board decision protected by these provisions, and such
shareholder's only remedy may be to bring a suit to prevent the Board's action.
The Company maintains a directors and officers liability insurance policy.
As of October 28, 1998, the Company entered into an Indemnification
Agreement with each Director of the Company, providing that, with certain
exceptions, the Company would hold harmless and indemnify each Director in
connection with his directorship to the extent permitted under the New Jersey
Business Corporation Act. More specifically, the Indemnification Agreement
provides that the Company is obligated to indemnify each Director against all
reasonable costs, expenses (including attorneys' fees), fines, judgments, and
settlement amounts that such Director may incur in connection with any actual or
threatened action, suit, or proceeding (whether, civil, criminal, investigative
or administrative) to which such Director is, or may be, a party by reason of
his position as Director or as a director, officer, employee, or agent of any
other company to which such Director provides services at the request of the
Company.
ITEM 16. EXHIBITS
(a) Exhibits. Attached hereto are the following exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Specimen of Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the Company's Registration
Statement on form S-1, filed with the Commission May 17,
1995)
4.2 Registration Rights Agreement dated October 2, 1991 between
the several purchasers named therein and the Company
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
4.3 Amendment to Registration Rights Agreement dated April 23,
1992 between the Company and the parties named therein as
shareholders of the Company (incorporated herein by
reference to Exhibit 4.3 of Amendment 1 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
5.1 Opinion of Sullivan & Cromwell
10.1 Amended and Restated Credit Agreement, entered into as of
November 30, 1998, between the Company and The Chase
Manhattan Bank (incorporated herein by reference to Exhibit
10.1 of the Company's Annual Report on Form 10-K, filed with
the Commission March 26, 1998)
23.1 Consent of Sullivan & Cromwell (included as part of Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP, independent public
accountants
24 Power of Attorney*
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each
II-2
<PAGE> 66
filing of an employee benefit plans' annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating the securities offered therein, and the offering of such securities at
that time shall be deemed to the before initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance on Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Harding, State of New Jersey on
the 24th day of March, 1999.
DENDRITE INTERNATIONAL, INC.
By: /s/ GEORGE T. ROBSON
------------------------------------
George T. Robson
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 24th day of March, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
*
- --------------------------------------------------- Chief Executive Officer, President and Director
John E. Bailye (Principal Executive Officer)
* Executive Vice President and Chief Financial
- --------------------------------------------------- Officer (Principal Financial Officer and
George T. Robson Accounting Officer)
*
- ---------------------------------------------------
Bernard M. Goldsmith Director
*
- ---------------------------------------------------
Edward J. Kfoury Director
*
- ---------------------------------------------------
Paul A. Margolis Director
*
- ---------------------------------------------------
John H. Martinson Director
*
- ---------------------------------------------------
Terence H. Osborne Director
*By /s/ GEORGE T. ROBSON
---------------------------------------------
George T. Robson
Power of Attorney
</TABLE>
II-4
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
- ------- ---------------------- ------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
4.1 Specimen of Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the Company's Registration
Statement on form S-1, filed with the Commission May 17,
1995).......................................................
4.2 Registration Rights Agreement dated October 2, 1991 between
the several purchasers named therein and the Company
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)...........
4.3 Amendment to Registration Rights Agreement dated April 23,
1992 between the Company and the parties named therein as
shareholders of the Company (incorporated herein by
reference to Exhibit 4.3 of Amendment 1 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)....................................
5.1 Opinion of Sullivan & Cromwell..............................
10.1 Amended and Restated Credit Agreement, entered into as of
November 30, 1998, between the Company and The Chase
Manhattan Bank (incorporated herein by reference to Exhibit
10.1 of the Company's Annual Report on Form 10-K, filed with
the Commission March 26, 1998)..............................
23.1 Consent of Sullivan & Cromwell (included as part of Exhibit
5.1)........................................................
23.2 Consent of Arthur Andersen LLP, independent public
accountants.................................................
24 Power of Attorney*..........................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Dendrite International, Inc.
Common Stock
(no par value)
Underwriting Agreement
March , 1999
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
Hambrecht & Quist LLC
As representatives of the several
Underwriters named in Schedule I hereto
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Dendrite International, Inc., a New Jersey corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 2,750,000 shares of Common Stock, no par value ("Stock"), of the Company, and
the stockholders of the Company named in Schedule II hereto (the "Selling
Stockholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 500,000 shares and, at the election of
the Underwriters, up to an additional 487,500 shares of Stock. The aggregate of
3,250,000 shares to be sold by the Company and the Selling Stockholders is
herein called the "Firm Shares" and the aggregate of 487,500 additional shares
to be sold by the Selling Stockholders is herein called the "Optional Shares".
The Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933, as amended (the "Act") and a registration
statement on Form S-3 (File No. 333-71337) (together with any
pre-effective amendments thereto, the "Initial Registration Statement") in
respect of the Shares has been filed with the Securities and Exchange
Commission (the "Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto but including all documents
incorporated by reference in the Prospectus
<PAGE> 2
contained therein, to you for each of the other Underwriters, have been
declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under
the Act, which became or will become effective upon filing and other than
prospectuses filed pursuant to Rule 424(b) of the rules and regulations of
the Commission under the Act, each in the form heretofore delivered to the
Underwriters, no other document with respect to the Initial Registration
Statement or any document incorporated by reference therein has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission. Any preliminary prospectus included in the
Initial Registration Statement and incorporated by reference in the Rule
462(b) Registration Statement, if any, or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed
with the Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act
to be part of the Initial Registration Statement at the time it was
declared effective or the Rule 462(b) Registration Statement, if any, at
the time it became effective, each as amended at the time such part of the
Initial Registration Statement became effective or such part of the Rule
462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration
Statement"; the final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the "Prospectus"; any
reference herein to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the Act, as of the date of
such Preliminary Prospectus or Prospectus, as the case may be; any
reference to any amendment or supplement to any Preliminary Prospectus or
the Prospectus shall be deemed to refer to and include any documents filed
after the date of such Preliminary Prospectus or Prospectus, as the case
may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such Preliminary
Prospectus or Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Company filed pursuant to Section 13(a)
or 15(d) of the Exchange Act after the effective date of the Registration
Statement that is incorporated by reference in the Registration Statement;
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Item 7 of
Form S-3;
-2-
<PAGE> 3
(iii) The Registration Statement conforms, and any further
amendments to the Registration Statement will conform, in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder and do not and will not as of the applicable
effective date contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. The Prospectus conforms, and any
further supplements to the Prospectus will conform, in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder and do not and will not, as of the applicable
filing date, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein or by a Selling Stockholder expressly for use in the preparation
of the answers therein to Item 7 of Form S-3;
(iv) The documents incorporated by reference in the Prospectus, when
they became effective under the Act or were filed with the Commission
under the Exchange Act, as the case may be, conformed in all material
respects to the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder,
and as of the date such documents became effective under the Act or were
filed with the Commission under the Exchange Act, such documents did not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; any further documents so filed and incorporated by
reference in the Prospectus or any further amendment or supplement
thereto, when such documents become effective or are filed with the
Commission, as the case may be, will comply as to form in all material
respects with the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through Goldman, Sachs & Co.
expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, that is in each case material to the Company and
its subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock (other than
the issuance of Common Stock pursuant to the 1997 Stock Incentive Plan,
the 1997 Employee Stock Purchase Plan, the 1992 Stock Plan and the 1992
Senior Management Incentive Stock Option Plan or upon the exercise of
stock options disclosed in the Prospectus), short-term debt (other than
changes not material and adverse in the aggregate) or long-term debt of
the Company or any of its subsidiaries or any material
-3-
<PAGE> 4
adverse change, or any development that is reasonably likely to result in
a material adverse change, in or affecting the business, assets, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(vi) The Company and its subsidiaries have good and marketable title
to all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its
subsidiaries; and the Company owns no material real property;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of New
Jersey, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties or conducts any business so as to
require such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation;
(viii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the capital stock
contained in the Prospectus; and all of the issued shares of capital stock
of each subsidiary of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and (except for directors'
qualifying shares and, in the case of certain foreign subsidiaries,
shareholdings required to satisfy requirements of local law) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(ix) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
in all material respects to the description of the Stock contained in the
Prospectus;
(x) The issue and sale of the Shares to be sold by the Company and
the compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of
-4-
<PAGE> 5
its subsidiaries is subject or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties
other than breaches or defaults that, individually or in the aggregate,
are not reasonably likely to have a material adverse effect upon the
business, assets, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole, nor will
such action result in any violation of the provisions of the Certificate
of Incorporation or By-laws of the Company; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act of
the Shares, such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Shares by the
Underwriters and the listing of the Shares with the National Association
of Securities Dealers, Inc.;
(xi) Neither the Company nor any of its subsidiaries is (a) in
violation of its Certificate of Incorporation or By-laws or (b) in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party
or by which it or any of its properties may be bound other than, in the
case of clause (b), defaults that, individually or in the aggregate, are
not reasonably likely to have a material adverse effect upon the business,
assets, financial position, stockholders' equity or results of operations
of the Company and its subsidiaries taken as a whole;
(xii) The statements set forth in the Prospectus under the caption
"Underwriting" accurately summarize in all material respects the
provisions of the laws and documents referred to therein;
(xiii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; and, to the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(xiv) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" subject to
registration as such under the Investment Company Act of 1940, as amended
(the "Investment Company Act");
(xv) Arthur Andersen, LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(xvi) The Company and its subsidiaries have sufficient interests in
all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, proprietary rights and processes ("Intellectual
Property") necessary for their business as now
-5-
<PAGE> 6
conducted and as proposed to be conducted without any conflict with or
infringement of the interests of any others and have taken all steps
necessary to secure interests in such Intellectual Property from its
contractors; neither the Company nor any of its subsidiaries is aware of
any outstanding material option, license or agreement of any kind relating
to its Intellectual Property, and neither the Company nor its subsidiaries
is a party to or bound by any material option, license or agreement with
respect to the Intellectual Property of any other person or entity, except
in each case as set forth in its reports filed under the Exchange Act;
none of the technology employed by the Company or its subsidiaries has
been obtained or is being used by the Company or its subsidiaries in
violation of any contractual or fiduciary obligation binding on the
Company, its subsidiaries or any of their respective directors or
executive officers or, to the Company's knowledge, any of their respective
employees or consultants or otherwise in violation of the rights of any
person; none of the Company, its subsidiaries and any of its employees has
received any written or, to the Company's knowledge, oral communications
alleging that the Company or any of its subsidiaries has violated or, by
conducting its business as proposed, would violate any of the Intellectual
Property of any other person or entity; neither the execution nor delivery
of this Agreement, nor the operation of the Company's business by the
employees of the Company or its subsidiaries, nor the conduct of the
Company's business as proposed, will result in a breach or violation of
the terms, conditions or provisions of, or constitute a default under, any
material contract, covenant or instrument under which any of such
employees is now obligated; and the Company and its subsidiaries have
taken and will maintain reasonable measures to prevent the unauthorized
dissemination or publication of its confidential information or the
confidential information of third parties in its possession;
(xvii) The Company has filed all reports it has been required to file
under the Exchange Act; such reports when filed conformed in all material
respects to the requirements of the Exchange Act; and none of such reports
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
(xviii) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which
the business or operations of the Company or any of its subsidiaries will
be affected by the Year 2000 Problem. As a result of such review, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a material adverse effect on the general affairs,
management, the current or future consolidated financial position,
business prospects, stockholders' equity or results of operations of the
Company and its subsidiaries or result in any material loss or
interference with the business or operations of the Company. The "Year
2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of
data or in the operation of mechanical or electrical systems of any kind
will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
-6-
<PAGE> 7
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement
and the Power of Attorney and the Custody Agreement hereinafter referred
to, and for the sale and delivery of the Shares to be sold by such Selling
Stockholder hereunder, have been obtained, provided, however, that each
such Selling Stockholder makes no representation or warranty with respect
to consents, approvals, authorizations or orders required under state
securities or Blue Sky laws; and such Selling Stockholder has full right,
power and authority to enter into this Agreement, the Power-of-Attorney
and the Custody Agreement and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute (other than state securities or Blue Sky laws, as to which no
warranty or representation is made), indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound or to
which any of the property or assets of such Selling Stockholder is
subject, nor will such action result in any violation of the provisions of
any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over such Selling Stockholder or the
property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims; and, upon delivery of such Shares and payment therefor pursuant
hereto, good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several Underwriters;
(iv) During the period beginning from the date hereof and continuing
to and including the date ninety (90) days after the date of the
Prospectus, such Selling Stockholder will not offer, sell, contract to
sell or otherwise dispose of, except as provided hereunder, any securities
of the Company that are substantially similar to the Shares, including but
not limited to any securities that are convertible into or exchangeable
for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement and
other than bona fide gifts to persons who agree in writing with you to be
bound by the provisions of this clause), without the prior written consent
of Goldman, Sachs & Co.;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares in violation of applicable
laws;
-7-
<PAGE> 8
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary
Prospectus, the Prospectus and the Registration Statement conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and did not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further amendments or supplements to the Prospectus
and the Registration Statement when they are filed or become effective, as
the case may be, will conform in all material respects to the requirements
of the Act and the rules and regulations of the Commission thereunder and
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
each Time of Delivery (as hereinafter defined) a properly completed and
executed United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulations in lieu
thereof);
(viii) Certificates in negotiable form representing in the aggregate
all of the Shares to be sold by such Selling Stockholder hereunder have
been placed in custody under a Custody Agreement, in the form heretofore
furnished to you (the "Custody Agreement"), duly executed and delivered by
such Selling Stockholder to Continental Stock Transfer & Trust Company, as
custodian (the "Custodian"), and such Selling Stockholder has duly
executed and delivered a Power of Attorney, in the form heretofore
furnished to you (the "Power of Attorney"), appointing the persons
indicated in Schedule II hereto, and each of them, as such Selling
Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority
to execute and deliver this Agreement on behalf of such Selling
Stockholder, to determine the purchase price to be paid by the
Underwriters to the Selling Stockholders as provided in Section 2 hereof,
to authorize the delivery of the Shares to be sold by such Selling
Stockholder hereunder and otherwise to act on behalf of such Selling
Stockholder in connection with the transactions contemplated by this
Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or by the occurrence of any other
event; if any individual Selling Stockholder or any such executor or
trustee should die
-8-
<PAGE> 9
or become incapacitated, or if any such estate or trust should be
terminated, or if any other such event should occur, before the delivery
of the Shares hereunder, certificates representing the Shares shall be
delivered by or on behalf of the Selling Stockholders in accordance with
the terms and conditions of this Agreement and of the Custody Agreements;
and actions taken by the Attorneys-in-Fact pursuant to the Powers of
Attorney or by the Custodian pursuant to the Custody Agreement shall be as
valid as if such death, incapacity, termination, or other event had not
occurred, regardless of whether or not the Custodian, the
Attorneys-in-Fact, or any of them, shall have received notice of such
death, incapacity, termination or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Stockholders,
at a purchase price per share of $____, the number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Firm Shares to be sold by the Company and each of the
Selling Stockholders as set forth opposite their respective names in Schedule II
hereto by a fraction, the numerator of which is the aggregate number of Firm
Shares to be purchased by such Underwriter as set forth opposite the name of
such Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all of the Underwriters from
the Company and all of the Selling Stockholders hereunder and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Selling Stockholders hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to 487,500 Optional
Shares, at the purchase price per share set forth in the paragraph above, for
the sole purpose of covering over-allotments in the sale of the Firm Shares. Any
such election to purchase Optional Shares shall be made in proportion to the
maximum number of Optional Shares to be sold by each Selling Stockholder as set
forth in Schedule II hereto. Any such election to purchase Optional Shares may
be exercised only by written notice from you to the Company and the
Attorneys-In-Fact, or either of them singly, given within a period of thirty
(30) calendar days after the date of this Agreement and setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company and the Attorneys-In-Fact, or either of them singly,
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice.
-9-
<PAGE> 10
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders, shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of the Depository Trust Company for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer of Federal (same day) funds to the account
specified by the Company and the Custodian, as their interests may appear. The
Company will cause the certificates representing the Shares to be made available
for checking and packaging at least twenty-four hours prior to the Time of
Delivery (as defined below) with respect thereto at the office of the Depository
Trust Company or its designated office (the "Designated Office"). The time and
date of such delivery and payment shall be, with respect to the Firm Shares,
9:30 a.m., New York time, on March ___, 1999 or such other time and date as
Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(l) hereof, will be delivered at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 1:00 p.m., New York
time, on the business day preceding such Time of Delivery, at which meeting the
final drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act no later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus prior to the last Time of
Delivery unless after reasonable notice thereof you shall have approved such
amendment or supplement (such approval not to be unreasonably withheld or
delayed); to advise you, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has
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been filed and to furnish you with copies thereof; to file promptly all reports
and any definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or sale of
the Shares; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions in the United States of America as you may request and to
continue such qualification in effect in such jurisdictions for as long as may
be necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 12:00 noon, New York time, on the New York Business Day next
succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the delivery of a prospectus is required
at any time prior to the expiration of nine months after the time of issue of
the Prospectus in connection with the offering or sale of the Shares and if at
such time any events shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such period to amend or supplement the Prospectus
or to file under the Exchange Act any document incorporated by reference in the
Prospectus in order to comply with the Act or the Exchange Act, to notify you
and upon your request to file such document and to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many copies as you
may from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or omission or
effect such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine months
or more after the time of issue of the Prospectus, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as many
copies as you may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act; "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as
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<PAGE> 12
defined in Rule 158(c) under the Act), an earning statement of the Company and
its subsidiaries (which need not be audited) complying with Section 11(a) of the
Act and the rules and regulations of the Commission thereunder (including, at
the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to and
including the date ninety (90) days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock plans
existing on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement; provided, however,
that the Company will use its best efforts to cause any person receiving such
securities under any such plan to be subject to this provision), without the
prior written consent of Goldman, Sachs & Co.;
(f) To furnish to its stockholders within 90 days after the end of each
fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants); and, within 45 days
after the end of each of the first three quarters of each fiscal year (beginning
with the fiscal quarter ending after the effective date of the Registration
Statement), consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission); provided, however, that this
clause shall not obligate the Company to disclose information that in its sole
judgment it considers confidential;
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list the Shares on the National Association
of Securities Dealers Automated Quotations ("Nasdaq") National Market System;
and
(j) If the Company elects to rely upon Rule 462(b), to file a Rule 462(b)
Registration Statement with the Commission in compliance with Rule 462(b) by
10:00 p.m., Washington, D.C. time, on the date of this Agreement, and at the
time of filing either to pay to the Commission the filing fee for the Rule
462(b) Registration Statement or to give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act.
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<PAGE> 13
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that the Company will pay or
cause to be paid the following: (i) the fees, disbursements and expenses of the
Company's counsel and accountants in connection with the registration of the
Shares under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus,
the Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost of
copying and reproducing any Agreement among Underwriters, this Agreement, the
Blue Sky Memorandum, closing documents (including any compilations thereof) and
any other documents in connection with the offering, purchase, sale and delivery
of the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey (iv) all fees and expenses in connection with listing the Shares
on the Nasdaq National Market; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (vi) the cost of preparing stock certificates;
(vii) the cost and charges of any transfer agent or registrar; (viii) the fees
and expenses of the Attorneys-in-Fact and the Custodian; (ix) all expenses and
taxes incident to the sale and delivery of the Shares to be sold by the Selling
Stockholders to the Underwriters hereunder (provided, however, that Goldman,
Sachs & Co. agrees to pay New York State stock transfer tax, and the Company
agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such
tax payment is not rebated on the day of payment and for any portion of such tax
payment not rebated); and (x) all other costs and expenses incident to the
performance of the Company's and the Selling Stockholders' obligations hereunder
which are not otherwise specifically provided for in this Section. It is
understood, however, that the Company shall bear, and the Selling Stockholders
shall not be required to pay or to reimburse the Company for, the cost of any
other matters not directly relating to the sale and purchase of the Shares
pursuant to this Agreement, and that, except as provided in this Section, and
Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and
expenses, including the fees of their counsel, stock transfer taxes on resale of
any of the Shares by them, and any advertising expenses connected with any
offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and, with respect to the First Time of Delivery only, of the Selling
Stockholders herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company and the Selling Stockholders shall have performed
all of its and their obligations hereunder theretofore to be performed, and the
following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 p.m., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional
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<PAGE> 14
information on the part of the Commission shall have been complied with to your
reasonable satisfaction;
(b) Ropes & Gray, counsel for the Underwriters, shall have furnished to
you such opinion or opinions, dated such Time of Delivery, with respect to the
incorporation of the Company, the validity of the Shares being delivered at such
Time of Delivery, the Registration Statement, the Prospectus, and such other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters;
(c) Sullivan & Cromwell, special counsel for the Company, shall have
furnished to you their written opinion and letter, dated such Time of Delivery
to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of New
Jersey, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly authorized and validly issued and are fully paid and
non-assessable;
(iii) This Agreement has been duly authorized, executed and
delivered by the Company;
(iv) The issuance of the Shares being delivered by the Company at
such Time of Delivery and the sale of the Shares to the Underwriters
pursuant to this Agreement do not, and the performance by the Company of
its obligations under this Agreement will not, violate the Company's
Restated Certificate of Incorporation or Restated By-laws, result in a
default under or breach of any agreement, indenture or other instrument
filed by the Company as an exhibit to the Registration Statement or to any
document incorporated by reference therein to which the Company or any of
its subsidiaries is a party or by which any of them is bound or to which
any of their properties is subject, or violate any federal law of the
United States or law of the State of New York or any Federal rule or
regulation or any rule or regulation adopted by a governmental agency of
the State of New York or any decree known to such counsel of any court or
governmental agency having jurisdiction over the Company or any of its
subsidiaries, provided that such counsel may state that for purposes of
such paragraph they express no opinion with respect to the antifraud
provisions of Federal or state securities laws, and provided further that
such counsel may state that insofar as performance by the Company of its
obligations under this Agreement and the Shares is concerned, such counsel
expresses no opinion as to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights;
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<PAGE> 15
(v) All regulatory consents, approvals, authorizations and filings
required to be obtained or made by the Company under the Federal laws of
the United States and the laws of the State of New York for the issuance,
sale and delivery of the Shares by the Company to the Underwriters have
been obtained or made;
(vi) The Company is not subject to regulation as an "investment
company" under the Investment Company Act; and
(vii) The Registration Statement is effective under the Act.
Such counsel may state that their opinions are limited to the Federal laws
of the United States, the laws of the State of New York and the Business
Corporation Law of the State of New Jersey, and that they express no opinion as
to the laws of any other jurisdiction.
Such counsel shall further state that, as counsel to the Company, such
counsel have reviewed the Registration Statement and the Prospectus,
participated in discussion with your representatives and those of the Company,
its independent accountants and its local counsel, and advised the Company as to
the requirements of the Act and the applicable rules and regulations thereunder,
and that between the effective date of the Registration Statement and such Time
of Delivery they performed such additional procedures as are described in their
opinion; on the basis of the information that such counsel gained in the course
of the performance of such services, considered in the light of their
understanding of the law and the experience they have gained through their
practice under the Act, such counsel shall confirm to you that, in their opinion
(i) the Registration Statement and the Prospectus, as of the effective date of
the Registration Statement, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Act and the
applicable rules and regulations thereunder; (ii) the documents incorporated by
reference into the Prospectus or any supplement thereto, when they became
effective or as of the date of filing thereof with the Commission, as the case
may be, complied as to form in all material respects with the requirements of
the Act or the Exchange Act, as the case may be, and the rules and regulations
of the Commission thereunder; nothing that came to such counsel's attention in
the course of such review has caused such counsel to believe that the
Registration Statement as of its effective date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus, as of its date and as of the First Time of Delivery, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that any document
incorporated by reference in the Registration Statement, the Prospectus, any
amendment or supplement thereof, or any Preliminary Prospectus, as of the date
of filing thereof with the Commission, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that, as of such
Time of Delivery, any such document or any further amendment thereto prior to
such Time of Delivery contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and such counsel
do not know of any litigation or any governmental proceeding instituted or
threatened against the Company that would be required to be disclosed in the
Prospectus, or any document incorporated by reference in the Prospectus, that
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<PAGE> 16
is not so disclosed, and do not know of any documents that are required to be
filed as exhibits to the Registration Statement or required to be incorporated
by reference into the Prospectus that are not so filed or incorporated by
reference, or any documents required to be summarized in the Registration
Statement or the Prospectus that are not so summarized. Such counsel may state
that the limitations inherent in the independent verification of factual matters
and the character of the determinations involved in the registration process are
such that they do not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement and the
Prospectus except those made under the captions "Underwriting" and "Description
of Capital Stock", which accurately summarize in all material respects the
provisions of the laws and documents referred to therein. Such counsel may also
state that they do not express any opinion or belief as to the financial
statements or other financial data contained in the Registration Statement or
the Prospectus and that their opinion is furnished as counsel for the Company to
the several Underwriters and is solely for their benefit;
(d) Buchanan Ingersoll, counsel for the Company, shall have furnished to
you their written opinion, dated such Time of Delivery to the effect that:
(i) The Company has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of each
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no material
liability or disability by reason of failure to be so qualified in any
such jurisdiction (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company, provided,
however, that such counsel shall provide copies of such opinions and
certificates to you and shall state that they believe that both you and
they are justified in relying upon such opinions and certificates);
(ii) Each United States subsidiary of the Company listed on Schedule
IV has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation; and all
of the issued shares of capital stock of each such subsidiary have been
duly authorized and validly issued, are fully paid and non-assessable,
and, except for directors' qualifying shares, are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company or its
subsidiaries, provided, however, that such counsel shall provide copies of
such opinions and certificates to you and shall state that they believe
that both you and they are justified in relying upon such opinions and
certificates);
(iii) Any real property and buildings held under lease by the
Company or any of its subsidiaries and which is material to their business
as currently conducted or proposed to be conducted are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries (such
counsel being entitled to rely in respect of the opinion in this clause
upon opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its
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<PAGE> 17
subsidiaries, provided that such counsel shall provide copies of such
opinions and certificates to you and shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates);
(iv) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, or lease or agreement or other instrument to which it is a
party or by which it or any of its properties may be bound;
(v) The issuance of the Shares being delivered by the Company at
such Time of Delivery and the sale of the Shares to the Underwriters
pursuant to this Agreement do not, and the performance by the Company of
its obligations under this Agreement will not, violate the Business
Corporation Law of the State of New Jersey and all regulatory consents,
approvals, authorizations and filings required to be obtained or made by
the Company under the Business Corporation Law of the State of New Jersey
for the issuance, sale and delivery of the Shares by the Company to the
Underwriters have been obtained or made; and
(vi) All regulatory consents, approvals, authorizations and filings
required to be obtained or made by the Company under the Federal laws of
the United States and the laws of the State of New Jersey for the
issuance, sale and delivery of the Shares by the Company to the
Underwriters have been obtained or made.
(e) You shall have been furnished from one or more foreign counsel to the
Company, which counsel shall be reasonably acceptable to you, one or more
written opinions to the effect that each significant foreign subsidiary of the
Company listed on Schedule V hereto has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation; and all of the issued shares of capital stock of each such
subsidiary have been duly and validly authorized and issued, are fully paid and
non-assessable, and, except for directors' qualifying shares, are owned directly
or indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of the
opinion in this paragraph in respect of matters of fact upon certificates of
officers of the Company or its subsidiaries, provided, however, that such
counsel shall provide copies of such certificates to you and shall state that
they believe that both you and they are justified in relying upon such
certificates);
(f) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their written
opinion with respect to each of the Selling Stockholders for whom they are
acting as counsel, dated such Time of Delivery to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by each Selling Stockholder and constitute valid
and binding agreements of each such Selling Stockholder in accordance with
their terms;
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<PAGE> 18
(ii) With respect to each Selling Stockholder, this Agreement has
been duly executed and delivered by or on behalf of such Selling
Stockholder; and, assuming the Registration Statement has been declared
effective by the Commission, the sale of the Shares to be sold by such
Selling Stockholder hereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement, the
Power-of-Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any statute (other than state securities or
Blue Sky laws), indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Stockholder is a party
or by which such Selling Stockholder is bound or to which any of the
property or assets of such Selling Stockholder is subject and which is
material and known to such counsel, or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder which is
material and known to such counsel;
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by each Selling Stockholder hereunder, except such as have been
obtained under the Act and such as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of such
Shares by the Underwriters; and
(iv) Immediately prior to the Time of Delivery, each Selling
Stockholder is the sole record owner of the Shares to be sold by it at
such Time of Delivery. Upon delivery to the Underwriters of a certificate
for such of the Shares that are being sold by each Selling Stockholder
under the Underwriting Agreement and payment for such Shares by the
Underwriters, and assuming the Underwriters purchase the Shares in good
faith and without notice of any "adverse claim" within the meaning of
Section 8-302(2) of the Uniform Commercial Code, the Underwriters will
acquire all of the rights of such Selling Stockholder in such Shares and
will acquire the Shares free and clear of any adverse claim.
(g) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Arthur Andersen, LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance reasonably satisfactory to you and
covering the matters referred to in Annex I attached hereto.
(h) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, that is in each case material to the Company and its subsidiaries
taken as a whole, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the
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<PAGE> 19
capital stock (other than the issuance of Stock pursuant to the 1997 Stock
Incentive Plan, the 1997 Employee Stock Purchase Plan, the 1992 Stock Plan and
the 1992 Senior Management Incentive Stock Option Plan or upon the exercise of
stock options disclosed in the Prospectus), short-term debt (other than changes
not material and adverse in the aggregate) or long-term debt of the Company or
any of its subsidiaries or any material adverse change, or any development that
is reasonably likely to result in a material adverse change, in or affecting the
business, assets, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case described
in clause (i) or (ii), is in the judgment of the Underwriters so material and
adverse as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(i) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on the Nasdaq National Market; (ii)
a suspension or material limitation in trading in the Company's securities on
the Nasdaq National Market; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this clause (iv) in the judgment of the
Underwriters makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(j) The Shares at such Time of Delivery shall have been duly listed on the
Nasdaq National Market;
(k) The Company shall have obtained and delivered to the Underwriters
executed copies of an agreement from each stockholder listed on Schedule III
hereto, substantially to the effect set forth in subsection 1(b)(iv) hereof in
form and substance reasonably satisfactory to you;
(l) The Company and the Selling Stockholders, as applicable, shall have
furnished or caused to be furnished to you at such Time of Delivery certificates
of officers of the Company and of the Selling Stockholders, respectively,
reasonably satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively, herein at
and as of such Time of Delivery, as to the performance by the Company and the
Selling Stockholders of all of their respective obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other matters as
you may reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and (g) of
this Section 7; and
(m) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement.
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<PAGE> 20
8. (a) The Company and each of the Selling Stockholders, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained or incorporated by reference in any Preliminary Prospectus, the
Registration Statement or the Prospectus, any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such action or claim as such expenses are
incurred (it being understood that the Underwriters shall collectively be
reimbursed under this Section 8(a) for the fees and expenses of not more than
one counsel in each jurisdiction where such counsel is to be retained);
provided, however, that the Company and the Selling Stockholders shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use
therein; provided, however, that the liability of each such Selling Stockholder
pursuant to this subsection 8(a) shall not exceed the product of the number of
Shares sold by such Selling Stockholder and the public offering price of the
Shares as set forth in the Prospectus, less the amount of any payments made by
such Selling Stockholder pursuant to subsection 8(d).
(b) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company and each Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it
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<PAGE> 21
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim).
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholders on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Stockholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim.
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<PAGE> 22
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission and (ii) the liability of each Selling
Stockholder pursuant to this subsection (d) shall not exceed the difference
between the product of the number of Shares sold by such Selling Stockholder and
the initial public offering price of the Shares as set forth in the Prospectus,
and the amount of any indemnification payments made by such Selling Stockholder
pursuant to subsection (a) or (b), as the case may be. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company and the Selling Stockholders shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company and the
Selling Stockholders that you have so arranged for the purchase of such Shares,
or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a Time of Delivery for a period of
not more than seven (7) days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly
any amendments to the Registration Statement or the Prospectus which in your
opinion may thereby be made necessary. The term "Underwriter" as used in this
Agreement shall include any person substituted under this Section with like
effect as if such person had originally been a party to this Agreement with
respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have
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<PAGE> 23
the right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholders, except for the expenses
to be borne by the Company and the Selling Stockholders and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company and each of
the Selling Stockholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Stockholder hereunder) will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Stockholders shall then
be under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives of the several Underwriters; and in all dealings with any
Selling
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<PAGE> 24
Stockholder hereunder, you and the Company shall be entitled to act and rely
upon any statement, request, notice or agreement on behalf of such Selling
Stockholder made or given by any or all of the Attorneys-in-Fact for such
Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the Underwriters in care of Goldman, Sachs &
Co., at 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15.This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed and delivered by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts when so executed and delivered shall
together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you,
this letter and such acceptance hereof shall constitute a binding agreement
among each of you, the Company and each of the Selling Stockholders. It is
understood that your acceptance of this letter is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Stockholders for examination, upon
request, but without warranty on your part as to the authority of the signers
thereof.
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such
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<PAGE> 25
Selling Stockholder pursuant to a validly existing and binding Power-of-Attorney
which authorizes such Attorney-in-Fact to take such action.
Very truly yours,
Dendrite International, Inc.
By: ________________________________________
Name: John E. Bailye
Title: Chief Executive Officer and President
By: ________________________________________
Name: John E. Bailye
As Attorney-in-Fact acting on behalf of each
of the Selling Stockholders named in
Schedule II to this Agreement.
Accepted as of the date hereof:
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
Hambrecht & Quist LLC
By: ____________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
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<PAGE> 26
SCHEDULE I
Underwriter
<TABLE>
<CAPTION>
Number of
Optional
Shares to be
Purchased If
Total Number of Maximum
Firm Shares Option
Underwriter to be Purchased Exercised
- ----------- --------------- ---------
<S> <C> <C>
Goldman, Sachs & Co........
Bear Stearns & Co. Inc.....
Hambrecht & Quist LLC......
--------- -------
Total................ 3,250,000 487,500
</TABLE>
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<PAGE> 27
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Optional
Shares to be
Sold If
Total Number of Maximum
Firm Shares Option
Underwriter to be Sold Exercised
- ----------- --------------- ---------
<S> <C> <C>
The Company .................. 2,750,000 --
The Selling Stockholders:
John E. Bailye............. 300,000 292,500
Carinya Holding Company.... 150,000 146,250
Bailye Family Foundation... 50,000 48,750
Total......................... 3,250,000 487,500
</TABLE>
(a) The Selling Stockholders are represented by Buchanan Ingersoll, 500
College Road East, Princeton Forrestal Center, Princeton, New Jersey 08540-6615,
and each of the Selling Stockholders has appointed John Edward Bailye and
Christopher J. French, and each of them, as the Attorneys-in-Fact for each such
Selling Stockholder.
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<PAGE> 28
SCHEDULE III
Holdback Agreements
Name
----
John E. Bailye
Carinya Holding Company
Bailye Family Foundation
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<PAGE> 29
SCHEDULE IV
United States Subsidiaries for Opinions
1. Dendrite Delaware, Inc., a Delaware corporation
2. Dendrite Financial Services, Inc., a Delaware corporation
3. Dendrite Holdings, Inc., a Delaware corporation
4. Dendrite Corporate Services, Inc., a New Jersey corporation
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<PAGE> 30
SCHEDULE V
Foreign Subsidiaries for Opinions
1. Dendrite Japan K.K.
2. Dendrite Frances, S.A.
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<PAGE> 31
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) audited by
them and included or incorporated by reference in the Registration
Statement or the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act and the Exchange
Act, as applicable, and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the several Underwriters
(the "Representatives") and are attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus and/or included in the Company's Quarterly Reports on Form 10-Q
incorporated by reference into the Prospectus as indicated in their
reports thereon copies of which are attached hereto and on the basis of
specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding whether
the unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the Exchange Act, as
applicable, and the related published rules and regulations, nothing came
to their attention that caused them to believe that the unaudited
condensed consolidated financial statements do not comply as to form in
all material respects with the applicable accounting requirements of the
Act and the Exchange Act, as applicable, and the related published rules
and regulations;
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<PAGE> 32
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
and included or incorporated by reference in Item 6 of the Company's
Annual Report on Form 10-K for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the audited
consolidated financial statements of the Company for such five fiscal
years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302 and 402,
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an audit
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included or incorporated by reference in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries
and procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included or incorporated by reference in the Prospectus
do not comply as to form in all material respects with the
applicable accounting requirements of the Exchange Act and the
related published rules and regulations thereunder, or (ii) any
material modifications should be made to the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included or incorporated by
reference in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and Items were derived, and any such
unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included or
incorporated by reference in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in clause (B) were
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<PAGE> 33
not determined on a basis substantially consistent with the basis
for the audited consolidated financial statements included or
incorporated by reference in the Prospectus;
(D) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of convertible
securities, in each case which were outstanding on the date of the
latest balance sheet included or incorporated by reference in the
Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in consolidated
net current assets or stockholders' equity or other items specified
by the Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts shown in
the latest balance sheet included or incorporated by reference in
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(E) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus
to the specified date referred to in clause (D) there were any
decreases in consolidated net revenues or operating profit or the
total or per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in
each case for increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter;
and
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in
documents incorporated by reference therein specified by the
Representatives, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found them
to be in agreement.
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<PAGE> 1
Exhibit 5.1
March 26, 1999
Dendrite International, Inc.,
1200 Mt. Kemble Avenue,
Morristown, NJ 07960-6797
Dear Ladies and Gentlemen:
In connection with the registration under the Securities Act
of 1933, as amended (the "Act"), of 3,737,500 shares of common stock, without
par value (the "Securities"), of Dendrite International, Inc., a New Jersey
corporation (the "Company"), we, as your special counsel, have examined such
corporate records, certificates and other documents, and such questions of law,
as we have considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion, when the
registration statement on Form S-3 (File No. 333-71337) relating to the
Securities (the "Registration Statement") has become effective under the Act,
the terms of the issue and sale of the Securities have been duly established in
conformity with the Company's amended and restated certificate of incorporation,
and the Securities have been duly issued and sold as contemplated by the
Registration Statement, the Securities will be validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the Federal laws of the
United States and the Business Corporation Act of the State of New Jersey, and
we are expressing no opinion as to the effect of the laws of any other
jurisdiction.
<PAGE> 2
-2-
We have relied as to certain matters on information obtained
from public officials, officers of the Company and other sources believed by us
to be responsible.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act.
Very truly yours,
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and all references to our Firm included in or made part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Philadelphia, Pa.,
March 23, 1999
