<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) AGGREGATE OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, no par value(1).......... 3,737,500 $27.44 $102,557,000 $28,511
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee on the
basis of the average high and low prices of the Registrant's common stock
reported on the Nasdaq National Market on January 22, 1999.
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 January 28, 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 January 27, 1999 was
$29.00 per share.
See "Risk Factors" beginning on page 6 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. Many statements in this prospectus are
forward-looking and our actual results may be significantly different from those
discussed in or suggested by these statements. The forward-looking statements
are based on a number of factors which involve risks and uncertainties. These
factors are discussed in "Risk Factors". Unless otherwise indicated, all share
and per share data in this prospectus have been adjusted to reflect a
two-for-one stock split of Dendrite's common stock, which became effective on
August 21, 1998.
DENDRITE INTERNATIONAL, INC.
We are a leading worldwide supplier of comprehensive Sales Force
Effectiveness solutions to the pharmaceutical industry. We also supply our
solutions to the consumer packaged goods market. These solutions, which consist
of software products and support services, provide our customers with a distinct
competitive advantage by allowing them to (i) improve their use of sales,
customer and market information and (ii) 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 products are licensed for use by over 40,000 end users worldwide. Our
pharmaceutical customers include Eli Lilly, Johnson & Johnson, Kissei,
Parke-Davis, Pfizer, SmithKline Beecham and Takeda. Our consumer packaged goods
customers include Bacardi-Martini, Gillette and Rayovac.
Our current offering of Sales Force Effectiveness software products
include:
- - FORCEPHARMA. ForcePharma is our new, highly configurable product targeted at
large, multinational pharmaceutical companies. ForcePharma increases 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 a pre-configured product targeted at mid-range
pharmaceutical companies that do not require all the features and flexibility
of ForcePharma.
- - FORCEONE. ForceOne is a configurable product targeted at the consumer
packaged goods industry.
- - FORCEANALYZERX AND FORCEMULTIPLIERX. These products are our database
management and analytical/reporting tools that provide customers with timely
information for use in developing sales strategies and facilitating real time
decisions.
Most of our revenues come from a broad range of value-added 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 and 1997 and for
the nine months ended September 30, 1998, services represented approximately
87%, 90% and 90% of our total revenues.
Our business strategy is to use our global infrastructure and leading
solutions to satisfy both the local and global needs of our
2
<PAGE> 5
customers. Key elements of this strategy
include:
- - LEVERAGE INSTALLED BASE. We have a substantial installed 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 value-added products and services and broadening
these relationships to include additional affiliates of our customers.
- - ENHANCE GLOBAL LEADERSHIP. We intend to capitalize on the trend among
companies to select one global provider of Sales Force Effectiveness solutions
rather than multiple vendors. We believe that our product design and scope,
our network of 13 offices worldwide and our experience implementing Sales
Force Effectiveness solutions in over 15 countries will allow us to capitalize
on this trend.
- - USE NEW TECHNOLOGY TO ENHANCE SALES FORCE EFFECTIVENESS SOLUTIONS. We design
our products and product enhancements to take advantage of available
technologies, such as multi-tier architectures, relational database management
systems, built-in configuration tools and application development software. We
intend to continue to invest in new technologies in order to maintain our
position as a leading worldwide supplier of Sales Force Effectiveness
solutions.
Our executive offices are located at 1200 Mt. Kemble Avenue, Morristown,
N.J. 07960-6797. Our telephone number is (973) 425-1200.
When we refer to "Dendrite", the "Company" "we", "our" or "us" in this
prospectus, we mean Dendrite International, Inc. and its subsidiaries.
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. See "Underwriting" and "Selling
Stockholders".
Shares offered by Dendrite........................
2,750,000 shares
Shares offered by the selling stockholders........
500,000 shares
Shares outstanding after the offering.............
25,558,612 shares(1)
Nasdaq National Market symbol.....................
"DRTE"
Use of Proceeds...................................
For working capital and
other general corporate purposes. See "Use of
Proceeds".
- ---------------
(1) Based on shares outstanding as of September 30, 1998. Excludes 3,875,700
shares that may be issued upon exercise of outstanding options. These
options have a weighted average exercise price of $9.38 per share. Also
excludes 456,163 shares reserved for future grants under our stock incentive
and purchase plans. See Note 6 of "Notes to Consolidated Financial
Statements".
3
<PAGE> 6
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in
conjunction 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. The consolidated
selected financial data for each of the five fiscal years in the period ended
December 31, 1997 are derived from our consolidated financial statements which
have been audited and reported upon by Arthur Andersen LLP, independent public
accountants. See "Experts". The data presented for the nine-month periods ended
September 30, 1997 and September 30, 1998 are derived from unaudited financial
statements and include, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
data for those periods. The results for the nine-month period ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees...................................... $ 4,814 $ 6,917 $ 6,042 $ 8,774 $ 7,707 $ 5,189 $ 8,386
Services.......................................... 22,578 32,509 48,080 57,472 70,739 49,888 73,036
------- ------- ------- ------- ------- ------- -------
27,392 39,426 54,122 66,246 78,446 55,077 81,422
Costs of revenues:
Cost of license fees.............................. 1,296 1,450 712 832 1,758 1,393 1,764
Cost of services.................................. 10,724 15,652 22,714 31,544 36,894 26,923 35,941
------- ------- ------- ------- ------- ------- -------
12,020 17,102 23,426 32,376 38,652 28,316 37,705
------- ------- ------- ------- ------- ------- -------
Gross margin...................................... 15,372 22,324 30,696 33,870 39,794 26,761 43,717
Operating expenses:
Selling, general and administrative............... 12,035 16,392 21,252 26,440 29,905 21,688 28,701
Research and development.......................... 1,766 1,703 2,274 6,834 2,676 1,942 2,617
Write-off of in-process research and
development..................................... -- -- -- 2,640 -- -- 1,230
------- ------- ------- ------- ------- ------- -------
13,801 18,095 23,526 35,914 32,581 23,630 32,548
------- ------- ------- ------- ------- ------- -------
Operating income (loss)........................... 1,571 4,229 7,170 (2,044) 7,213 3,131 11,169
Interest income..................................... 114 37 544 1,167 529 366 690
Other expense....................................... (216) (361) (33) (391) (201) (180) (248)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes................. 1,469 3,905 7,681 (1,268) 7,541 3,317 11,611
Income taxes........................................ 778 1,578 2,987 644 2,931 1,344 4,751
------- ------- ------- ------- ------- ------- -------
Net income (loss)................................... $ 691 $ 2,327 $ 4,694 $(1,912) $ 4,610 $ 1,973 $ 6,860
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share:
Basic............................................. $ 0.10 $ 0.34 $ 0.33 $ (0.09) $ 0.21 $ 0.09 $ 0.31
======= ======= ======= ======= ======= ======= =======
Diluted........................................... $ 0.04 $ 0.12 $ 0.23 $ (0.09) $ 0.20 $ 0.09 $ 0.28
======= ======= ======= ======= ======= ======= =======
Shares used in computing net income (loss) per share:
Basic............................................. 6,592 6,810 14,202 22,112 22,262 22,265 22,475
======= ======= ======= ======= ======= ======= =======
Diluted........................................... 18,050 18,666 20,762 22,112 23,026 22,942 24,437
======= ======= ======= ======= ======= ======= =======
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
----------------------------------------------- ----------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(1)
------- ------- ------- ------- ------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 2,861 $ 5,008 $28,655 $30,432 $33,981 $41,325 $116,388
Total assets..................................... 11,666 20,480 45,267 49,215 53,019 68,378 143,441
Capital lease obligations, less current
portion........................................ 39 33 -- -- -- -- --
Redeemable Series A convertible preferred
stock.......................................... 6,945 6,976 -- -- -- -- --
Stockholders' equity (deficit)................... (711) 1,695 32,310 35,176 38,173 49,123 124,186
</TABLE>
- ---------------
(1) Adjusted to give effect to our sale of 2,750,000 shares of common stock at
an assumed initial offering price of $29.00 per share (after deducting the
underwriting discount and estimated offering expenses that we will pay). See
"Use of Proceeds" and "Capitalization".
5
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In such case,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our company and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those discussed in or suggested by
these forward-looking statements as a result of certain factors, including the
risks described below and elsewhere in this prospectus.
DEPENDENCE ON THE PHARMACEUTICAL INDUSTRY
Most of our Sales Force Effectiveness ("SFE") systems are currently used in
connection with the marketing and sale of prescription-only drugs ("ethical
pharmaceutical products" or "ethical 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;
- - increasing prescription of generic drugs (in substitution for branded drugs)
produced by manufacturers that do not use a Dendrite SFE system;
- - 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 ethical
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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business -- Industry Overview" and "Business -- Competition".
POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN
QUARTERLY RESULTS
FLUCTUATIONS IN OUR REVENUES
Our revenues in a particular quarter may fluctuate due to a number of
factors, including, among others:
- - timing of contracts with our customers;
- - delays in customer installation of our software;
- - long sales cycles;
- - customer budget changes; and
- - changes in pricing policy by us or by our competitors.
FLUCTUATIONS IN OUR EXPENSES
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 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.
6
<PAGE> 9
LENGTHY SALES AND IMPLEMENTATION CYCLES
The selection of an SFE system often entails an extended decision-making
process because of the strategic implications and substantial costs associated
with acquiring the system as well as the risk that a system may fail to perform
as expected. 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. In
addition, an implementation process of three to six months is normal before the
software is rolled out to the customer's sales force.
SEASONALITY
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 products and services 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.
Due to all of the factors and risks discussed in "-- Fluctuations in our
Revenues", "-- Fluctuations in our Expenses", "-- Lengthy Sales and
Implementation Cycles" and "-- Seasonality", 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. Please
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our quarterly operating results.
DEPENDENCE ON MAJOR CUSTOMERS
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 58%, 59% and 56% of our total revenues in 1996, 1997
and 1998 came from our three largest pharmaceutical customers. One of these
customers had been among our three largest customers in terms of revenues in
each of those periods. We believe that the costs to our customers of switching
to a competitor's SFE system, or of taking significant system management
functions in-house, are substantial. Nevertheless, some of our smaller customers
have switched to sales force automation ("SFA") products or SFE products and/or
services offered by our competitors. If any of our major customers makes such a
change, our business, operating results or financial condition could be
materially and adversely affected. See "Business -- Customers".
SUCCESS OF NEW PRODUCTS AND ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE
The market for SFE systems 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. 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 systems and products prove to be shorter
7
<PAGE> 10
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 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. See
"Business -- Products and Services" and "Business -- Research and Development".
YEAR 2000 RISKS
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 a reduction, if it occurs, could have a material adverse effect on our
business, operating results or financial condition.
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
first 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 believe most of the SFE systems and other 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 such 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.
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.
Finally, we may incur material expenses in connection with any claim
relating to Year 2000 compliance of our own products or the products of other
third parties. Please 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.
8
<PAGE> 11
RISKS FROM COMPETITION
The market for SFE systems and solutions is highly competitive. We believe
there are approximately ten other companies that offer SFA and SFE systems and
specifically target the pharmaceutical industry, at least three of which are
actively selling in more than one country. We believe that most of our
competitors offer SFE software solutions 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 SFA and SFE systems in the consumer packaged goods ("CPG")
market. We believe our ability to compete depends on many factors, some of which
are beyond our control, including the following:
- - the number and success of new market entrants supplying competing SFE products
or support services;
- - expansion of product lines by, or consolidation among, our existing
competitors; and
- - development and/or operation of in-house SFE systems 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. Please see "Business --
Competition" for detailed information about our competition.
CUSTOMER RELIANCE ON COMPETITORS FOR MARKET DATA
Current market data on the sales of ethical pharmaceutical products is an
important element for the operation of Dendrite SFE systems in the ethical
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 SFE products and/or services, our
business, operating results and financial condition may be materially and
adversely affected.
INTERNATIONAL OPERATIONS
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.
DEPENDENCE ON KEY PERSONNEL
AVAILABILITY OF 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
9
<PAGE> 12
personnel and we may experience such difficulties in the future. Any such
difficulties could adversely affect our business, operating results or financial
condition.
NON-COMPETITION AGREEMENTS
All of our executive officers, technical employees and sales employees have
entered into non-competition agreements with Dendrite. The laws governing
non-competition agreements vary by jurisdiction and are constantly evolving. The
enforceability of these agreements in any case will depend upon all of the facts
and circumstances, including the jurisdiction in which enforcement is sought. In
some cases these agreements might be unenforceable, in whole or in part, which
could have a material adverse effect on our business, operating results or
financial condition. Please see "Management" for detailed information on our key
personnel.
MANAGEMENT OF GROWTH
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.
In addition, we have historically pursued and will continue to pursue
acquisitions of companies with complementary businesses or products. We also
have entered and will continue to enter into strategic joint ventures and
alliances. There can be no assurance, however, that we will be able to identify
attractive opportunities or enter into any such transactions in the future. In
addition, if an acquisition is completed, there can be no assurance that we will
be able to integrate successfully the acquired entity into our operations.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
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.
RISKS ASSOCIATED WITH THE CONSUMER BUSINESS DIVISION
We market and sell SFE systems 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.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
IN THE CERTIFICATE OF INCORPORATION AND
NEW JERSEY LAW
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.
10
<PAGE> 13
POSSIBLE VOLATILITY OF STOCK PRICE
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 adverse effect on the market price of our common stock. See
"Price Range of Common Stock".
11
<PAGE> 14
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements 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.
Without limiting the foregoing, the words "believes", "anticipates", "plans",
"expects" and similar expressions are intended to identify forward-looking
statements. All forward-looking statements involve risks and uncertainties,
including the factors set forth 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. 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 $75.1 million, at an assumed initial public
offering price of $29.00 per share and after deducting the underwriting discount
and estimated offering expenses payable by us. 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.
12
<PAGE> 15
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 the 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 $14.38
Second Quarter............................................ 19.00 12.78
Third Quarter............................................. 24.75 19.75
Fourth Quarter............................................ 28.63 18.50
1999:
First Quarter (through January 27, 1999).................. $29.25 $23.06
</TABLE>
- ---------------
On January 27, 1999, the last reported sale price of our common stock as
reported by the Nasdaq National Market was $29.00 per share. As of January 21,
1999 there were approximately 102 holders of record of our common stock.
DIVIDEND POLICY
We never have 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 $97.9
million available for the payment of dividends under this covenant. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 4 of "Notes to
Consolidated Financial Statements".
13
<PAGE> 16
CAPITALIZATION
The following table sets forth Dendrite's capitalization as of September
30, 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 $29.00 per share.
You should read this information together with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
AS
ACTUAL ADJUSTED
------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
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;
22,808,612 shares issued and outstanding on an actual
basis;
25,558,612 shares issued and outstanding,
on an adjusted basis(1).............................. 36,965 112,028
Retained earnings......................................... 16,128 16,128
Deferred compensation..................................... (1,160) (1,160)
Cumulative translation adjustment......................... (883) (883)
Less treasury stock, at cost.............................. (1,927) (1,927)
----------- -----------
Total stockholders' equity............................. 49,123 124,186
----------- -----------
Total capitalization................................... $ 49,123 $ 124,186
=========== ===========
</TABLE>
- ---------------
(1) Based on shares outstanding as of September 30, 1998. Excludes 3,875,700
shares of common stock that may be issued upon exercise of outstanding stock
options. These options have a weighted average exercise price of $9.38 per
share. Also excludes 456,163 shares reserved for further grants under our
stock incentive and stock purchase plans. For the period from October 1,
1998 through December 31, 1998, 162,775 shares of common stock were issued
upon exercise of outstanding stock options, no shares were purchased and
stock options for 125,000 shares of common stock were granted. See Note 6 of
"Notes to Consolidated Financial Statements".
14
<PAGE> 17
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. This
discussion contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our company and the
pharmaceutical and CPG industries. These forward-looking statements involve
risks and uncertainties. Our actual results could differ materially from those
discussed in or suggested by these forward-looking statements as a result of
certain factors, as more fully described in the "Risk Factors" section and
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 comprehensive 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 SFE systems
in the United States, Canada, Western Europe, Japan, Australia, New Zealand and
Brazil through our own sales, support and technical personnel located in 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 SFE solution 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 system 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 SFE software products (e.g., ForcePharma, 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
15
<PAGE> 18
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".
The United States, the United Kingdom and France are our main markets.
Approximately 48%, 52% and 42% of our total revenues were generated outside the
United States during the years ended December 31, 1995, 1996 and 1997.
Approximately 46% and 27% of our total revenues were generated outside the
United States during the nine month periods ended September 30, 1997 and 1998.
This decrease in the percentage of revenues generated outside the United States
was principally due to very strong revenue growth in our pharmaceutical and CPG
businesses in the United States. In addition, we experienced a modest revenue
decline in our businesses outside the United States, principally in Europe.
We bill services provided by our foreign branches and subsidiaries in local
currency. License fees for our products are billed in U.S. Dollars regardless of
where they originate. Foreign license fees are shown as United States export
revenues in Note 10 of "Notes to Consolidated Financial Statements". 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. In addition, our operating
profits in the United States are affected by the fluctuation in total license
fees since all license fees are included in United States operating profits.
16
<PAGE> 19
RESULTS OF OPERATIONS
<TABLE>
<S> <C>
The following table sets forth our total revenues for the periods indicated:
results of operations expressed as a
percentage of
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
License fees................................... 11% 13% 10% 9% 10%
Services....................................... 89 87 90 91 90
--- --- --- --- ---
100 100 100 100 100
Costs of Revenues:
Cost of license fees........................... 1 1 2 2 2
Cost of services............................... 42 48 47 49 44
--- --- --- --- ---
43 49 49 51 46
--- --- --- --- ---
Gross Margin................................ 57 51 51 49 54
Operating Expenses:
Selling, general, and administrative........... 40 40 38 39 35
Research and development....................... 4 10 4 4 3
Write-off in-process research and
development................................. -- 4 -- -- 2
--- --- --- --- ---
44 54 42 43 40
--- --- --- --- ---
Operating income (loss)..................... 13 (3) 9 6 14
Other income..................................... 1 1 1 -- --
--- --- --- --- ---
Income (loss) before income taxes........... 14 (2) 10 6 14
Income taxes..................................... 5 1 4 2 6
--- --- --- --- ---
Net Income (loss)................................ 9% (3)% 6% 4% 8%
=== === === === ===
</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.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
REVENUES. Total revenues increased $26,345,000 or 48% from $55,077,000 in
the nine months ended September 30, 1997 to $81,422,000 in the nine months ended
September 30, 1998.
License fee revenues increased 62% from $5,189,000 in the nine months ended
September 30, 1997 to $8,386,000 in the nine months ended September 30, 1998.
This increase was primarily attributable to the recognition of revenue related
to license fees from several significant contracts, sales to new customers in
our consumer business division and increased sales of third party software.
Service revenues increased 46% from $49,888,000 in the nine months ended
September 30, 1997 to $73,036,000 in the nine months ended September 30, 1998.
This increase was primarily the result of an increase in our installed base of
SFE systems
17
<PAGE> 20
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 $9,389,000 or 33% from
$28,316,000 in the nine months ended September 30, 1997 to $37,705,000 in the
nine months ended September 30, 1998.
Cost of license fees increased 27% from $1,393,000 in the nine months ended
September 30, 1997 to $1,764,000 in the nine months ended September 30, 1998.
Cost of license fees for the nine months ended September 30, 1998 represents the
amortization of capitalized software development costs of $996,000 and
third-party vendor license fees of $768,000. Cost of license fees for the nine
months ended September 30, 1997 represents the amortization of capitalized
software development costs of $818,000 and third-party vendor license fees of
$575,000. The increase in the amortization of capitalized software development
costs is due to the increase in capitalized software development costs during
1997 associated with our development efforts in conjunction with new products.
The increase in third-party vendor license fees is attributable to the increase
in third-party software sales.
Cost of services increased 33% from $26,923,000 in the nine months ended
September 30, 1997 to $35,941,000 in the nine months ended September 30, 1998.
This increase was primarily due to an increase in staff required to support
higher client activity including the use of higher cost consultants and
contractors. As a percentage of service revenues, however, cost of services
decreased from 54% of service revenues in the nine months ended September 30,
1997 to 49% in the nine months ended September 30, 1998. This decrease was
primarily the result of increased operational efficiencies in 1998 as well as
unusually high costs in the first quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses
increased 32% from $21,688,000 in the nine months ended September 30, 1997 to
$28,701,000 in the nine months ended September 30, 1998. This increase is
primarily attributable to increased staff required for sales and support
operations. As a percentage of revenue, SG&A expenses decreased from 39% in the
nine months ended September 30, 1997 to 35% in the nine months ended September
30, 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 35% from $1,942,000 in the nine months ended September 30, 1997 to
$2,617,000 in the nine months ended September 30, 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 the Company's CPG
products, the continued development of ForceMultiplieRx and the development of
the Company's next generation pharmaceutical SFE system, 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 "Risk Factors -- Potential for Significant Fluctuations
in Quarterly Results", "Risk Factors -- Success of New Products and Ability to
Respond to Technological Change" and "Risk Factors -- Risks from Competition".
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
that were acquired. The technology acquired will require substantial additional
development by the Company.
18
<PAGE> 21
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 the nine months ended September 30, 1998
as opposed to 41% during the nine months ended September 30, 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 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 the Company's
installed base of Dendrite SFE systems with new and existing customers and the
provision of additional services to the Company's existing customers, largely in
the U.S., where the service revenue increase was $11,585,000 or 39%.
Revenues from Pfizer, Johnson & Johnson and Rhone-Poulenc Rorer, in the
aggregate, accounted for approximately 59% of the Company's revenues for the
year ended December 31, 1997. Revenues from Pfizer, Eli Lilly and Company and
Rhone-Poulenc Rorer, in the aggregate, accounted for approximately 58% of the
Company's revenues for the year ended December 31, 1996.
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 the
Company 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.
19
<PAGE> 22
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 is 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 3% for the year ended December 31, 1997. The decrease in research
and development expenses in 1997 was consistent with the Company's intentions,
as peak development efforts associated with several new software products
decreased as these software products neared completion.
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.
YEARS ENDED DECEMBER 31, 1995 AND 1996
REVENUES. Total revenues increased $12,124,000 or 22% from $54,122,000 in
1995 to $66,246,000 in 1996 as a result of an increase in the installed base of
Dendrite systems, both from new and existing customers for our pharmaceutical
products and services and the acquisition of SRCI in May 1996.
License fee revenues increased from $6,042,000 in 1995 to $8,774,000 in
1996. This increase was primarily attributable to several large contracts where
customization was completed during the year. Included in 1995 and 1996 revenues
are license fees from a multi-year capitation agreement.
Service revenues increased 20% from $48,080,000 in 1995 to $57,472,000 in
1996 as a result of an increase in our installed base of Dendrite systems and
implementation services provided to new and existing customers and, to a lesser
extent, the increased marketing of services to SRCI's customers in the consumer
packaged goods market. Service revenues as a percentage of our total revenues
decreased from 89% in 1995 to 87% in 1996. This percentage decrease was
primarily attributable to a deferral from 1996 to 1997 of a major customer
implementation in seven countries and to higher license fees in 1996.
Revenues from Pfizer, Eli Lilly and Company and Rhone-Poulenc Rorer, in the
aggregate, accounted for approximately 58% of the Company's revenues for the
year ended December 31, 1996 and approximately 56% of the Company's revenues for
the year ended December 31, 1995.
COST OF REVENUES. Cost of revenues increased 38% from $23,426,000 in 1995
to $32,376,000 in 1996 primarily due to an increase in the number of service
representatives and technical staff and, to a lesser extent, an increase in
associated support costs. This support cost increase was related to the increase
in service revenues, incremental costs incurred related to the hiring of
personnel for the multiple customer delayed implementations and the higher costs
associated with utilizing independent contractors.
Cost of license fees increased slightly from $712,000 in 1995 to $832,000
in 1996. In 1996, the cost of license fees represents the amortization of
capitalized costs of $739,000 and third-party vendor license fees of $93,000. In
1995, cost of license fees include amortization of capitalized software costs of
$410,000 and third party software vendor license fees of $302,000.
Cost of services increased from $22,714,000 in 1995 to $31,544,000 in 1996.
As a percentage of service revenues, cost of services increased from 47% of
service revenues for the year ended December 31, 1995 to 55% of service revenues
for the year ended December 31, 1996. This increase was
20
<PAGE> 23
attributable to hiring personnel for training, customer service and technical
support for the customer delayed implementations discussed above, and to higher
costs associated with retaining a significant number of independent contractors
to complete client deliverables.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses
increased 24% from $21,252,000 in 1995 to $26,440,000 in 1996. As a percentage
of revenue, SG&A expenses remained constant at 40% for the year ended December
31, 1996 in comparison to the year ended December 31, 1995. The increase in 1996
was primarily attributable to costs associated with restructuring our European
service delivery organization and the amortization of goodwill associated with
the SRCI acquisition.
ACQUISITION OF SRCI. On May 1, 1996, the Company acquired 100% of the
capital stock of SRCI S.A., a French company, for 16,350,000 French Francs,
equivalent to U.S. $3,198,000 and transaction costs of $302,000. The acquisition
has been accounted for using the purchase method of accounting, whereby the
purchase price is allocated to the assets and liabilities of SRCI based on their
fair market values at the acquisition date. The excess of the purchase price
over the fair value of the net assets acquired was assigned to identifiable
intangibles. We assigned $2,640,000 to in-process research and development
(charged to expense). We also recorded $860,000 as goodwill. SRCI's results of
operations have been included in the Company's consolidated financial statements
from the date of acquisition.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 201%
from $2,274,000 in 1995 to $6,834,000 in 1996. As a percentage of revenues,
research and development expenses increased from 4% for the year ended December
31, 1995 to 10% for the year ended December 31, 1996. The increase in research
and development expenses in 1996 was attributable to creating country specific
products for the German and Japanese market, to provide new products for several
joint ventures announced during the year and completion of the ForceOne product
for our Consumer Business Division.
PROVISION FOR INCOME TAXES. The effective tax rate increased from 39% for
the year ended December 31, 1995 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. This increase was primarily related to the impact
of the amortization of non-deductible goodwill in the year ended December 31,
1996 and a tax rate change in Germany.
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<PAGE> 24
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, include 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 "Risk Factors -- Potential for Significant Fluctuations in
Quarterly Results".
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------
DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
1996 1997 1997 1997 1997 1998 1998 1998
------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License fees............... $ 1,128 $ 1,094 $ 1,725 $ 2,370 $ 2,518 $ 2,971 $ 4,299 $ 1,116
Services................... 15,037 15,548 16,342 17,998 20,851 19,656 24,028 29,352
------- ------- ------- ------- ------- ------- ------- -------
16,165 16,642 18,067 20,368 23,369 22,627 28,327 30,468
Costs of Revenues:
Cost of license fees..... 278 273 392 729 365 361 1,024 379
Cost of services......... 10,193 9,795 8,333 8,795 9,971 9,894 12,402 13,645
------- ------- ------- ------- ------- ------- ------- -------
10,005 9,481 8,046 8,861 9,725 9,570 13,426 14,024
------- ------- ------- ------- ------- ------- ------- -------
Gross margin........... 6,160 7,161 10,021 11,507 13,644 13,057 14,901 16,444
Operating Expenses:
Selling, general, and
administrative......... 7,624 6,373 7,636 7,678 8,217 8,459 9,962 10,280
Research and
development............ 3,166 683 653 606 734 899 870 847
Write-off of in-process
research and
development............ -- -- -- -- -- -- -- 1,230
------- ------- ------- ------- ------- ------- ------- -------
11,256 7,643 8,968 8,947 9,562 10,043 10,832 12,357
------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss).............. (5,096) (482) 1,053 2,560 4,082 3,014 4,069 4,087
Interest income............ 262 128 131 100 169 196 214 280
Other income (expense)..... (276) (57) (95) (21) (27) (321) (45) 117
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes
(benefit).............. (5,110) (411) 1,089 2,639 4,224 2,889 4,238 4,484
Income taxes (benefit)..... (1,847) (145) 442 1,047 1,587 1,127 1,581 2,043
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).......... $(3,263) $ (266) $ 647 $ 1,592 $ 2,637 $ 1,762 $ 2,657 $ 2,441
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share:
Basic.................... $ (0.15) $ (0.01) $ 0.03 $ 0.07 $ 0.12 $ 0.08 $ 0.12 $ 0.11
======= ======= ======= ======= ======= ======= ======= =======
Diluted.................. $ (0.15) $ (0.01) $ 0.03 $ 0.07 $ 0.11 $ 0.07 $ 0.11 $ 0.10
======= ======= ======= ======= ======= ======= ======= =======
Shares used in computing
net income (loss) per
share:
Basic.................... 22,318 22,450 22,142 22,201 22,252 22,324 22,418 22,705
======= ======= ======= ======= ======= ======= ======= =======
Diluted.................. 22,318 22,450 22,736 23,226 23,316 23,900 24,302 24,818
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
On January 16, 1997, Dendrite's board of directors (the "Board of
Directors" or the "Board") approved a stock buy-back program initially limited
to $3,000,000, which, subject to further Board review and approval, could be
increased to a maximum of $10,000,000, but not greater than 9% of the Company's
outstanding shares of common stock. During the twelve month period ending
December 31, 1997, the Company repurchased 401,000 shares of common stock for a
total value of $1,927,000.
We have historically financed our operations primarily through cash
generated by operations. Net cash provided by operating activities was
$9,470,000 for the nine months ended September 30, 1998 compared to cash used in
operating activities of $3,373,000 for the nine months ended September 30, 1997.
This increase is due primarily to higher net income, as well as more efficient
accounts receivable and liability management during the nine months ended
September 30, 1998 as compared to the nine months ended September 30, 1997. Net
cash provided by operating activities was $3,318,000 for the year ended December
31, 1997 compared to cash used in operating activities of $2,764,000 for the
year ended December 31, 1996. This increase is primarily due to higher net
income, depreciation and amortization and decreases in prepaid taxes and
deferred tax assets in 1997 as compared to 1996, partially offset by a larger
increase in accounts receivable in 1997 as compared to 1996 and the non-cash
expense caused by write-off of in-process research and development expenses in
1996.
Cash used in investing activities was $3,052,000 in the nine months ended
September 30, 1998 compared to cash obtained from investing activities of
$4,133,000 in the nine months ended September 30, 1997. This change was due
primarily to the decreased sales of short-term investments as well as the
purchase of ABC in the nine months ended September 30, 1998 as compared to the
nine months ended September 30, 1997. Cash obtained from investing was
$3,301,000 in 1997 compared to cash used in the investing of $2,499,000 in 1996.
This increase was due to the liquidation of short-term investments in 1997 as
compared to 1996 and the use of $2,965,000 of cash for the purchase of SRCI in
1996.
We obtained $2,594,000 of cash from financing activities in the nine months
ended September 30, 1998 compared to the use of $1,543,000 in cash from
financing activities in the nine months ended September 30, 1997. The change in
our cash provided from financing activities is due an increase in the issuance
of common stock primarily from the exercise of employee stock options during the
nine months ended September 30, 1998 and open-market purchases of its common
stock during the nine months ended September 30, 1997. We used $1,331,000 of
cash from financing activities in 1997 compared to providing $4,551,000 in cash
from financing activities in 1996. The change in our cash provided from
financing activities is due primarily to the March 13, 1996 public offering and
the stock buy-back during the first half of 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
$41,325,000 at September 30, 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
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<PAGE> 26
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. See "Risk Factors -- Management of Growth".
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 correctly process all date information at all
times.
To date, we have spent approximately $100,000 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 first 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 SFE systems and software products licensed to
customers and do not anticipate any future material expenditures. 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.
Based on what we know now, 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
first 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 SFE systems and other 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 first 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 "Risk
Factors -- Year 2000 Risks".
24
<PAGE> 27
BUSINESS
DENDRITE INTERNATIONAL, INC.
We are a leading worldwide supplier of comprehensive Sales Force
Effectiveness solutions to the pharmaceutical industry. We also supply our
solutions to the CPG market. These solutions, which consist of software products
and support services, provide our customers with a distinct competitive
advantage by allowing them to (i) improve their use of sales, customer and
market information and (ii) 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 products are licensed for use by over 40,000 end users worldwide. Our
pharmaceutical customers include Eli Lilly, Johnson & Johnson, Kissei,
Parke-Davis, Pfizer, SmithKline Beecham and Takeda. Our CPG customers include
Barcardi-Martini, Gillette and Rayovac.
Most of our revenues come from a broad range of value-added 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 and 1997 and for
the nine months ended September 30, 1998, services represented approximately
87%, 90% and 90% of our total revenues.
INDUSTRY OVERVIEW
PHARMACEUTICAL INDUSTRY SALES ENVIRONMENT
Pharmaceutical companies have traditionally marketed ethical 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 OTC
availability.
While these changes have not reduced the need to market to individual
physicians, they 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.
25
<PAGE> 28
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 SFE products can integrate sales information from
multiple data sources. By using our SFE 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 SYSTEMS
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.
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 systems, 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 systems 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 systems to the more interconnected SFE systems.
SFE systems use territory-based data to allow increased interaction between
sales force managers and other corporate management information systems.
However, early SFE systems could not dynamically handle the new and often
voluminous data necessary to make decisions in today's complex selling
environments. Specifically, these SFE systems 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 SFE systems must evolve into comprehensive information
systems that are increasingly integral to the overall
26
<PAGE> 29
management of the business. In addition, SFE
systems 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 comprehensive SFE solutions consisting of software
products and a wide range of value-added support services. These solutions
enable our customers to, among other things, 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 and facilitating real
time decisions. Our current SFE 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 value-added 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 global infrastructure and leading
solutions to satisfy both the local and global needs of our customers. Key
elements of this strategy include:
- - LEVERAGE INSTALLED BASE. We have a substantial installed 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 value-added products and services and broadening
these relationships to include additional affiliates of our customers.
- - ENHANCE GLOBAL LEADERSHIP. We intend to capitalize on the trend among
companies to select one global provider of SFE solutions rather than multiple
vendors. We believe that our product design and scope, our network of 13
offices worldwide and our extensive experience implementing SFE solutions in
over 15 countries will allow us to capitalize on this trend.
- - USE NEW TECHNOLOGY TO ENHANCE SFE SOLUTIONS. We design our products and
product enhancements to take advantage of available technologies, such as
multi-tier architectures, relational database management systems, built-in
configuration tools and application development software. We intend to
continue to invest in new technologies in order to maintain our position as a
leading worldwide supplier of SFE solutions.
PRODUCTS AND SERVICES
PHARMACEUTICAL SFE PRODUCTS
We currently offer our pharmaceutical customers three primary SFE 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 SFE 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.
27
<PAGE> 30
The table below describes the principal functions available for the
ForcePharma product:
FORCEPHARMA CLIENT FUNCTIONALITY
HOME PAGE
Allows end user to configure and view important
information on the Home Page screen with quick
"at-a-glance" and search features.
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 in a tabular or list format. 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. Provides end user the
ability to create a general to do list or one
that is specific to a physician profile.
SAMPLE MANAGEMENT
Allows end user to track inventory, perform
adjustments, including transfers and returns, and
perform reconciliations in compliance with FDA
regulations.
MEETINGS
Allows planning, recording and management of
group selling events, such as dinner meetings,
speaker programs, symposia, etc.
DATA SHARING
Distributes relevant client information,
including scheduling, profile information, call
history, approvals, meetings, team selling and
pull-through lists.
SYNCHRONIZATION MANAGER
Allows end user to synchronize multiple databases
in one communications session.
FORCEPHARMA SYSTEM CONFIGURATOR AND BACK OFFICE ADMINISTRATOR
SYSTEM CONFIGURATOR
Creates interfaces for new end users, permits
modifications of interfaces for existing end
users and allows the end user to select the
language used in the system.
BACK OFFICE ADMINISTRATOR
Permits definition of business rules, including
data sharing, territory alignment and sample
disbursement. Allows administration of sales
force composition and preconfigured 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 which 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
28
<PAGE> 31
function is offered with specific continuing support services.
The ForcePharma system 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 system. ForcePharma
software uses physician and territory-based prescription sales data to provide
performance analysis reports. 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% and 91%, of the sales representatives licensed to use our
pharmaceutical SFE systems as of December 31, 1997 and 1998.
We are presently marketing to all of our customers a migration path which
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% and 6% of the sales representatives
licensed to use our pharmaceutical SFE systems as of December 31, 1997 and
December 31, 1998, respectively. We have in the past supported users of our
Series 4 system, 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 SFE systems based on the geographic area
covered by the system, the system configuration and the total number of users.
We also charge additional one-time fees to install the system and annual fees
for continuing services.
SALESPLUS. In July 1998, we acquired ABC, a Belgian-based developer and
provider of a pre-configured software solution known as SalesPlus which is
marketed to mid-range European pharmaceutical companies. We are currently
marketing software products 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. These products are offered to those
prescription-only pharmaceutical customers whose business needs do not require
all of the features of the ForcePharma product. Like ForcePharma, these products
support all levels within a sales organization.
J FORCE. We are now also offering for license in Japan a new highly
configurable 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, France's largest provider of
custom-designed SFE systems 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
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<PAGE> 32
in the fourth quarter of 1996. ForceOne contains most of the same basic features
as 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
within our SFE systems or on a stand-alone basis. These highly configurable
database management and analytical tools provide customers with timely
information for use in developing sales strategies and facilitating real time
decisions. 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 nine months ended September 30, 1998 service revenues represented
approximately 90% of total Dendrite 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 systems 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 SFE systems. 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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<PAGE> 33
The following table outlines the principal services we offer:
IMPLEMENTATION SERVICES
PROJECT MANAGEMENT
Plan the configuration, if applicable, and
implementation of a Dendrite SFE system.
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 SFE system.
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 a Dendrite
SFE system.
TECHNICAL AND HARDWARE SUPPORT SERVICES
PROJECT MANAGEMENT
Design, structure and manage technical support
for a Dendrite SFE system.
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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<PAGE> 34
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 a Dendrite SFE system.
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 a Dendrite SFE system and certain third party
software, seven days a week and in many foreign
languages.
DATA ANALYSIS
Provide proactive 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 SFE 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 (e.g., 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. We anticipate that, if a pharmaceutical company selects
Dendrite to be its global SFE provider, the company may request us to
consolidate customer support on a regional basis.
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.
As of September 30, 1998, substantially all of our service agreements were
with ethical pharmaceutical customers.
SYSTEM CONFIGURATION
Our pharmaceutical SFE systems are configured to allow information access
and communication among geographically dispersed sales and marketing personnel
and regional and home offices. The core of the system 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 Dendrite-owned
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<PAGE> 35
servers located in various Dendrite 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 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 SFE systems 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 SFE systems 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 SFE systems are generally configured in a manner similar to our
pharmaceutical SFE systems. However, CPG sales representatives are more likely
to use handheld or palmtop computing devices than laptop and desktop personal
computers.
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<PAGE> 36
CUSTOMERS
The following is a list of substantially all of our current pharmaceutical
customers (who either directly or through subsidiaries may be customers in one
or more countries served by us, not necessarily including the United States):
3M Pharmaceuticals
Abbott Laboratories
Adams
Allergan
Asta Medica
Astra
Bayer
Bristol-Myers Squibb
Chauvin
Eli Lilly
Eurogenerics
Glaxo Wellcome
Hoechst Marion Roussel
Johnson & Johnson
Kissei
Knoll
Leo Laboratories
Madaus
Merck
Novartis
Novo Nordisk
Organon
Parke-Davis
Pfizer
Pharmacia & Upjohn
Poli Chimica
Rhone-Poulenc Rorer
Savage Laboratories
SmithKline Beecham
Sankyo Parke-Davis
Schering A.G.
Schering-Plough
Solvay Pharmaceuticals
Synthelabo
Takeda
Therabel
Urgo
Zeneca
The following is a list of our major CPG customers:
Bacardi-Martini
CAI
CPC
Evian
Gillette
Kronenbourg
Metro
Moet & Chandon
Moet Hennessy
Nestle
Prodirest
Ralston Purina
Rayovac
RJR MacDonald
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 years 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 "Risk
Factors -- Dependence on Major Customers".
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<PAGE> 37
SALES AND MARKETING
We actively market our SFE systems and services to ethical 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 an SFE system 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.
See "Risk Factors -- Potential for Significant Fluctuations in Quarterly
Results -- Lengthy Sales and Implementation Cycles".
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 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 ethical pharmaceutical customers also have OTC operations
that provide us with additional sales opportunities.
Finally, we have entered into several arrangements with business partners
to market our products and/or services jointly. Examples of our partners and
their respective products and/or services include: National Data Corporation
(prescription data); Envoy Corporation (prescription data); Garnett Associates
(SFE support services in Greece and Cyprus); and Ernst & Young (implementation
services for CPG products). In addition, we occasionally resell computer
hardware and third-party software, e.g., Sybase (remote database software), and
QlikTech (analytical software).
RESEARCH AND DEVELOPMENT
We continue to take advantage of new technologies in developing new
products and services. We spent approximately $2.3, $6.8 and $2.7 million on
research and development in the years ended December 31, 1995, 1996 and 1997. We
spent $2.6 million on research and development in the nine months ended
September 30, 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
$2,589,000 and $2,408,000, at December 31, 1996 and 1997, respectively.
COMPETITION
The current market for sales and marketing information management systems
is highly competitive. Many companies offer SFA and SFE systems in the ethical
pharmaceutical and CPG industries. We believe that there are approximately ten
other companies that offer these products specifically to the pharmaceutical
industry, at least three of which we believe are actively selling in more than
one country.
With respect to our SFE systems, we believe that most of our competitors
offer solutions that do not address the variety of customer needs that our
solutions address. However, these competing solutions may cost less than our
solutions.
SFA systems differ greatly in terms of functionality, flexibility and the
type of
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<PAGE> 38
hardware platform supported. Vendors of SFA systems also generally do not
provide support services to the same extent as SFE vendors. We believe that our
SFE software products and support services offer customers a more comprehensive
solution than SFA systems. 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 systems are less compelling solutions, they, nonetheless, often cost
less than SFE solutions.
Our products and services compete with others principally on the basis of
product flexibility and configuration, platform configuration, name recognition,
global competence, service standards, breadth of customer base and technical
support and service. We believe our systems 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 ethical 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
(including the United States). It may be possible for a competitor to gain a
competitive advantage in the pricing of its SFE systems 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 SFE systems 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.
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 "Risk Factors -- Dependence
on Proprietary Technology".
EMPLOYEES
As of September 30, 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. None of our
employees are part of any collective bargaining unit. 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.
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; 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
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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 facilities are adequate for our current
needs and that adequate space will be available as needed.
Servers located at Dendrite facilities are commonly maintained in a secured
area and are often subject to regular audit and inspection by our customers.
Except for the Dendrite database servers on which customers rent space, most
customers require that their database server be kept entirely network isolated
from the database servers of all other 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 proceeding which is expected, individually or in the
aggregate, to have a material adverse effect on our business.
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MANAGEMENT
The executive officers and directors of the Company and their respective
ages and positions as of January 26, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John E. Bailye............................ 44 President, Chief Executive Officer, Director and
Chairman of the Board
R. Bruce Savage........................... 49 Executive Vice President and Chief Operating
Officer
Teresa F. Winslow......................... 42 Senior Vice President for U.S. Operations
George T. Robson.......................... 51 Senior Vice President and Chief Financial Officer
Mark H. Cieplik........................... 43 Senior Vice President, Worldwide Sales
Jean LaHaie............................... 42 Senior Vice President, SalesPlus Strategic
Business Unit
Christopher J. French..................... 38 Vice President, General Counsel and Secretary
Thierry Durand............................ 38 Vice President, Europe
Bernard M. Goldsmith...................... 54 Director
Edward J. Kfoury.......................... 59 Director
Paul A. Margolis.......................... 45 Director
John H. Martinson......................... 50 Director
Terry 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 ("Foresearch"), 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.
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 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
graduated with a B.S. in Pharmacy from the Philadelphia College of Pharmacy and
Science.
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<PAGE> 41
MR. GEORGE T. ROBSON has served 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.
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 Corporation from April 1995 to May 1997. In
addition, Mr. Cieplik served as General Manager, North America Major Accounts
for System Software Associates from December 1991 to April 1995, and served in
various capacities for IBM Corporation from 1976 until 1991. Mr. Cieplik
received a B.S. in Marketing from Millikan 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 September 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 private 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
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<PAGE> 42
advisory trustee of the Maine Audobon Society, and President of Rangeley Lakes
Heritage Trust.
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, Obtech, LLC, POMS Corporation and Big Brother Association of Greater
Boston, and Past Chairman of the Open Applications Group, Inc., a non-profit
software industry organization. He previously worked as an independent business
consultant and, prior to that, as Manufacturing Manager for Keltron Corporation.
Mr. Margolis holds a B.A. 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, where he currently serves as Managing
Partner. 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. TERRY H. OSBORNE has served as a Director since August 1998. Mr.
Osborne served as President and Chief Operating Officer of System Software
Associates ("SSA"), a computer software company, from November 1994 until
October 1996, the date of his retirement. 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 Dr. Solomon's Group PLC and Cimax
International and a director of Mapics, Inc.
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<PAGE> 43
SELLING STOCKHOLDERS
The table below sets forth the beneficial ownership of the Company's common
stock by the selling stockholders at January 27, 1999 and following the sale of
shares of common stock offered hereby.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY
OWNED BEFORE SALE OWNED AFTER SALE
UNDER THIS UNDER THIS
PROSPECTUS(1)(2) PROSPECTUS(1)(2)(3)
----------------------- SHARES -----------------------
NAME SELLING STOCKHOLDER NUMBER PERCENTAGE TO BE SOLD NUMBER PERCENTAGE
- ------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
John E. Bailye(4)............ 3,469,799 14.8% 300,000 2,969,799 11.4%
Carinya Holding Company(5)... 729,000 3.1 150,000 579,000 2.2
Bailye Family
Foundation(6).............. 56,000 * 50,000 6,000 *
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock.
(2) Applicable percentage of ownership prior to consummation of the offering is
based on 23,372,387 shares of common stock outstanding as of December 31,
1998. Applicable percentage ownership includes 2,750,000 shares of common
stock offered hereby. Beneficial ownership is determined in accordance with
the rules of the Commission. Common stock subject to options currently
exercisable or exercisable on or prior to 60 days after the date as of which
information is presented are deemed outstanding for computing the percentage
ownership of the person holding such options, but are not deemed outstanding
for computing the percentage ownership of any other person.
(3) Assumes that the option granted the Underwriters to purchase additional
shares is not exercised.
(4) Includes options exercisable for 22,000 shares of common stock currently
exercisable or exercisable within 60 days of the date of this prospectus.
Also includes 729,000 shares held by the Carinya Holdings Company
("Carinya") and 56,000 shares held by the Bailye Family Foundation (the
"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.
(5) 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.
(6) 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.
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<PAGE> 44
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
consummation of this offering, based on the number of shares outstanding as of
September 30, 1998, 25,558,612 shares of common stock will be issued and
outstanding, and no shares of preferred stock will be outstanding. As of January
21, 1999, there were approximately 102 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 the
Company, holders of common stock are entitled to receive ratably the net assets
of the Company available for distribution after the payment of all debts and
other liabilities of the Company, 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 (i) the business combination is approved by the
Board of Directors in a prescribed manner, (ii) two-thirds of the shares not
beneficially owned by the interested stockholder vote in favor of the business
combination, or (iii) 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 "interested stockholder" is a person who together with affiliates and
associates, owns, or within the
42
<PAGE> 45
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 (a) in breach
of such person's duty of loyalty to the corporation or its stockholders, (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, 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 the
Company by Sullivan & Cromwell, New York, New York. Certain matters relating to
the offering will also be passed upon for the Company 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
The consolidated financial statements of the Company as of December 31,
1996 and 1997 and for each of the three years in the period ended December 31,
1997, 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
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). You
may read and copy all or any portion of the Registration Statement or any
reports, statements or other information the Company files 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, 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. The
43
<PAGE> 46
Company's Commission filings, including the Registration Statement, are also
available to you on the Commission Internet site (http://www.sec.gov). The
Company's common stock is quoted on the Nasdaq National Market. Reports, proxy
and information statements and other information concerning the Company can also
be inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006. The Company 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. The Company has 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 the Company and
its 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 following documents filed by the Company (File No. 0-26138) with the
Commission pursuant to the Exchange Act are incorporated by reference herein and
made a part hereof:
(1) Annual Report on Form 10-K for the fiscal year ended December 31,
1997; and
(2) Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1998, June 30, 1998 and September 30, 1998.
All documents filed by the Company 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.
44
<PAGE> 47
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 Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 48
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, 1996 and 1997, and the related consolidated statements of operations,
redeemable convertible preferred stock and stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. 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, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 4, 1998
F-2
<PAGE> 49
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPT. 30,
1996 1997 1998
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $10,912 $15,917 $24,929
Short-term investments............................... 8,421 2,955 1,384
Accounts receivable.................................. 18,732 24,724 28,306
Prepaid expenses and other........................... 1,569 2,222 2,771
Prepaid taxes........................................ 1,397 -- --
Deferred tax asset................................... 1,203 441 441
------- ------- -------
Total current assets............................ 42,234 46,259 57,831
PROPERTY AND EQUIPMENT, net............................... 3,391 3,110 3,957
DEFERRED TAXES............................................ 254 667 667
GOODWILL, net............................................. 747 575 2,619
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net............... 2,589 2,408 3,304
------- ------- -------
$49,215 $53,019 $68,378
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 3,344 $ 2,211 $ 2,796
Income taxes payable................................. 584 867 997
Accrued compensation and benefits.................... 2,446 3,439 3,943
Other accrued expenses............................... 3,329 4,352 7,424
Deferred revenues.................................... 2,099 1,409 1,346
------- ------- -------
Total current liabilities....................... 11,802 12,278 16,506
------- ------- -------
DEFERRED RENT............................................. 726 598 456
------- ------- -------
DEFERRED TAXES............................................ 1,511 1,970 2,293
------- ------- -------
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, 22,841,890, 22,659,548 and 23,209,612
shares issued and 22,440,840, 22,258,548 and
22,808,612 outstanding............................. 32,198 32,814 36,965
Retained earnings.................................... 4,658 9,268 16,128
Deferred compensation................................ (1,227) (1,141) (1,160)
Cumulative translation adjustment.................... (453) (841) (883)
Less treasury stock, at cost......................... -- (1,927) (1,927)
------- ------- -------
Total stockholders' equity...................... 35,176 38,173 49,123
------- ------- -------
$49,215 $53,019 $68,378
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 50
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
License fees.................... $ 6,042 $ 8,774 $ 7,707 $ 5,189 $ 8,386
Services........................ 48,080 57,472 70,739 49,888 73,036
------- ------- ------- ------- -------
54,122 66,246 78,446 55,077 81,422
------- ------- ------- ------- -------
COSTS OF REVENUES:
Cost of license fees............ 712 832 1,758 1,393 1,764
Cost of services................ 22,714 31,544 36,894 26,923 35,941
------- ------- ------- ------- -------
23,426 32,376 38,562 28,316 37,705
------- ------- ------- ------- -------
Gross margin............... 30,696 33,870 39,794 26,761 43,717
------- ------- ------- ------- -------
OPERATING EXPENSES:
Selling, general and
administrative................ 21,252 26,440 29,905 21,688 28,701
Research and development........ 2,274 6,834 2,676 1,942 2,617
Write-off of in-process research
and development............... -- 2,640 -- -- 1,230
------- ------- ------- ------- -------
23,526 35,914 32,581 23,630 32,548
------- ------- ------- ------- -------
Operating income (loss).... 7,170 (2,044) 7,213 3,131 11,169
INTEREST INCOME...................... 544 1,167 529 366 690
OTHER EXPENSE........................ (33) (391) (201) (180) (248)
------- ------- ------- ------- -------
Income (loss) before
income taxes............. 7,681 (1,268) 7,541 3,317 11,611
INCOME TAXES......................... 2,987 644 2,931 1,344 4,751
------- ------- ------- ------- -------
NET INCOME (LOSS).................... $ 4,694 $(1,912) $ 4,610 $ 1,973 $ 6,860
======= ======= ======= ======= =======
NET INCOME (LOSS) PER SHARE:
Basic........................... $ 0.33 $ (0.09) $ 0.21 $ 0.09 $ 0.31
======= ======= ======= ======= =======
Diluted......................... $ 0.23 $ (0.09) $ 0.20 $ 0.09 $ 0.28
======= ======= ======= ======= =======
SHARES USED IN COMPUTING NET INCOME
(LOSS) PER SHARE:
Basic........................... 14,202 22,112 22,262 22,265 22,475
======= ======= ======= ======= =======
Diluted......................... 20,762 22,112 23,026 22,942 24,437
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 51
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
REDEEMABLE UNREALIZED
SERIES A HOLDING
CONVERTIBLE COMMON STOCK GAIN ON CUMULATIVE
PREFERRED ---------------- RETAINED DEFERRED SHORT-TERM TRANSLATION
STOCK SHARES AMOUNT EARNINGS COMPENSATION INVESTMENTS ADJUSTMENT
----------- ------ ------ -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994......... $6,976 6,888 $ 432 $ 1,892 $ (124) $ -- $(505)
Issuance of common stock.......... -- 302 747 -- (425) -- --
Amortization of deferred
compensation.................... -- -- -- -- 47 -- --
Purchase and retirement of common
stock........................... -- (52) (132) -- -- -- --
Currency translation adjustment... -- -- -- -- -- -- (76)
Unrealized gain on short-term
investments..................... -- -- -- -- -- 14 --
Accretion of redemption premium on
preferred stock................. 16 -- -- (16) -- -- --
Mandatory conversion of
Redeemable Series A Convertible
Preferred Stock
into common stock............... (6,992) 11,714 6,992 -- -- -- --
Issuance of common stock from
consummation of initial public
offering, net of offering
costs........................... -- 3,000 18,770 -- -- -- --
Net income........................ -- -- -- 4,694 -- -- --
------ ------ ------- ------- ------- ---- -----
BALANCE, DECEMBER 31, 1995......... -- 21,352 26,809 6,570 (502) 14 (581)
Issuance of common stock.......... -- 376 1,094 -- (838) -- --
Amortization of deferred
compensation.................... -- -- -- -- 113 -- --
Currency translation adjustment... -- -- -- -- -- -- 128
Realization of gain on
short-term investments.......... -- -- -- -- -- (14) --
Issuance of common stock from
consummation of initial public
offering, net of offering
costs........................... -- 600 4,295 -- -- -- --
Net loss.......................... -- -- -- (1,912) -- -- --
------ ------ ------- ------- ------- ---- -----
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 -- --
Currency translation adjustment... -- -- -- -- -- -- (388)
Purchase of Treasury stock........ -- -- -- -- -- -- --
Net income........................ -- -- -- 4,610 -- -- --
------ ------ ------- ------- ------- ---- -----
BALANCE, DECEMBER 31, 1997......... -- 22,660 32,814 9,268 (1,141) -- (841)
Issuance of common stock
(unaudited)..................... -- 550 4,151 -- (25) -- --
Amortization of deferred
compensation (unaudited)........ -- -- -- -- 6 -- --
Currency translation adjustment
(unaudited)..................... -- -- -- -- -- -- (42)
Net income (unaudited)............. -- -- -- 6,860 -- -- --
------ ------ ------- ------- ------- ---- -----
BALANCE, SEPTEMBER 30, 1998
(unaudited)....................... $ -- 23,210 $36,965 $16,128 $(1,160) $ -- $(883)
====== ====== ======= ======= ======= ==== =====
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------------
TREASURY STOCK
----------------
SHARES AMOUNT TOTAL
------ ------ -----
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994......... -- $ -- $ 1,695
Issuance of common stock.......... -- -- 322
Amortization of deferred
compensation.................... -- -- 47
Purchase and retirement of common
stock........................... -- -- (132)
Currency translation adjustment... -- -- (76)
Unrealized gain on short-term
investments..................... -- -- 14
Accretion of redemption premium on
preferred stock................. -- -- (16)
Mandatory conversion of
Redeemable Series A Convertible
Preferred Stock
into common stock............... -- -- 6,992
Issuance of common stock from
consummation of initial public
offering, net of offering
costs........................... -- -- 18,770
Net income........................ -- -- 4,694
---- ------- -------
BALANCE, DECEMBER 31, 1995......... -- -- 32,310
Issuance of common stock.......... -- -- 256
Amortization of deferred
compensation.................... -- -- 113
Currency translation adjustment... -- -- 128
Realization of gain on
short-term investments.......... -- -- (14)
Issuance of common stock from
consummation of initial public
offering, net of offering
costs........................... -- -- 4,295
Net loss.......................... -- -- (1,912)
---- ------- -------
BALANCE, DECEMBER 31, 1996......... -- -- 35,176
Issuance of common stock.......... -- -- 596
Amortization of deferred
compensation.................... -- -- 106
Currency translation adjustment... -- -- (388)
Purchase of Treasury stock........ (402) (1,927) (1,927)
Net income........................ -- -- 4,610
---- ------- -------
BALANCE, DECEMBER 31, 1997......... (402) (1,927) 38,173
Issuance of common stock
(unaudited)..................... -- -- 4,126
Amortization of deferred
compensation (unaudited)........ -- -- 6
Currency translation adjustment
(unaudited)..................... -- -- (42)
Net income (unaudited)............. -- -- 6,860
---- ------- -------
BALANCE, SEPTEMBER 30, 1998
(unaudited)....................... (402) $(1,927) $49,123
==== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 52
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $ 4,694 $(1,912) $ 4,610 $ 1,973 $ 6,860
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization................. 1,525 2,037 2,740 2,018 2,116
Deferred income taxes (benefit)............... (277) (304) 808 73 --
Write-off of in-process research and
development................................. -- 2,640 -- -- 1,230
Changes in assets and liabilities, net of
effect from acquisition:
Increase in accounts receivable............. (4,885) (3,193) (6,137) (6,110) (3,859)
(Increase) decrease in prepaid expenses and
other.................................... 607 (253) (669) (691) (536)
(Increase) decrease in prepaid income
taxes.................................... -- (1,397) 1,397 -- --
Increase (decrease) in accounts payable and
accrued expenses......................... (1,219) 2,461 1,092 (670) 3,708
Increase (decrease) in deferred rent........ 340 262 (128) (128) (142)
Increase (decrease) in income taxes
payable.................................. 1,445 (1,931) 283 673 130
(Increase) decrease in deferred revenues.... (215) (1,174) (678) (511) (37)
-------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities............................. 2,015 (2,764) 3,318 (3,373) 9,470
-------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Purchases of short-term investments.............. (15,148) (8,271) (3,800) (2,843) (3,942)
Sale of short-term investments................... 4,193 10,805 9,266 8,650 5,513
Purchase of ABC, net of cash acquired............ -- (2,965) -- -- (2,295)
Purchases of property and equipment.............. (1,534) (772) (1,246) (918) (1,261)
Additions to capitalized software development
costs......................................... (849) (1,296) (919) (756) (1,067)
-------- ------- ------- ------- -------
Net cash provided by (used in) investing
activities............................. (13,338) (2,499) 3,301 4,133 (3,052)
-------- ------- ------- ------- -------
FINANCING ACTIVITIES:
Payments on capital lease obligations............ (80) -- -- -- --
Issuance of Common stock from consummation of
public offerings, net of offering costs....... 18,770 4,295 -- -- --
Purchase of Treasury stock....................... -- -- (1,927) (1,927) --
Issuance of Common stock......................... 322 256 596 384 2,594
-------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities............................. 19,012 4,551 (1,331) (1,543) 2,594
-------- ------- ------- ------- -------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH.... (69) 94 (283) (130) --
-------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH.................... 7,620 (618) 5,005 (913) 9,012
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....... 3,910 11,530 10,912 10,912 15,917
-------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR............. $ 11,530 $10,912 $15,917 $ 9,999 $24,929
======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 53
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Dendrite International, Inc. and Subsidiaries (the "Company") provides
comprehensive Electronic Territory Management solutions used to manage,
coordinate and control the activities of large sales forces in complex selling
environments primarily within the ethical pharmaceutical industry. The Company
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.
Interim Financial Statements
The consolidated financial statements for the nine month periods ended
September 30, 1997 and 1998 are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation of results for these interim periods. The
results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results expected for the entire 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. Customers who purchase some of the
Company's newer software products may not require such customization and
therefore the Company may be able to recognize license fees from these products
upon delivery. The Company's software licensing agreements provide for a
warranty period (typically 90 days). The portion of the license fee associated
with the warranty period is unbundled from the license fee and is recognized
ratably over the warranty period.
F-7
<PAGE> 54
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1995, 1996 and 1997,
the Company recorded $362,000, $112,000 and $796,000 respectively, of license
fees and $302,000, $93,000 and $658,000, respectively, of cost of license fees
relating to third-party software.
Revenues from services are recognized as the services are performed.
Revenues from customer maintenance, support and data server rental agreements
are recognized ratably over the agreements.
Services are generally provided under multiyear contracts. The contracts
specify the payment terms, which are generally over the term of the contract and
generally provide for termination in the event of breach, as defined in the
contract.
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 year ended December 31, 1995, the Company paid interest of $10,000.
For the years ended December 31, 1996 and 1997, the Company paid no interest.
For the years ended December 31, 1995, 1996 and 1997, the Company paid income
taxes of $1,432,000, $4,346,000 and $422,000, respectively.
The following table lists noncash assets that were acquired and liabilities
that were assumed as a result of the acquisition of SRCI, S.A. discussed in Note
2:
<TABLE>
<S> <C>
Noncash assets:
Accounts receivable....................................... $ 823,000
Prepaid expenses.......................................... 31,000
Property and equipment.................................... 91,000
Goodwill.................................................. 860,000
----------
1,805,000
Assumed liabilities:
Accounts payable.......................................... (488,000)
Accrued compensation and benefits......................... (250,000)
Other accrued expenses.................................... (613,000)
Deferred revenues......................................... (129,000)
----------
Net noncash assets acquired............................ 325,000
Write-off of in-process research and development............ 2,640,000
----------
Cash paid, net of cash acquired........................ $2,965,000
==========
</TABLE>
F-8
<PAGE> 55
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Short-Term Investments
Effective January 1, 1995, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Management determines
the appropriate classification of debt and equity securities at the time of
purchase and reevaluates such designation as of each balance sheet date. The
Company invests in highly rated corporate bonds and municipal bonds. At December
31, 1996 and 1997, all marketable securities have been classified as
available-for-sale. Available-for-sale securities are carried at fair value,
based on quoted market prices, with unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. Realized gains and
losses, computed using specific identification, and declines in value determined
to be permanent are recognized in the statement of operations.
Property and Equipment
Fixed assets are stated at cost. Depreciation and amortization are provided
generally on the straight-line basis over the estimated useful lives of the
respective assets, which range from 3 to 15 years. Leasehold improvements are
amortized using the straight-line method over the estimated useful lives of the
assets or the lease terms, whichever are shorter. Maintenance, repairs and minor
replacements are charged to expense as incurred.
Capitalized Software Development Costs
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes
certain costs related to the development of new software products or the
enhancement of existing software products for sale or license. These costs are
capitalized from the point in time that technological feasibility has been
established, as evidenced by a working model or a detailed working program
design, to the 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, 1997, 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 $1,941,000 and $3,041,000 at December 31, 1996 and 1997, respectively. The
Company capitalized software development costs of $849,000, $1,296,000 and
$919,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Amortization expense for the years ended December 31, 1995, 1996 and 1997, was
$410,000, $739,000 and $1,100,000, respectively, and is included in cost of
license fees in the accompanying statements of operations.
Intangible Assets
Goodwill of $3,086,000 is being amortized on a straight-line basis over
five - seven years (see Note 2). Amortization expense for the years ended
December 31, 1996 and 1997 and the nine months ended September 30, 1998 was
$113,000, $172,000 and $182,000, respectively.
F-9
<PAGE> 56
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
reviews its long-lived assets, including property and equipment, and goodwill
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. To determine
recoverability of its long-lived assets, the Company evaluates the probability
that future undiscounted net cash flows, without interest charges, will be less
than the carrying amount of the assets. Impairment is measured at fair value.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates
that are expected to be in effect when the differences reverse.
At December 31, 1997, there were approximately $3,141,000 of accumulated
undistributed earnings of subsidiaries outside the United States that are
considered to be reinvested indefinitely. If such earnings were remitted to the
Company, applicable U.S. federal income and foreign withholding taxes may be
partially offset by foreign tax credits.
Major Customers
The Company derived revenues of approximately 31%, 14% and 11% and 36%, 14%
and 8% from its three largest customers for the years ended December 31, 1995
and 1996, respectively. The Company derived revenues of approximately 33%, 15%
and 11% from its three largest customers for the year ended December 31, 1997,
two of which were among the three largest customers in 1995 and 1996.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade receivables. The
Company invests its excess cash with large banks. The Company's customer base
principally comprises companies within the ethical pharmaceutical industry. The
Company does not require collateral from its customers.
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.
F-10
<PAGE> 57
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The computation of shares used for Basic EPS and Diluted EPS is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1995 1996 1997
--------------------------------------- --------------------------------------- -----------
INCOME 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)........ $4,694 $(1,912) $4,610
Less: Accretion of
redemption premium on
preferred stock........ (31) -- --
------ ------- ------
Income (loss) available
to common
stockholders........... 4,663 (1,912) 4,610
Basic EPS................ 14,202 $0.33 22,112 $(0.09)
Effect of dilutive
securities
Redeemable convertible
preferred stock........ 31 5,608 -- -- --
Stock options............ -- 952 -- -- --
------ ------ ------- ------ ------
Income (loss) available
to common stockholders
plus assumed
conversions............ $4,694 $(1,912) $4,610
Diluted EPS.............. 20,762 $0.23 22,112 $(0.09)
====== ===== ====== ======
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997
-------------------------
SHARES PER-SHARE
(DENOMINATOR) AMOUNT
------------- ---------
<S> <C> <C>
Net income (loss)........
Less: Accretion of
redemption premium on
preferred stock........
Income (loss) available
to common
stockholders...........
Basic EPS................ 22,262 $0.21
Effect of dilutive
securities
Redeemable convertible
preferred stock........ --
Stock options............ 764
------
Income (loss) available
to common stockholders
plus assumed
conversions............
Diluted EPS.............. 23,026 $0.20
====== =====
</TABLE>
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for financial statements issued for
fiscal years beginning after December 15, 1997. Management believes that SFAS
130 will not have a material effect on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS 131"). This statement establishes
additional standards for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997. The Company is
evaluating the impact, if any, of the adoption of this pronouncement on the
Company's existing disclosures.
In June 1998, the FASB issues 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.
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.
F-11
<PAGE> 58
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 relate to client specific activities. For consistency of
presentation, prior periods have been reclassified. The reclassification was
$1,570,000, $1,913,000, $2,540,000 and $2,189,000 and $1,929,000 for the years
ended December 31, 1995, 1996 and 1997 for the nine months ended September 30,
1997 and for the nine months ended September 30, 1998.
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 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
Associated Business Computing N.V. and an affiliated company (collectively,
"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 statement of
operations. The Company also recorded $2,226,000 as goodwill. ABC's results of
operations have been included in the Company's financial statements from the
date of acquisition.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
---- ----
<S> <C> <C>
Computer hardware and other equipment.......... $ 4,039,000 $ 4,861,000
Furniture and fixtures......................... 1,724,000 1,573,000
Leasehold improvements......................... 743,000 870,000
----------- -----------
6,506,000 7,304,000
Less -- Accumulated depreciation and
amortization................................. (3,115,000) (4,194,000)
----------- -----------
$ 3,391,000 $ 3,110,000
=========== ===========
</TABLE>
F-12
<PAGE> 59
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. REVOLVING LINE OF CREDIT:
During the nine months ended September 30, 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 September 30, 1998, approximately
$41,603,000 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,
---------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Domestic.................................. $7,195,000 $(1,211,000) $5,990,000
Foreign................................... 486,000 (57,000) 1,551,000
---------- ----------- ----------
$7,681,000 $(1,268,000) $7,541,000
========== =========== ==========
</TABLE>
The components of income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current Provision:
Federal................................... $2,191,000 $ 575,000 $1,933,000
State..................................... -- -- --
Foreign................................... 1,073,000 373,000 190,000
---------- --------- ----------
3,264,000 948,000 2,123,000
Deferred Provision (Benefit):
Federal................................... 44,000 (149,000) 71,000
State..................................... 542,000 102,000 389,000
Foreign................................... (863,000) (257,000) 348,000
---------- --------- ----------
(277,000) (304,000) 808,000
---------- --------- ----------
$2,987,000 $ 644,000 $2,931,000
========== ========= ==========
</TABLE>
F-13
<PAGE> 60
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
-------------------------
1995 1996 1997
---- ---- ----
<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 0.2 0.1
Impact of enacted change in German tax rates on deferred tax
assets.................................................... -- 4.6 --
State income taxes, net of federal tax benefit.............. 4.3 (5.0) 4.8
Nondeductible expenses...................................... 0.4 3.8 0.6
Write-off of in-process research and development............ -- 81.1 --
Tax credits utilized........................................ -- -- (0.6)
---- ----- ----
38.9% 50.7% 38.9%
==== ===== ====
</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,
-------------------------
1996 1997
---- ----
<S> <C> <C>
Gross deferred tax asset:
Depreciation and amortization.................. $ 4,000 $ 303,000
Foreign net operating loss..................... 1,549,000 1,021,000
Accruals and revenues not currently
deductible.................................. 365,000 87,000
Other.......................................... 242,000 418,000
----------- -----------
$ 2,160,000 $ 1,829,000
=========== ===========
Gross deferred tax liability:
Capitalized software development costs......... $ (971,000) $ (598,000)
Other.......................................... (1,243,000) (2,093,000)
----------- -----------
$(2,214,000) $(2,691,000)
=========== ===========
</TABLE>
The Company has recorded a deferred tax asset of $1,021,000 reflecting the
benefit of approximately $2,405,000 in foreign loss carryforwards, which expire
in varying amounts between 1999 and 2000. Realization is dependent on generating
sufficient foreign taxable income prior to the expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
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, as
determined by the Board of Directors and prior to the initial public offering
supported by an independent appraisal. Nonqualified options are granted at
exercise prices determined by the
F-14
<PAGE> 61
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Board of Directors. Subsequent to the initial public offering, incentive stock
options and nonqualified options are granted at fair value, based upon the price
of the stock as quoted by the Nasdaq National Market System.
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, 1994........... 1,279,000 $0.315-$ 1.48 $ 1,065,775
Granted............................... 128,000 $ 5.00-$ 9.56 927,000
Exercised............................. (177,500) $0.315-$ 1.35 (80,438)
Canceled.............................. (60,000) $0.315-$ 1.35 (81,000)
--------- ------------- -----------
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) $0.315-$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
========= ============= ===========
</TABLE>
At December 31, 1997, there were 416,750 options exercisable at
$0.50-$15.75 per share. The aggregate exercise price of these options was
$391,938 as of December 31, 1997.
The Company adopted the disclosure requirement of SFAS No. 123, "Accounting
for Stock-Based Compensation," effective for the Company's December 31, 1996
financial statements. The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its plans. Accordingly,
compensation cost has been computed for the stock option plans based on the
intrinsic value of the stock option at the date of grant, which represents the
difference between the exercise price and the fair value of the Company's stock.
As the exercise price of the stock options equaled the fair value of the
Company's stock at the date of option issuance, no compensation cost has been
recorded in the accompanying statements of operations. Had compensation cost for
the three option plans been determined consistent with SFAS No. 123, the
Company's net income (loss) and net income (loss) per share would have been
adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss):
As reported............................. $4,694,000 $(1,912,000) $4,610,000
Pro forma............................... $4,597,000 $(2,404,000) $2,335,000
Basic income (loss) per share:
As reported............................. $.33 $(.09) $.21
Pro forma............................... $.32 $(.11) $.10
Diluted income (loss) per share:
As reported............................. $.23 $(.09) $.20
Pro forma............................... $.22 $(.11) $.10
</TABLE>
F-15
<PAGE> 62
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $4.91, $8.67 and
$4.93 for the years ended December 31, 1995, 1996 and 1997, respectively.
Information with respect to the options outstanding under the three stock
option plans at December 31, 1997 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>
$0.50-$1.48 392,750 $ 1.27 6.5 327,750
$3.97-$5.97 1,418,000 $ 5.01 9.2 10,000
$8.00-$11.75 1,541,000 $ 9.51 9.6 24,750
$13.32-$15.75 215,000 $14.63 8.6 53,750
--------- ------ --- -------
3,566,750 $ 7.12 9.0 416,250
========= ====== === =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in 1995, 1996 and 1997: risk-free interest rates ranging from 5.4% to
6.9% based on the rate in effect on the date of grant; no expected dividend
yield; expected lives of 6.0 years for the options; and expected volatility of
70%.
EMPLOYEE STOCK PURCHASE PLAN
The Company maintained an Employee Stock Purchase Plan that allowed
full-time employees with two years of service the opportunity to purchase shares
of the Company's Common stock at fair value on dates determined by the Board of
Directors, up to a maximum of 10% of their eligible compensation or $20,000,
whichever was less. This plan was terminated immediately prior to the
consummation of the initial public offering.
In 1997, the Company established an employee stock purchase plan that
allows 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 $25,000, whichever is less. There were 300,000
shares available for purchase under this plan, of which 42,236 were purchased in
1997.
ANNIVERSARY STOCK PLAN
The Company grants 200 shares of the Company's Common stock to all
employees in July following their fifth anniversary of employment. The cost of
the anniversary stock plan is accrued over the employment period of the
employees.
7. SAVINGS PLANS:
The Company maintains Employee Savings Plans (the "Plans") that cover
substantially all of its full-time U.S. and U.K. employees. All eligible
employees may elect to contribute a portion of their wages to the Plans, subject
to certain limitations. In addition, the Company contributes to the Plans at the
rate of 50% of the employee's contributions up to a maximum of 3% of the
F-16
<PAGE> 63
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employee's salary. The Company's contributions to the Plans were $197,000,
$222,000 and $212,000 in the years ended December 31, 1995, 1996 and 1997,
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 $40,000, $56,000 and
$76,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
8. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities and equipment under various operating
leases with remaining noncancelable lease terms generally in excess of one year.
Rent expense was $3,849,000, $3,709,000 and $4,867,000 for the years ended
December 31, 1995, 1996 and 1997, respectively. Future minimum rental payments
at December 31, 1997, on these leases are as follows:
<TABLE>
<S> <C>
1998................................................ $ 4,767,000
1999................................................ 3,666,000
2000................................................ 1,237,000
2001................................................ 1,000,000
2002................................................ 797,000
2003 and thereafter................................. 1,440,000
-----------
$12,907,000
===========
</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 $126,000, $78,000 and $33,000 in the years
ended December 31, 1995, 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.
The Company paid approximately $666,000, $184,000 and $8,000 in the years
ended December 31, 1995, 1996 and 1997, respectively, to a law firm of which one
of the former directors of the Company is a member.
F-17
<PAGE> 64
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. GEOGRAPHIC SEGMENT DATA:
The Company operates in one business segment. The following table presents
information about the Company's operations by geographic area:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
License fees:
United States
Domestic................................. $ 1,197,000 $ 1,896,000 $ 4,338,000
Export................................... 4,845,000 6,878,000 3,369,000
----------- ----------- -----------
6,042,000 8,774,000 7,707,000
----------- ----------- -----------
Services:
United States.............................. 26,843,000 29,747,000 41,332,000
Europe..................................... 15,764,000 22,719,000 24,273,000
Other Foreign.............................. 5,473,000 5,006,000 5,134,000
----------- ----------- -----------
48,080,000 57,472,000 70,739,000
----------- ----------- -----------
$54,122,000 $66,246,000 $78,446,000
=========== =========== ===========
Operating income (loss):
United States.............................. $ 6,692,000 $(1,940,000) $ 5,889,000
Europe..................................... (566,000) (752,000) 801,000
Other Foreign.............................. 1,044,000 648,000 523,000
----------- ----------- -----------
$ 7,170,000 $(2,044,000) $ 7,213,000
=========== =========== ===========
Identifiable assets:
United States.............................. $35,583,000 $35,911,000 $38,293,000
Europe..................................... 7,859,000 10,802,000 12,648,000
Other Foreign.............................. 1,825,000 2,502,000 2,078,000
----------- ----------- -----------
$45,267,000 $49,215,000 $53,019,000
=========== =========== ===========
</TABLE>
F-18
<PAGE> 65
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> 66
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 $500,000.
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> 67
- ------------------------------------------------------
- ------------------------------------------------------
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........................ 6
Forward-looking Statements.......... 12
Use of Proceeds..................... 12
Price Range of Common Stock......... 13
Dividend Policy..................... 13
Capitalization...................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 15
Business............................ 25
Management.......................... 38
Selling Stockholders................ 41
Description of Capital Stock........ 42
Validity of Common Stock............ 43
Experts............................. 43
Available Information............... 43
Incorporation of Certain Documents
by Reference...................... 44
Index to Consolidated Financial
Statements........................ F-1
Underwriting........................ U-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,250,000 Shares
DENDRITE INTERNATIONAL, INC.
Common Stock
-------------------------
[Logo]
-------------------------
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 68
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............................................... 733
--------
Total.................................................. $500,000
========
</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> 69
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*
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
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>
- ---------------
* To be filed by Amendment.
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 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.
II-2
<PAGE> 70
(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> 71
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 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 20th day of
January, 1999.
DENDRITE INTERNATIONAL, INC.
By: /s/ JOHN E. BAILYE
------------------------------------
John E. Bailye
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 20th day of January, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ JOHN E. BAILYE
- --------------------------------------------------- Chief Executive Officer, President and Director
John E. Bailye (Principal Executive Officer)
/s/ GEORGE T. ROBSON Senior Vice President and Chief Financial
- --------------------------------------------------- Officer (Principal Financial Officer and
George T. Robson Accounting Officer)
/s/ BERNARD M. GOLDSMITH
- ---------------------------------------------------
Bernard M. Goldsmith Director
/s/ EDWARD J. KFOURY
- ---------------------------------------------------
Edward J. Kfoury Director
/s/ PAUL A. MARGOLIS
- ---------------------------------------------------
Paul A. Margolis Director
/s/ JOHN H. MARTINSON
- ---------------------------------------------------
John H. Martinson Director
/s/ TERENCE H. OSBORNE
- ---------------------------------------------------
Terence H. Osborne Director
</TABLE>
II-4
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
- ------- ---------------------- ------
<C> <S> <C>
1.1 Form of Underwriting Agreement*.............................
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..............................................
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>
- ---------------
* To be filed by Amendment.
<PAGE> 1
CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 1998
BETWEEN
THE CHASE MANHATTAN BANK
AND
DENDRITE INTERNATIONAL, INC.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS.................................................... 1
1.01. CERTAIN DEFINED TERMS.......................................... 1
1.02. OTHER INTERPRETIVE PROVISIONS.................................. 13
1.03. ACCOUNTING PRINCIPLES.......................................... 14
ARTICLE II - THE CREDIT.................................................... 14
2.01. AMOUNTS AND TERMS OF COMMITMENT................................ 14
2.02. REVOLVING LOAN NOTE............................................ 14
2.03. PROCEDURE FOR BORROWING........................................ 14
2.04. CONVERSION AND CONTINUATION ELECTIONS.......................... 15
2.05. VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENT............... 16
2.06. OPTIONAL PREPAYMENTS........................................... 17
2.07. REPAYMENT...................................................... 17
2.08. INTEREST....................................................... 17
2.09. FEES........................................................... 18
2.10. COMPUTATION OF FEES AND INTEREST............................... 19
2.11. PAYMENTS....................................................... 19
ARTICLE III - TAXES, YIELD PROTECTION AND ILLEGALITY....................... 20
3.01. TAXES.......................................................... 20
3.02. ILLEGALITY..................................................... 21
3.03. INCREASED COSTS AND REDUCTION OF RETURN........................ 21
3.04. FUNDING LOSSES................................................. 22
3.05. INABILITY TO DETERMINE RATES................................... 22
3.06. RESERVES ON OFFSHORE RATE LOANS................................ 23
3.07. CERTIFICATES OF BANK........................................... 23
3.08. SURVIVAL....................................................... 23
ARTICLE IV - CONDITIONS PRECEDENT.......................................... 23
4.01. CONDITIONS OF INITIAL CREDIT EXTENSIONS........................ 23
4.02. CONDITIONS TO ALL CREDIT EXTENSIONS............................ 25
ARTICLE V - REPRESENTATIONS AND WARRANTIES................................. 25
5.01. CORPORATE EXISTENCE AND POWER.................................. 25
5.02. AUTHORIZATION; NO CONTRAVENTION................................ 26
5.03. GOVERNMENTAL AUTHORIZATION..................................... 26
5.04. BINDING EFFECT................................................. 26
5.05. LITIGATION..................................................... 27
5.06. NO DEFAULT..................................................... 27
5.07. ERISA COMPLIANCE............................................... 27
5.08. USE OF PROCEEDS; MARGIN REGULATIONS............................ 28
5.09. TITLE TO PROPERTIES............................................ 28
5.10. TAXES.......................................................... 28
5.11. FINANCIAL CONDITION............................................ 28
5.12. ENVIRONMENTAL MATTERS.......................................... 29
5.13. REGULATED ENTITIES............................................. 29
5.14. NO BURDENSOME RESTRICTIONS..................................... 29
5.15. COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC.............. 29
5.16. SUBSIDIARIES................................................... 29
<PAGE> 3
5.17. INSURANCE...................................................... 29
5.18. FULL DISCLOSURE................................................ 30
5.19. YEAR 2000...................................................... 30
5.20. SUBSIDIARY GUARANTEES.......................................... 30
ARTICLE VI - AFFIRMATIVE COVENANTS......................................... 30
6.01. FINANCIAL STATEMENTS........................................... 30
6.02. CERTIFICATES; OTHER INFORMATION................................ 31
6.03. NOTICES........................................................ 32
6.04. PRESERVATION OF EXISTENCE, ETC................................. 33
6.05. MAINTENANCE OF PROPERTY........................................ 33
6.06. INSURANCE...................................................... 33
6.07. PAYMENT OF OBLIGATIONS......................................... 33
6.08. COMPLIANCE WITH LAWS........................................... 34
6.09. COMPLIANCE WITH ERISA.......................................... 34
6.10. INSPECTION OF PROPERTY AND BOOKS AND RECORDS................... 34
6.11. ENVIRONMENTAL LAWS............................................. 34
6.12. USE OF PROCEEDS................................................ 34
6.13. SUBSIDIARY GUARANTORS.......................................... 34
ARTICLE VII - NEGATIVE COVENANTS........................................... 35
7.01. LIMITATION ON LIENS............................................ 35
7.02. DISPOSITION OF ASSETS.......................................... 36
7.03. CONSOLIDATIONS AND MERGERS..................................... 37
7.04. LOANS AND INVESTMENTS.......................................... 37
7.05. LIMITATION ON INDEBTEDNESS..................................... 37
7.06. TRANSACTIONS WITH AFFILIATES................................... 38
7.07. USE OF PROCEEDS................................................ 38
7.08. CONTINGENT OBLIGATIONS......................................... 39
7.09. LEASE OBLIGATIONS.............................................. 39
7.10. CHANGE IN BUSINESS............................................. 40
7.11. ACCOUNTING CHANGES............................................. 40
7.12. FINANCIAL COVENANTS............................................ 40
7.13. OPTIONAL PAYMENTS OF SUBORDINATED DEBT AND
MODIFICATIONS OF RELATED DEBT................................. 40
7.14. NO LOSSES...................................................... 40
ARTICLE VIII - EVENTS OF DEFAULT........................................... 41
8.01. EVENT OF DEFAULT............................................... 41
8.02. REMEDIES....................................................... 43
8.03. RIGHTS NOT EXCLUSIVE........................................... 43
ARTICLE IX - MISCELLANEOUS................................................. 44
9.01. AMENDMENTS AND WAIVERS......................................... 44
9.02. NOTICES........................................................ 44
9.03. NO WAIVER; CUMULATIVE REMEDIES................................. 44
9.04. COSTS AND EXPENSES............................................. 45
9.05. COMPANY INDEMNIFICATION........................................ 45
9.06. PAYMENTS SET ASIDE............................................. 45
9.07. SUCCESSORS AND ASSIGNS......................................... 46
9.08. ASSIGNMENTS, PARTICIPATIONS, ETC............................... 46
9.09. CONFIDENTIALITY................................................ 47
<PAGE> 4
9.10. SET-OFF........................................................ 47
9.11. COUNTERPARTS................................................... 47
9.12. SEVERABILITY................................................... 48
9.13. NO THIRD PARTIES BENEFITED..................................... 48
9.14. GOVERNING LAW AND JURISDICTION................................. 48
9.15. WAIVER OF JURY TRIAL........................................... 48
9.16. TERMINATION OF EXISTING CREDIT................................. 49
9.17. ENTIRE AGREEMENT............................................... 49
<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
November 30, 1998, between Dendrite International, Inc. (the "Company") and The
Chase Manhattan Bank (the "Bank").
WHEREAS, the Bank, the Company, and certain Subsidiaries of the Company
entered into that certain Credit Agreement dated May 5, 1995 (the "Existing
Credit Agreement") pursuant to which the Bank, among other things, agreed,
subject to the terms thereof, to make revolving credit loans from time to time
to the Company, and the Subsidiaries of the Company that were party to the
Existing Credit Agreement, in an aggregate maximum amount of $5,000,000;
WHEREAS, the Bank and the Company have agreed to amend and restate the
terms of the Existing Credit Agreement to, among other things, (i) increase the
amount of the Bank's Commitment to $15,000,000, (ii) release the security
interests granted to the Bank by the Company and certain of its Subsidiaries,
and (iii) make the Company the sole borrowing party; and
WHEREAS, the Bank has agreed to make available to the Company a
revolving credit facility upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.01. Certain Defined Terms.
The following terms have the following meanings:
"Acceptable Acquisition" means any Acquisition which (a) has been
either (i) approved by the Board of Directors of the corporation which is the
subject of such Acquisition or (ii) recommended by such Board to the
shareholders of such corporation; and (b) is for a business within similar or
complementary lines of business as conducted by the Company on the date hereof;
and (c) whose total purchase price is $50,000,000 or less; and (d) when added to
the purchase price of all other Acquisitions within the twelve (12) months
immediately preceding the date on which such Acquisition closes, shall not
render the aggregate purchase prices for Acquisitions in such period greater
than $50,000,000 (of which no more than $20,000,000 shall be capital
contributions or commitments to make capital contributions to any partnerships
or joint ventures in which the Company or any of its Subsidiaries owns less than
fifty percent (50%) of the partnership interests or joint venture interests).
"Acquisition" means any transaction pursuant to which the Company or
any of its Subsidiaries (a) acquires or commits to acquire equity securities (or
warrants, options or other
<PAGE> 6
rights to acquire such securities) of any corporation other than the Company or
any corporation which is not then a Subsidiary of the Company, pursuant to a
solicitation of tenders therefor, or in one or more negotiated block, market or
other transactions not involving a tender offer, or a combination of any of the
foregoing, or (b) makes or commits to make any corporation a Subsidiary of the
Company, or causes any such corporation to be merged into the Company or any of
its Subsidiaries, in any case pursuant to a merger, purchase of assets or any
reorganization providing for the delivery or issuance to the holders of such
corporation's then outstanding securities, in exchange for such securities, of
cash or securities of the Company or any of its Subsidiaries, or a combination
thereof, or (c) purchases all or substantially all of the business or assets of
any corporation or (d) makes or commits to make capital contributions to any
partnership or joint venture in exchange for a proportionate interest therein.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"Agreement" means this Credit Agreement as such agreement may be
amended, modified or restated from time to time.
"Assignee" has the meaning specified in subsection 9.08(a).
"Attorney Costs" means and includes all fees and reasonable
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"Bank" has the meaning specified in the introductory clause hereto.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, et seq.) as amended from time to time.
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect for
such day as publicly announced from time to time by the Bank as its "reference
rate." (The "reference rate" is a rate set by the Bank based upon various
factors including The Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.) Any change
in the reference rate announced by the Bank shall take effect at the opening of
business on the day specified in the public announcement of such change.
"Base Rate Loan" means a Revolving Loan that bears interest based on
the Base Rate.
"Base Rate Margin" means the percentage determined in accordance with
Section 2.08(b).
"Borrowing" means a borrowing hereunder consisting of Revolving Loans
of the same
-2-
<PAGE> 7
Type made to the Company on the same day by the Bank under ARTICLE II, and,
other than in the case of Base Rate Loans, having the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.03.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City and are authorized or required by law
to close and, if the applicable Business Day relates to any Offshore Rate Loan,
means such a day on which dealings are carried on in the applicable offshore
dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capital Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Cash Equivalents" means (a) direct obligations of the United States of
America or any agency thereof with maturities of two years or less from the date
of acquisition; (b) obligations issued or guaranteed by any agency of the United
States of America with maturities of two years or less from the date of
acquisition; (c) repurchase agreements fully collateralized by direct
obligations of the United States of America or by any agency of the United
States of America; (d) corporate debt (commercial paper, master notes and medium
term notes) issued by a domestic corporation rated at least "A-1" or "A" by
Standard & Poor's Corporation or "P-1" or "A" by Moody's Investors Service,
Inc.; (e) certificates of deposit (domestic or foreign) with maturities of one
year or less from the date of acquisition issued by any commercial bank (with a
rating of A-1 by Standard & Poor's or P-1 by Moody's) operating within the
United States of America having capital and surplus in excess of $200 million;
and (f) any money market mutual fund that invests in (a), (b), (c), (d) or (e)
above having assets of at least $500 million.
"Closing Date" means the date on which all conditions precedent set
forth in Section 4.01 are satisfied or waived by the Bank (or, in the case of
subsection 4.01(j), waived by the Person entitled to receive such payment).
"Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"Commitment" has the meaning specified in Section 2.01.
"Commitment Fee Rate" means the percentage determined in accordance
with Section 2.08(b).
"Company" has the meaning specified in the introductory clause hereto.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit D.
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"Consolidated" means the consolidation of financial reporting between
related entities in accordance with GAAP.
"Contingent Obligation" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise for the primary
purpose of assuring or holding harmless the holder of any such primary
obligation against loss in respect thereof (each, a "Guaranty Obligation"); (b)
with respect to any Surety Instrument issued for the account of that Person or
as to which that Person is otherwise liable for reimbursement of drawings or
payments; (c) to purchase any materials, supplies or other property from, or to
obtain the services of, another Person if the relevant contract or other related
document or obligation requires that payment for such materials, supplies or
other property, or for such services, shall be made regardless of whether
delivery of such materials, supplies or other property is ever made or tendered,
or such services are ever performed or tendered, or (d) in respect of any Swap
Contract. The amount of any Contingent Obligation shall, in the case of Guaranty
Obligations, be deemed equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty Obligation is made (or any lower
stated cap on such Person's liability in respect thereof) or, if not stated or
if indeterminable, the maximum reasonably anticipated liability in respect
thereof and, in the case of Contingent Obligations in respect of Swap Contracts,
shall be equal to the Swap Termination Value.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under Section
2.04, the Company (a) converts Loans of one Type to another Type, or (b)
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Credit Extension" means and includes the making of any Revolving Loans
hereunder.
"Current Assets" means all assets of the Company treated as current
assets in accordance with GAAP, excluding, however, from the determination of
current assets any prepaid assets.
"Current Liabilities" means all liabilities of the Company treated as
current liabilities in accordance with GAAP, including without limitation (a)
all obligations payable on demand or written one year after the date in which
the determination is made and (b) installments and sinking fund payments
required to be made within one year after the date on which
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<PAGE> 9
determination is made, but excluding all such liabilities or obligations which
are renewable or extendable at the option of the Company to a date more than one
year from the date of determination.
"Current Ratio" of the Company means the ratio of (i) Current Assets to
(ii) Current Liabilities each determined on a Consolidated basis.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Disclosed Claims" has the meaning specified in Section 5.05.
"Dollars", "dollars" and "$" each mean lawful money of the United
States.
"Domestic Subsidiary" means any Subsidiary incorporated, formed or
organized in the United States.
"EBIT" of any Person for any period means the sum of (a) Net Income of
such Person for such period; (b) all amounts treated as expenses for interest
for such period to the extent included in the determination of such Net Income;
and (c) all taxes accrued for such period on or measured by income to the extent
included in the determination of such Net Income; provided, however, that Net
Income shall be computed for the purposes of this definition without giving
effect to extraordinary non-cash losses or extraordinary gains for such period.
"EBITDA" of any Person for any period means the sum of (a) Net Income
of such Person for such period; (b) all amounts treated as expenses for
depreciation and interest and the amortization of intangibles of any kind for
such period to the extent included in the determination of such Net Income; and
(c) all taxes accrued for such period on or measured by income to the extent
included in the determination of such Net Income; provided, however, that Net
Income shall be computed for the purposes of this definition without giving
effect to extraordinary non-cash losses or extraordinary gains for such period.
"Effective Amount" means with respect to any Revolving Loans on any
date, the aggregate outstanding principal amount thereof after giving effect to
any Borrowings and prepayments or repayments of Revolving Loans occurring on
such date.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $500,000,000; and/or (b) a Person that is primarily
engaged in the business of commercial banking and that is (i) a Subsidiary of
the Bank, (ii) a Subsidiary of a Person of which the Bank is a Subsidiary, or
(iii) a Person of which the Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"Environmental Laws" means all federal, state or local laws, statutes,
common law
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<PAGE> 10
duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Company or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Company or any ERISA Affiliate.
"Event of Default" means any of the events or circumstances, including
the thresholds and cure periods specified in Section 8.01.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"Existing Credit Agreement" has the meaning set forth in the recitals
hereto.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Bank of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Bank.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
Subsidiary.
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"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"Funded Debt" means (a) all indebtedness for borrowed money; (b) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business on ordinary terms); (c) all non-contingent reimbursement or
payment obligations with respect to Surety Instruments; (d) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; and (e) all obligations with respect to Capital
Leases.
"Further Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges
(including, without limitation, net income taxes and franchise taxes), and all
liabilities with respect thereto, imposed by any jurisdiction on account of
amounts payable or paid pursuant to Section 3.01.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the Closing Date.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty Equity Sum" has the meaning specified in Section 6.13.
"Guaranty Equity Threshold" has the meaning specified in Section 6.13.
"Guaranty Obligation" has the meaning specified in the definition of
"Contingent Obligation."
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to repossession or
sale of such property); (f) all obligations with respect to capital leases; (g)
all indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an
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<PAGE> 12
existing right, contingent or otherwise, to be secured by) any Lien upon or in
property (including accounts and contracts rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness; provided that the amount of such indebtedness shall equal the
lesser of (i) the amount secured, and (ii) the fair market value of the
collateral secured; and (h) all Guaranty Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (a) through (g)
above.
"Indemnified Liabilities" has the meaning specified in Section 9.05.
"Indemnified Person" has the meaning specified in Section 9.05.
"Independent Auditor" has the meaning specified in subsection 6.01(a).
"Insolvency Proceeding" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors, or (b)
any general assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other, similar arrangement in respect of its creditors
generally or any substantial portion of its creditors; undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
"Interest Coverage Ratio" means for any Person as of the end of any
fiscal quarter, the ratio of (i) the EBIT of such Person for the prior four
consecutive fiscal quarters, to (ii) the Interest Expense of such Person for the
prior four consecutive fiscal quarters.
"Interest Expense" shall mean for any twelve month period the aggregate
amount of interest expense of the Company and its Subsidiaries for the last
twelve months as determined on a consolidated basis in accordance with GAAP.
"Interest Payment Date" means, as to any Loan other than a Base Rate
Loan, the last day of each Interest Period applicable to such Loan and, as to
any Base Rate Loan, the last Business Day of each calendar quarter and each date
such Loan is converted into another Type of Loan, provided, however, that if any
Interest Period for an Offshore Rate Loan is greater than three months, the date
that is three months after the beginning of such Interest Period and after each
Interest Payment Date thereafter is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as an Offshore Rate Loan,
and ending on the date one, two, three or six months thereafter (and any other
period that is 12 months or less and is consented to by the Bank in the given
instance) as selected by the Company in its Notice of Borrowing or Notice of
Conversion/Continuation; provided that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless, in the case of an Offshore Rate Loan,
the result of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest Period shall
end on the preceding Business Day;
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(ii) any Interest Period pertaining to an Offshore Rate Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of the calendar month at the end of such Interest Period; and
(iii) no Interest Period for any Revolving Loan shall extend
beyond the Revolving Termination Date.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Lending Office" means, the office or offices of the Bank specified by
the Bank from time to time as its "Lending Office" with respect to this
Agreement.
"Leverage Ratio" as to any Person at the end of any fiscal quarter
means the ratio of (i) Funded Debt of such Person on such date, to (ii) EBITDA
of such Person for the four consecutive fiscal quarters then ending, all as
determined on a Consolidated basis.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the Uniform Commercial Code or any comparable law) and any
contingent or other agreement to provide any of the foregoing, but not including
the interest of a lessor under an operating lease.
"Loan" means an extension of credit by the Bank to the Company under
ARTICLE II in the form of a Revolving Loan.
"Loan Documents" means this Agreement, and all other documents
delivered by or on behalf of the Company to the Bank in connection herewith.
"Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Company or the Company and its
Subsidiaries taken as a whole; (b) a material impairment of the ability of the
Company or any Subsidiary to perform under any Loan Document and to avoid any
Event of Default; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against the Company of any Loan Document.
"Material Subsidiary" means any Subsidiary Guarantor and any other
Subsidiary which, as reflected on the latest financial statements delivered to
the Bank under Section 6.01(a) or Section 6.01(b) hereof, has (i) total assets
in excess of $750,000, or (ii) EBIT during the prior
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<PAGE> 14
four consecutive fiscal quarters of more than $250,000.
"Multiemployer Plan" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"Net Income" of the Company for any period shall mean the Company's
consolidated net income (or net loss) for such period determined in accordance
with GAAP.
"Net Worth" of the Company at any time shall mean all amounts which, in
accordance with GAAP, would be included under Shareholder's Equity on a
consolidated balance sheet of the Company and its Subsidiaries (excluding
foreign currency translation adjustments).
"Notice of Borrowing" means a notice in substantially the form of
Exhibit A.
"Notice of Conversion/Continuation" means a notice in substantially the
form of Exhibit B.
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company to the
Bank, or any Indemnified Person, whether direct or indirect (including those
acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising.
"Offshore Rate" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of interest
per annum (rounded upward to the next 1/16th of 1%) at which deposits for such
Interest Period and in an amount approximately equal to the amount of the
Offshore Rate Loan during such Interest Period would be offered by the London
office of the Bank to major banks in the London eurodollar market at or about
11:00 a.m. (London time) two Business Days prior to the commencement of such
Interest Period.
"Offshore Rate Loan" means a Loan that bears interest based on the
Offshore Rate.
"Offshore Rate Margin" means the percentage determined in accordance
with Section 2.08(b).
"Organization Documents" means, for any corporation or limited
liability company, the certificate or articles of incorporation, or certificate
of formation, the bylaws, operating agreement, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable resolutions of
the board of directors (or any committee thereof) of such corporation or limited
liability company.
"Other Taxes" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery,
performance, enforcement or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents (excluding in all events income taxes and
franchise taxes based on income).
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"Participant" has the meaning specified in subsection 9.08(b).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or to
which it makes, is making, or is obligated to make contributions, or in the case
of a multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five (5) plan years.
"Permitted Liens" has the meaning specified in Section 7.01.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Company sponsors or maintains or to which the Company makes, is
making, or is obligated to make contributions and includes any Pension Plan.
"Relationship Guarantee Program" means the Company's practice of
issuing checks in amounts up to $100,000 to certain customers, payable at the
customer's discretion, as a measure of the Company's commitment to customer
satisfaction.
"Reportable Event" means, any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"Required Guarantor" means (i) any Subsidiary owning trademarks or
other intangibles material to the conduct of the business of Company and its
Subsidiaries, (ii) any Domestic Subsidiary with (x) Shareholder's Equity greater
than $1,000,000 or (y) EBIT for any four consecutive fiscal quarters greater
than $1,000,000
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Responsible Officer" means the chief executive officer, president or
chief financial officer of the Company; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Company.
"Revolving Loan" has the meaning specified in Section 2.01, and may be
a Base Rate Loan or an Offshore Rate Loan (each, a "Type" of Revolving Loan).
"Revolving Loan Note" has the meaning specified in Section 2.02.
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"Revolving Termination Date" means the earlier to occur of:
(a) November 30, 2001; provided, however, that if such date
is not a Business Day, the Termination Date shall be the next
succeeding Business Day (or, if such next succeeding Business Day
falls in the next calendar month, the immediately preceding
Business Day); and
(b) the date on which the Commitments terminate in accordance
with Section 2.05 or Section 8.02 of this Agreement.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"Shareholder's Equity" of any Person has the meaning assigned to that
term by GAAP.
"Subordinated Debt" means any unsecured Indebtedness of the Company (a)
no part of the principal of which is stated to be payable or is required to be
paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory
prepayment or otherwise) prior to the Revolving Termination Date, and the
payment of the principal of and interest on which and other obligations of the
Company in respect thereof are subordinated to the prior payment in full of the
principal of and interest (including post-petition interest) on the Notes and
all other obligations and liabilities of the Company to the Bank hereunder on
terms and conditions first approved in writing by the Bank and (b) otherwise
containing terms, covenants and conditions satisfactory in form and substance to
the Bank, as evidenced by its prior written approval thereof.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than 50% of the voting stock, membership interests or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Company.
"Subsidiary Guarantor" means any Subsidiary that has executed and
delivered a Subsidiary Guaranty.
"Subsidiary Guaranty" means the guaranty of obligations of the Company
in the form and substance satisfactory to the Bank executed at any time by
Subsidiary Guarantors.
"Surety Instruments" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds
and similar instruments.
"Swap Contract" means any agreement, whether or not in writing, that is
a rate swap, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap or option, bond, note or bill option,
interest rate option, forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swaption, currency option
or any other, similar transaction (including any option to enter into any of the
foregoing) or any combination of the foregoing, and, unless the context
otherwise clearly requires, any master agreement relating to or governing any or
all of the foregoing.
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"Swap Termination Value" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined by the Company
based upon one or more mid-market or other readily available quotations provided
by any recognized dealer in such Swap Contracts (which may include the Bank).
"Taxes" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of the Bank taxes
imposed on or measured by its net income by the jurisdictions (or any political
subdivision thereof) under the laws of which the Bank is organized or maintains
a lending office.
"Type" has the meaning specified in the definition of "Revolving Loan."
"Unfunded Pension Liability" means the excess of all Plans' aggregate
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of those Plans' assets, determined in accordance with the assumptions used for
funding such Pension Plans pursuant to Section 412 of the Code for the
applicable plan year.
"United States" and "U.S." each means the United States of America.
"Wholly-Owned Subsidiary" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of each
class having ordinary voting power, and 100% of the capital stock of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Company, or by one or more of the
other Wholly-Owned Subsidiaries, or both.
1.02. Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding",
and the word "through" means "to and including."
(c) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments
shall be deemed to include
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all subsequent amendments and other modifications thereto, but only to
the extent such amendments and other modifications are not prohibited
by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing
or interpreting the statute or regulation.
(d) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation
of this Agreement.
1.03. Accounting Principles.
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer
to such fiscal periods of the Company.
ARTICLE II - THE CREDIT
2.01. Amounts and Terms of Commitment.
The Bank agrees, on the terms and conditions set forth herein, to make
loans to the Company (each such loan, a "Revolving Loan") from time to time on
any Business Day during the period from the Closing Date to the Revolving
Termination Date, in an aggregate amount not to exceed at any time outstanding,
$15,000,000 (such amount, as the same may be reduced under Section 2.05, the
"Commitment"); provided, however, that, after giving effect to any Borrowing of
Revolving Loans, the Effective Amount of all outstanding Revolving Loans, shall
not at any time exceed the Commitment. Within the limits of the Commitment, and
subject to the other terms and conditions hereof, the Company may borrow under
this Section 2.01, prepay under Section 2.06 and reborrow under this Section
2.01.
2.02. Revolving Loan Note.
The Loans made by the Bank shall be evidenced by a single note in the
form of Exhibit C (the "Revolving Loan Note") duly executed by the Company. The
Bank shall note on the schedules annexed to the Revolving Loan Note the date,
amount and maturity of each Loan made by it and the amount of each payment of
principal made by the Company with respect thereto. The Bank is irrevocably
authorized by the Company to make such notation on the Revolving Loan Note and
such records shall be conclusive absent manifest or proven error; provided,
however, that the failure of the Bank to make, or an error in making, a notation
thereon with respect to any Loan shall not limit or otherwise affect the
obligations of the Company hereunder or under the Revolving Loan Note to the
Bank.
2.03. Procedure for Borrowing.
(a) Each Borrowing of Revolving Loans shall be made upon the
Company's irrevocable written notice delivered to the Bank in the form
of a Notice of Borrowing
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<PAGE> 19
(which notice must be received by the Bank prior to 12:00 noon New York
City time) (i) three (3) Business Days prior to the requested Borrowing
Date, in the case of Offshore Rate Loans and (ii) on the requested
Borrowing Date, in the case of Base Rate Loans, specifying:
(i) the amount of the Borrowing, which shall be (x) with
respect to Offshore Rate Loans in an aggregate minimum amount of
$500,000 or any multiple of $100,000 in excess thereof, (y) with
respect to Base Rate Loans in an aggregate principal amount of
$100,000 or a multiple of $100,000 in excess thereof;
(ii) the requested Borrowing Date, which shall be a Business
Day;
(iii) the Type of Loan; and
(iv) the duration of the Interest Period, if any, applicable
to such Loans included in such notice. If the Notice of Borrowing
fails to specify the duration of the Interest Period for any
Borrowing comprised of Offshore Rate Loans, such Interest Period
shall be three months;
provided, however, that with respect to any Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Bank not later than
12:00 noon (New York City time) one Business Day before the Closing Date and
such Borrowing will consist of Base Rate Loans only.
(b) Not later than 1:00 p.m. New York City time on the Borrowing
Date requested by the Company the proceeds of all Loans will be made
available to the Company by the Bank by crediting the account of the
Company on the books of the Bank with the aggregate of the amounts made
available by the Bank.
(c) After giving effect to any Borrowing, unless the Bank shall
otherwise consent, there may not be more than ten different Interest
Periods in effect.
2.04. Conversion and Continuation Elections.
(a) The Company may, upon irrevocable written notice to the Bank
in accordance with subsection 2.04(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans to convert any such Loans (or any part thereof in an amount
not less than $500,000, or that is in an integral multiple of
$100,000 in excess thereof) into Offshore Rate Loans; or
(ii) elect, as of the last day of the applicable Interest
Period, to convert any Offshore Rate Loans having Interest Periods
expiring on such date (or any part thereof in an amount not less
than $500,000, or that is an integral multiple of $100,000 in
excess thereof) into Base Rate Loans; or
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<PAGE> 20
(iii) elect as of the last day of the applicable Interest
Period, to continue Offshore Rate Loans having Interest Periods
expiring on such day (or any part thereof in an amount not less
than $500,000, or that is in an integral multiple of $100,000 in
excess thereof);
provided that, if at any time the aggregate amount of Offshore Rate
Loans in respect of any Borrowing is reduced, by payment, prepayment,
or conversion of part thereof to be less than $500,000, such Offshore
Rate Loans shall automatically convert into Base Rate Loans, and on and
after such date the right of the Company to continue such Loans as, and
convert such Loans into, Offshore Rate Loans shall terminate.
(b) The Company shall deliver a Notice of Conversion/Continuation
to be received by the Bank not later than 12:00 noon (New York City
time) at least (i) three Business Days in advance of the Conversion/
Continuation Date, if the Loans are to be converted into or continued
as Offshore Rate Loans and (ii) on the Conversion/Continuation Date, if
the Loans are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date, which shall be
a Business Day;
(B) the aggregate amount of Loans to be converted or
continued;
(C) the Type of Loans resulting from the proposed conversion
or continuation; and
(D) in the case of conversions into Offshore Rate Loans, the
duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select timely a new
Interest Period to be applicable to such Offshore Rate Loans or if any
Default or Event of Default then exists, the Company shall be deemed to
have elected to convert such Offshore Rate Loans into Base Rate Loans
effective as of the expiration date of such Interest Period.
(d) Unless the Bank otherwise consents, during the existence of a
Default or Event of Default, the Company may not elect to have a Loan
converted into or continued as an Offshore Rate Loan.
(e) After giving effect to any conversion or continuation of
Loans, unless the Bank shall otherwise consent, there may not be more
than ten different Interest Periods in effect.
2.05. Voluntary Termination or Reduction of Commitment.
The Company may, upon not less than four (4) Business Days' prior
notice to the Bank, terminate the Commitment, or, at any time or from time to
time, permanently reduce the Commitment by an aggregate minimum amount of
$5,000,000 or any multiple of $1,000,000 in
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<PAGE> 21
excess thereof; unless, after giving effect thereto and to any prepayments of
Loans made on or before the effective date thereof, the Effective Amount of all
Revolving Loans would exceed the amount of the combined Commitment then in
effect. Once reduced in accordance with this Section, the Commitment may not be
increased. All accrued commitment fees to, but not including, the effective date
of any reduction or termination of Commitment, shall be paid on the effective
date of such reduction or termination.
2.06. Optional Prepayments.
The Company may, at any time or from time to time, upon not less than
three (3) Business Days' irrevocable notice to the Bank in the case of Offshore
Rate Loans, or upon irrevocable notice given not later than 12:00 noon (New York
City time) of the date of prepayment in the case of Base Rate Loans, ratably
prepay Loans in whole or in part, in minimum amounts of $500,000 or any multiple
of $100,000 in excess thereof in the case of Offshore Rate Loans and in minimum
amounts of $100,000 or any multiple of $100,000 in excess thereof in the case of
Base Rate Loans. Such notice of prepayment shall specify the date and amount of
such prepayment and the Type(s) of Loans to be prepaid. If such notice is given
by the Company, the Company shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified therein,
together with accrued interest to each such date on the amount prepaid and, if
such prepayment of an Offshore Rate Loan is made on a day that is not the last
day of the applicable Interest Period, any amounts required pursuant to Section
3.04.
2.07. Repayment.
The Company shall repay to the Bank on the Revolving Termination Date
the aggregate amount of all Revolving Loans outstanding on such date.
2.08. Interest.
(a) Each Revolving Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate
per annum equal to the Offshore Rate plus the Offshore Rate Margin or
the Base Rate plus the Base Rate Margin, as the case may be (and
subject to the Company's right to convert to other Types of Loans under
Section 2.04).
(b) The Base Rate Margin and the Offshore Rate Margin shall be
determined on each Borrowing Date using the pricing grid set forth
below and determined on the basis of the Leverage Ratio as set forth in
the most recent Compliance Certificate, and shall be effective from and
including the date the Bank receives such Compliance Certificate to but
excluding the date on which the Bank receives the next Compliance
Certificate; provided, however, that if the Bank does not receive a
Compliance Certificate by the date required by Section 6.02(a), the
Commitment Fee Rate, the Base Rate Margin and the Offshore Rate Margin
shall, effective as of such date, be the highest Commitment Fee Rate,
Base Rate Margin and Offshore Rate Margin to but excluding the date the
Bank receives such Compliance Certificate. Subject to the foregoing
proviso, the initial Commitment Fee Rate, Base Rate Margin and Offshore
Rate Margin shall be 0.25%,
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<PAGE> 22
0.00% and 0.50% respectively.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Leverage Ratio Offshore Rate Margin Base Rate Margin Commitment Fee Rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 1.0 0.50% 0.00% 0.25%
- --------------------------------------------------------------------------------------------
Less than 1.75 and greater 1.00% 0.00% 0.3125%
than or equal to 1.00
- --------------------------------------------------------------------------------------------
Greater than or equal to 1.50% 0.00% 0.375%
1.75
- --------------------------------------------------------------------------------------------
</TABLE>
(c) Interest on each Revolving Loan shall be paid in arrears on
each Interest Payment Date. Interest shall also be paid on the date of
any prepayment of Offshore Rate Loans under Section 2.06 for the
portion of the Loans so prepaid and upon payment (including prepayment)
in full thereof and, during the existence of any Event of Default,
interest shall be paid on demand of the Bank.
(d) Notwithstanding subsection (a) of this Section, if any amount
of principal of or interest on any Loan, or any other amount payable
hereunder or under any other Loan Document is not paid in full when due
(whether at stated maturity, by acceleration, demand or otherwise), the
Company agrees to pay interest on such unpaid principal or other
amount, from the date such amount becomes due until the date such
amount is paid in full, and after as well as before any entry of
judgment thereon to the extent permitted by law, payable on demand, at
a fluctuating rate per annum equal to the Base Rate plus 2%.
(e) Anything herein to the contrary notwithstanding, the
obligations of the Company to the Bank hereunder shall be subject to
the limitation that payments of interest shall not be required for any
period for which interest is computed hereunder, to the extent (but
only to the extent) that contracting for or receiving such payment by
the Bank would be contrary to the provisions of any law applicable to
the Bank limiting the highest rate of interest that may be lawfully
contracted for, charged or received by the Bank, and in such event the
Company shall pay the Bank interest at the highest rate permitted by
applicable law.
2.09. Fees.
(a) The Company shall pay a facility fee to the Bank in the amount
of $20,000, payable as of the Closing Date.
(b) The Company shall pay to the Bank a commitment fee on the
average daily unused portion of the Commitment, computed on a quarterly
basis in arrears on the last Business Day of each calendar quarter
based upon the daily utilization for that quarter as calculated by the
Bank using the then applicable Commitment Fee Rate. For purposes of
calculating utilization under this subsection, the Commitments shall be
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<PAGE> 23
deemed used to the extent of the Effective Amount of Revolving Loans
then outstanding. Such commitment fee shall accrue from the Closing
Date to the Revolving Termination Date and shall be due and payable
quarterly in arrears on the last Business Day of each calendar quarter
commencing on December 31, 1998 through the Revolving Termination Date,
with the final payment to be made on the Revolving Termination Date;
provided that, in connection with any reduction or termination of
Commitments under Section 2.05, the accrued commitment fee calculated
for the period ending on such date shall also be paid on the date of
such reduction or termination, with the following quarterly payment
being calculated on the basis of the period from such reduction or
termination date to such quarterly payment date. The commitment fees
provided in this subsection shall accrue at all times after the
above-mentioned commencement date, including at any time during which
one or more conditions in ARTICLE IV are not met.
2.10. Computation of Fees and Interest.
(a) All computations of interest for Base Rate Loans when the Base
Rate is determined by the Bank's "reference rate" shall be made on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed. All other computations of fees and interest shall be made on
the basis of a 360-day year and actual days elapsed (which results in
more interest being paid than if computed on the basis of a 365-day
year). Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the
last day thereof.
(b) Each determination of an interest rate by the Bank shall be
conclusive and binding on the Company in the absence of manifest error.
The Bank will, at the request of the Company, deliver to the Company or
the Bank, as the case may be, a statement showing the quotations used
by the Bank in determining any interest rate and the resulting interest
rate.
2.11. Payments.
(a) All payments to be made by the Company shall be made without
set-off, recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by the Company shall be made to the Bank
in Dollars and in immediately available funds, no later than 12:00 noon
(New York City time) on the date specified herein. Any payment received
by the Bank later than 12:00 noon (New York City time) shall be deemed
to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other
than a Business Day, such payment shall be made on the following
Business Day, and such extension of time shall in such case be included
in the computation of interest or fees, as the case may be.
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<PAGE> 24
ARTICLE III - TAXES, YIELD PROTECTION AND ILLEGALITY
3.01. Taxes.
(a) Any and all payments by the Company to the Bank under this
Agreement and any other Loan Document shall be made free and clear of,
and without deduction or withholding for, any Taxes. In addition, the
Company shall pay all Other Taxes.
(b) If the Company shall be required by law to deduct or withhold
any Taxes, Other Taxes or Further Taxes from or in respect of any sum
payable hereunder to the Bank, then:
(i) the sum payable shall be increased as necessary so
that, after making all required deductions and withholdings
(including deductions and withholdings applicable to additional
sums payable under this Section), the Bank receives and retains an
amount equal to the sum it would have received and retained had no
such deductions or withholdings been made;
(ii) the Company shall make such deductions and
withholdings;
(iii) the Company shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Company shall also pay to the Bank, at the time
interest is paid, Further Taxes in the amount that the Bank
specifies as necessary to preserve the after-tax yield the Bank
would have received if such Taxes, Other Taxes or Further Taxes
had not been imposed.
(c) The Company agrees to indemnify and hold harmless the Bank for
the full amount of i) Taxes, ii) Other Taxes, and iii) Further Taxes in
the amount that the Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such Taxes, Other Taxes
or Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and expenses caused solely by the
Company's failure to pay such Taxes, Other Taxes and Further Taxes as
requested by the Bank) arising therefrom or with respect thereto.
Payment under this indemnification shall be made within 30 days after
the date the Bank makes written demand therefor.
(d) Within 30 days after the date of any payment by the Company of
Taxes, Other Taxes or Further Taxes, the Company shall furnish to the
Bank the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to the Bank.
(e) If the Company is required to pay any amount to the Bank
pursuant to subsection (b) or (c) of this Section, then the Bank shall
use reasonable efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by the Company which may
thereafter accrue, if such change in the sole judgment of the Bank is
not otherwise disadvantageous to the Bank.
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<PAGE> 25
3.02. Illegality.
(a) If the Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for the Bank or its applicable Lending
Office to make Offshore Rate Loans, then, on notice thereof by the Bank
to the Company, any obligation of the Bank to make Offshore Rate Loans
shall be suspended until the Bank notifies the Company that the
circumstances giving rise to such determination no longer exist.
(b) If the Bank determines that it is unlawful to maintain any
Offshore Rate Loan, the Company shall, upon its receipt of notice of
such fact and demand from the Bank, prepay in full such Offshore Rate
Loans of the Bank then outstanding, together with interest accrued
thereon and amounts required under Section 3.04, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to
maintain such Offshore Rate Loans to such day, or immediately, if the
Bank may not lawfully continue to maintain such Offshore Rate Loan. If
the Company is required to so prepay any Offshore Rate Loan, then
concurrently with such prepayment, the Company may borrow from the
Bank, in the amount of such repayment, a Base Rate Loan or prepay such
Offshore Rate Loan from funds of the Company.
(c) If the obligation of the Bank to make or maintain Offshore
Rate Loans has been so terminated or suspended, the Company may elect,
by giving notice to the Bank that all Loans which would otherwise be
made by the Bank as Offshore Rate Loans shall be instead Base Rate
Loans.
(d) Before giving any notice to the Company under this Section,
the Bank shall designate a different Lending Office with respect to its
Offshore Rate Loans or assign the Loan or portion thereof to a Bank
Affiliate, if such designation or assignment will avoid the need for
giving such notice or making such demand and will not, in the judgment
of the Bank, be illegal or otherwise disadvantageous to the Bank or, in
the case of an assignment, to the Bank and its Affiliates taken as a
whole.
3.03. Increased Costs and Reduction of Return.
(a) If the Bank reasonably determines that, due to either (i) the
introduction of or any change (other than any change by way of
imposition of or increase in reserve requirements included in the
calculation of the Offshore Rate) in or to the interpretation of any
law or regulation or (ii) the compliance by the Bank with any guideline
or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase
in the cost to the Bank of agreeing to make or making, funding or
maintaining any Offshore Rate Loans, then the Company shall either (x)
be liable for, and shall from time to time, 15 days after demand, pay
to the Bank for the account of the Bank, additional amounts as are
sufficient to compensate the Bank for such increased costs or (y)
terminate and prepay any affected Offshore Rate Loan.
-21-
<PAGE> 26
(b) If the Bank shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank
or other Governmental Authority charged with the interpretation or
administration thereof, or (iv) compliance by the Bank (or its Lending
Office) with any Capital Adequacy Regulation, affects or would affect
the amount of capital required or expected to be maintained by the Bank
or any corporation controlling the Bank and (taking into consideration
the Bank's or such corporation's policies with respect to capital
adequacy and the Bank's desired return on capital) determines that the
amount of such capital is increased as a consequence of its Commitment,
loans, credits or obligations under this Agreement, then, upon demand
of the Bank to the Company, the Company shall pay to the Bank, from
time to time as specified by the Bank, additional amounts sufficient to
compensate the Bank for such increase.
3.04. Funding Losses.
The Company shall reimburse the Bank and hold the Bank harmless from
any loss or expense arising from the liquidation or reemployment of funds
obtained by it to maintain outstanding Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained which the Bank may
sustain or incur as a consequence of:
(a) the failure of the Company to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or convert a
Loan after the Company has given (or is deemed to have given) a Notice
of Borrowing or a Notice of Conversion/ Continuation;
(c) the failure of the Company to make any prepayment in
accordance with any notice delivered under Section 2.06; or
(d) the prepayment or other payment (including, without
limitation, after acceleration thereof or under Section 3.02(b)) of an
Offshore Rate Loan on a day that is not the last day of the relevant
Interest Period.
For purposes of calculating amounts payable by the Company to the Bank under
this Section and under subsection 3.03(a), each Offshore Rate Loan made by the
Bank (and each related reserve, special deposit or similar requirement) shall be
conclusively deemed to have been funded at the rate of interest for deposits
used in determining the Offshore Rate for such Offshore Rate Loan by a matching
deposit or other borrowing in the interbank eurodollar market for a comparable
amount and for a comparable period, whether or not such Offshore Rate Loan is in
fact so funded.
3.05. Inability to Determine Rates.
If the Bank determines that for any reason adequate and reasonable
means do not exist for determining the Offshore Rate for any requested Interest
Period with respect to a proposed Offshore Rate Loan, or that the Offshore Rate
applicable pursuant to subsection 2.08(a) for any
-22-
<PAGE> 27
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to the Bank of funding such Loan, the
Bank will promptly so notify the Company. Thereafter, the obligation of the Bank
to make or maintain Offshore Rate Loans hereunder shall be suspended until the
Bank revokes such notice in writing. Upon receipt of such notice, the Company
may revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it without liability under Section 3.04. If the Company does not
revoke such Notice, the Bank shall make, convert or continue the Loans, as
proposed by the Company, in the amount specified in the applicable notice
submitted by the Company, but such Loans shall be made, converted or continued
as Base Rate Loans instead of Offshore Rate Loans.
3.06. Reserves on Offshore Rate Loans.
In the event that the Bank is required under regulations of the FRB to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency funds or deposits (currently known as "Eurocurrency
liabilities"), the Company shall pay to the Bank, as long as the Bank shall be
required, additional costs on the unpaid principal amount of each Offshore Rate
Loan equal to the actual costs of such reserves allocated to such Loan by the
Bank (as determined by the Bank in good faith, which determination shall be
conclusive absent manifest or proven error), payable on each date on which
interest is payable on such Loan, provided the Company shall have received at
least 15 days' prior written notice of such additional interest from the Bank.
If the Bank fails to give notice 15 days prior to the relevant Interest Payment
Date, such additional interest shall be payable 15 days from receipt of such
notice.
3.07. Certificates of the Bank.
If the Bank claims reimbursement or compensation under this ARTICLE
III, it shall deliver to the Company a certificate setting forth in reasonable
detail the amount payable to the Bank hereunder, the reason for and the
computation of such reimbursement or compensation, and such certificate shall be
conclusive and binding on the Company in the absence of manifest or proven
error.
3.08. Survival.
The agreements and obligations of the Company in this ARTICLE III shall
survive the payment of all other Obligations.
ARTICLE IV - CONDITIONS PRECEDENT
4.01. Conditions of Initial Credit Extensions.
The obligation of the Bank to make its initial Credit Extension
hereunder is subject to the condition that the Bank shall have received on or
before the Closing Date all of the following, in form and substance satisfactory
to the Bank:
(a) This Agreement executed by each party thereto;
(b) A photocopy of the bylaws (including all amendments thereto)
of the
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<PAGE> 28
Company, certified by the Secretary of the Company; and the Company's
certificate of incorporation (and all amendments thereto), certified by
the Department of Treasury of New Jersey;
(c) A certificate, dated the Effective Date, executed by the
Secretary of the Company, certifying (with appropriate organizational
resolutions attached thereto): (A) that all action required to be taken
by the Company in connection with the authorization, execution,
delivery and performance of this Agreement and the transactions
contemplated hereby and thereby has been taken and (B) the names and
true signatures of its respective officers authorized to execute,
deliver and perform, as applicable, this Agreement, and all other
documents and notices to be delivered by it hereunder;
(d) A good standing certificate and tax good standing for the
Company from the Department of Treasury of New Jersey and the Secretary
of State (or similar applicable Governmental Authority) of each state
where the Company is qualified to do business as a foreign corporation
as of a recent date;
(e) A photocopy of the bylaws (including all amendments thereto)
of each Subsidiary Guarantor, certified by the Secretary of such
Subsidiary Guarantor; and such Subsidiary Guarantor's certificate of
incorporation (and all amendments thereto), certified by the applicable
Governmental Authority of the state where such Subsidiary Guarantor was
organized;
(f) A certificate, dated the Effective Date, executed by the
Secretary of each Subsidiary Guarantor, certifying (with appropriate
organizational resolutions attached thereto): (A) that all action
required to be taken by such Subsidiary Guarantor in connection with
the authorization, execution, delivery and performance of the
Subsidiary Guaranty and the transactions contemplated thereby has been
taken and (B) the names and true signatures of its respective officers
authorized to execute, deliver and perform, as applicable, the
Subsidiary Guaranty, and all other documents and notices to be
delivered by it thereunder;
(g) A good standing certificate and tax good standing for each
Subsidiary Guarantor from the Secretary of State (or similar applicable
Governmental Authority) of each state where such Subsidiary Guarantor
is organized and is qualified to do business as a foreign corporation
as of a recent date;
(h) A Subsidiary Guaranty duly executed by each Required
Guarantor;
(i) An opinion of Pitney, Hardin, Kipp & Szuch, counsel to the
Company and addressed to the Bank, substantially in the form of Exhibit
E;
(j) Evidence of payment by the Company of all accrued and unpaid
reasonable fees, costs and expenses to the extent then due and payable
on the Closing Date, together with reasonable Attorney Costs (related
specifically to this Agreement, the Loan Documents and the transactions
contemplated therein) of the Bank to the extent invoiced prior to or on
the Closing Date, plus such additional amounts of reasonable Attorney
Costs as shall constitute the Bank's reasonable estimate of Attorney
Costs
-24-
<PAGE> 29
incurred or to be incurred by it through the closing proceedings
(provided that such estimate shall not thereafter preclude final
settling of accounts between the Company and the Bank); including any
such costs, fees and expenses arising under or referenced in Sections
2.09;
(k) A certificate signed by a Responsible Officer of the Company,
dated as of the Closing Date, stating that: (A) the representations and
warranties contained in ARTICLE V are true and correct on and as of
such date, as though made on and as of such date; (B) no Default or
Event of Default exists or would result from the Credit Extension, and
(C) there has occurred since June 30, 1998 no event or circumstance
that has resulted or could reasonably be expected to result in a
Material Adverse Effect; and
(l) Evidence of such other approvals, opinions, documents or
materials as the Bank may reasonably request.
4.02. Conditions to All Credit Extensions.
The obligation of the Bank to make any Revolving Loan to be made by it
(including its initial Revolving Loan) is subject to the satisfaction of the
following conditions precedent on the relevant Borrowing Date:
(a) The Bank shall have received a Notice of Borrowing or a Notice
of Conversion/Continuation, as applicable;
(b) The representations and warranties in ARTICLE V shall be true
and correct on and as of such Borrowing Date with the same effect as if
made on and as of such Borrowing Date (except to the extent such
representations and warranties expressly refer to an earlier date, in
which case they shall be true and correct as of such earlier date); and
(c) No Default or Event of Default shall exist or shall result
from such Borrowing.
Each Notice of Borrowing submitted by the Company hereunder shall
constitute a representation and warranty by the Company hereunder, as of the
date of each such notice and as of each Borrowing Date, as applicable, that the
conditions in this Section 4.02 are satisfied.
ARTICLE V - REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank that:
5.01. Corporate Existence and Power.
The Company and each of its Subsidiaries:
(a) is a corporation, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization;
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<PAGE> 30
(b) has the power and authority to execute, deliver, and perform
any of its obligations under the Loan Documents;
(c) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its
business except to the extent that the failure to have such power and
authority or such licenses, authorizations, consents and approvals
would not reasonably be expected to have a Material Adverse Effect;
(d) is duly qualified as a foreign corporation and is licensed and
in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its
business requires such qualification or license except to the extent
that the failure to be so would not reasonably be expected to have a
Material Adverse Effect; and
(e) is in compliance in all material respects with all
Requirements of Law except to the extent that the failure to be in
compliance would not reasonably be expected to have a Material Adverse
Effect.
5.02. Authorization; No Contravention.
The execution, delivery and performance by the Company and the
Subsidiary Guarantors of this Agreement and each other Loan Document to which
such Person is party, have been duly authorized by all necessary corporate
action, and do not and will not:
(a) contravene the terms of any of that Person's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or
the creation of any Lien (other than Permitted Liens) under, any
document evidencing any material Contractual Obligation to which such
Person is a party or any order, injunction, writ or decree of any
Governmental Authority to which such Person or its property is subject;
or
(c) violate any Requirement of Law in any respect, the violation
of which would be reasonably be expected to result in a Material
Adverse Effect.
5.03. Governmental Authorization.
No approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority is necessary or required
in connection with the execution, delivery or performance by, or enforcement
against, the Company or any of the Subsidiary Guarantors of this Agreement or
any other Loan Document.
5.04. Binding Effect.
This Agreement and each other Loan Document to which the Company or any
Subsidiary Guarantor is a party constitute the legal, valid and binding
obligations of the Company and such Subsidiary Guarantor to the extent it is a
party thereto, enforceable against such Person in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or
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by equitable principles relating to enforceability.
5.05. Litigation.
Set forth on Schedule 5.05 are, as of the Closing Date, all actions,
suits, proceedings, claims or disputes which, to the knowledge of the Company,
if determined adversely to the Company or its Subsidiary, could reasonably be
expected to result in liability for damages in an amount exceeding $250,000 (the
"Disclosed Claims"). Including the Disclosed Claims, there are no actions,
suits, proceedings, claims or disputes pending or (to the knowledge of the
Company) threatened or contemplated, at law, in equity, in arbitration or before
any Governmental Authority, against the Company, or its Subsidiaries or any of
their respective properties:
(a) which purport to affect or pertain to this Agreement or any
other Loan Document, or any of the transactions contemplated hereby or
thereby; or
(b) which, if determined adversely to the Company or its
Subsidiaries, could result in liability for damages which would be
reasonably expected to result in a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any other
Loan Document, or directing that the transactions provided for herein or therein
not be consummated as herein or therein provided.
5.06. No Default.
No Default or Event of Default exists or would result from the
incurring of any Obligations by the Company. As of the Closing Date, neither the
Company nor any Subsidiary is in default under or with respect to any material
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect,
or that would, if such default had occurred after the Closing Date, create an
Event of Default under subsection 8.01(e).
5.07. ERISA Compliance.
(a) (i) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state
law; (ii) each Plan which is intended to qualify under Section 401(a)
of the Code has received a favorable determination letter from the IRS
and to the best knowledge of the Company, nothing has occurred which
would cause the loss of such qualification, and (iii) the Company and
each ERISA Affiliate has made all required contributions to any Plan
subject to Section 412 of the Code, and no application for a funding
waiver or an extension of any amortization period pursuant to Section
412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could
reasonably be expected to result in a Material Adverse
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Effect. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably be expected to result in a Material
Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability which
could reasonably be expected to result in a Material Adverse Effect;
(iii) neither the Company nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability under Title IV of ERISA with
respect to any Pension Plan (other than premiums due and not delinquent
under Section 4007 of ERISA) which could reasonably be expected to
result in a Material Adverse Effect; (iv) neither the Company nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any
liability (and no event has occurred which, with the giving of notice
under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan
which could reasonably be expected to result in a Material Adverse
Effect; and (v) neither the Company nor any ERISA Affiliate has engaged
in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA which could reasonably be expected to result in a Material
Adverse Effect.
5.08. Use of Proceeds; Margin Regulations.
The proceeds of the Loans are to be used solely for the purposes set
forth in and permitted by Section 6.12 and Section 7.07. Neither the Company nor
any Subsidiary is generally engaged in the business of purchasing or selling
Margin Stock or extending credit for the purpose of purchasing or carrying
Margin Stock and none of the proceeds of the Loans shall be used for the purpose
of purchasing or carrying Margin Stock.
5.09. Title to Properties.
The Company and each Subsidiary have good record and marketable title
in fee simple to, or valid leasehold interests in, all real property necessary
or used in the ordinary conduct of their respective businesses, except for such
defects in title as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. As of the Closing Date, the property
of the Company and its Subsidiaries is subject to no Liens, other than Permitted
Liens.
5.10. Taxes.
The Company and its Subsidiaries have filed all Federal and other
material tax returns and reports required to be filed, and have paid all Federal
and other material taxes, assessments, fees and other governmental charges
levied or imposed upon them or their properties, income or assets otherwise due
and payable, except those which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP. There is no proposed tax assessment against the Company or any
Subsidiary that would reasonably be expected to have a Material Adverse Effect.
5.11. Financial Condition.
Since June 30, 1998, there has been no Material Adverse Effect.
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5.12. Environmental Matters.
The Company owns no real property and is not aware of any existing
Environmental Claims on its business, operations or leased properties, except as
specifically disclosed in Schedule 5.12, which, individually or in the
aggregate, are reasonably expected to result in a Material Adverse Effect.
5.13. Regulated Entities.
None of the Company, any Person controlling the Company, or any
Subsidiary, is an "Investment Company" within the meaning of the Investment
Company Act of 1940. The Company is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, any state public
utilities code, or any other Federal or state statute or regulation limiting its
ability to incur Indebtedness.
5.14. No Burdensome Restrictions.
To the knowledge of the Company, neither the Company nor any Subsidiary
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
5.15. Copyrights, Patents, Trademarks and Licenses, Etc.
The Company or its Subsidiaries own or are licensed or otherwise have
the right to use all of the patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other rights that are
reasonably necessary for the operation of their respective businesses, without
conflict in any material respect with the rights of any other Person. To the
knowledge of the Company, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed, by the Company or any Subsidiary infringes upon any
rights held by any other Person in any material respect. Except as specifically
disclosed in Schedule 5.05, no claim or litigation regarding any of the
foregoing is pending or to the knowledge of the Company threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the Company,
proposed, which, in either case, could reasonably be expected to have a Material
Adverse Effect.
5.16. Subsidiaries.
As of the Closing Date, the Company has no Subsidiaries other than
those specifically disclosed in part (a) of Schedule 5.16 hereto and has no
equity investments in any other corporation or entity other than those
specifically disclosed in part (b) of Schedule 5.16.
5.17. Insurance.
Except as specifically disclosed in Schedule 5.17, the properties of
the Company and its Subsidiaries are insured with financially sound and
reputable insurance companies not Affiliates of the Company pursuant to
insurance policies containing amounts, deductibles and risk
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coverages that are commercially prudent for the Company.
5.18. Full Disclosure.
None of the representations or warranties made by the Company or any
Subsidiary in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of the
Company or any Subsidiary in connection with the Loan Documents (including the
offering and disclosure materials delivered by or on behalf of the Company to
the Bank prior to the Closing Date), contains any untrue statement of a material
fact or omits any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
are made, not misleading as of the time when made or delivered.
5.19. Year 2000.
On the basis of a review and assessment of the Company's systems and
equipment and inquiry made of its material suppliers, vendors and customers, the
Company reasonably believes that the "Year 2000 problem" (that is, the inability
of computers, as well as embedded microchips in non-computing devices, to
perform properly date-sensitive functions with respect to certain dates prior to
and after December 31, 1999), including costs of remediation, will not result in
a material adverse change in the operations, business, properties, condition
(financial or otherwise) or prospects of the Company. The Company has developed
feasible contingency plans which will adequately ensure uninterrupted and
unimpaired business operation in the event of failure of its own or a third
party's systems or equipment due to the Year 2000 problem, including those of
vendors, customers, and suppliers, as well as a general failure of or
interruption in its communications and delivery infrastructure.
5.20. Subsidiary Guarantees.
All Subsidiaries which meet the criteria set forth in the definition of
Required Guarantor have authorized, executed and delivered a Subsidiary Guaranty
in favor of the Bank.
ARTICLE VI - AFFIRMATIVE COVENANTS
So long as the Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Bank waives
compliance in writing:
6.01. Financial Statements.
The Company shall deliver to the Bank, in form and detail satisfactory
to the Bank:
(a) as soon as available, but not later than 90 days after the end
of each fiscal year, a copy of the audited consolidated balance sheet
of the Company and its Subsidiaries as at the end of such year and the
related audited consolidated statements of income or operations,
shareholders' equity and cash flows for such year, setting forth in
each case in comparative form the figures for the previous fiscal year,
and accompanied by the opinion of a nationally-recognized independent
public accounting firm
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("Independent Auditor") which report shall state that such consolidated
financial statements present fairly the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent
with prior years. Such opinion shall not be qualified or limited
because of a restricted or limited examination by the Independent
Auditor of any material portion of the Company's or any Subsidiary's
records and shall be delivered to the Bank pursuant to a reliance
agreement between the Bank and such Independent Auditor in form and
substance satisfactory to the Bank. If the Company has any outstanding
amounts under any Revolving Loans, then the Company shall concurrently
deliver for the same time period an unaudited consolidating balance
sheet and unaudited consolidating statements of income and operations
which present fairly the financial position for certain material
Subsidiaries of the Company in a manner reasonably satisfactory to the
Bank; and
(b) as soon as available, but not later than 45 days after the end
of each of the first three fiscal quarters of each fiscal year
(commencing with the fiscal quarter ended September 30, 1998), a copy
of the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of the end of such quarter and the related consolidated
statements of income, shareholders' equity and cash flows for the
period commencing on the first day and ending on the last day of such
quarter, and certified by a Responsible Officer as fairly presenting,
in accordance with GAAP (subject to year-end audit adjustments), the
financial position and the results of operations of the Company and the
Subsidiaries. If the Company has any outstanding amounts under any
Revolving Loans, then the Company shall concurrently deliver for the
same time period an unaudited consolidating balance sheet and the
related unaudited consolidating statements of income, shareholders'
equity and cash flows which present fairly the financial position for
certain material Subsidiaries of the Company in a manner reasonably
satisfactory to the Bank
6.02. Certificates; Other Information.
The Company shall furnish to the Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsections 6.01(a) and 6.01(b), each of (x) a
certificate of a Responsible Officer of the Company stating that in
making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default; or if knowledge of a Default or Event
of Default was obtained, then a certificate of a Responsible Officer of
the Company describing the nature of such Default or Event of Default,
together with a description of the remedy of same by the Company and
(y) a Compliance Certificate executed by a Responsible Officer with
computations demonstrating compliance with the financial covenants set
forth in Section 7.12 in a form and substance satisfactory to the Bank;
and
(b) promptly, such additional information regarding the business,
financial or corporate affairs of the Company or any Subsidiary as the
Bank may from time to time reasonably request.
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6.03. Notices.
The Company shall promptly notify the Bank:
(a) of the occurrence of any Default or Event of Default, and of
the occurrence or existence of any event or circumstance that
reasonably foreseeably will become a Default or Event of Default;
(b) of any matter that has resulted or is reasonably expected to
result in a Material Adverse Effect, including (i) breach or
non-performance of, or any default under, a Contractual Obligation of
the Company or any Subsidiary, which is reasonably expected to result
in a Material Adverse Effect; (ii) any material dispute, litigation,
investigation, proceeding or suspension between the Company or any
Subsidiary and any Governmental Authority, which is reasonably expected
to result in a Material Adverse Effect; or (iii) the commencement of,
or any material development in, any material litigation or proceeding
affecting the Company or any Subsidiary, including pursuant to any
applicable Environmental Laws, which is reasonably expected to result
in a Material Adverse Effect;
(c) of the occurrence of any of the following events affecting the
Company or any ERISA Affiliate (but in no event more than 30 days after
such event), and deliver to the Bank a copy of any notice with respect
to such event that is filed with a Governmental Authority and any
notice delivered by a Governmental Authority to the Company or any
ERISA Affiliate with respect to such event:
(i) an ERISA Event which could reasonably be expected to
have a Material Adverse Effect;
(ii) the Unfunded Pension Liability of any Pension Plan
shall increase in a manner which could reasonably be expected to
have a Material Adverse Effect;
(iii) the adoption of, or the commencement of contributions
to, any material Plan subject to Section 412 of the Code by the
Company or any ERISA Affiliate; or
(iv) the adoption of any amendment to any material Plan
subject to Section 412 of the Code, if such amendment results in a
material increase in contributions or Unfunded Pension Liability;
and
(d) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated
Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under subsection 6.03(a) shall describe with particularity any and all clauses
or provisions of this Agreement or other Loan Document that have been (or
reasonably foreseeably will be) breached or violated.
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<PAGE> 37
6.04. Preservation of Existence, Etc.
The Company shall, and shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its existence
and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all material
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business
except in connection with transactions permitted by Section 7.03 and
sales of assets permitted by Section 7.02, the non-preservation of
which could reasonably be expected to have a Material Adverse Effect;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could
reasonably be expected to have a Material Adverse Effect.
6.05. Maintenance of Property.
The Company shall maintain, and shall cause each Subsidiary to
maintain, and preserve all its material property which is used or useful in its
business in good working order and condition, ordinary wear and tear excepted
and make all necessary repairs thereto and renewals and replacements thereof
except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect and except as permitted by Section 7.02. The Company and
each Subsidiary shall use the standard of care typical in the industry in the
operation and maintenance of its facilities.
6.06. Insurance.
The Company shall maintain, and shall cause each Subsidiary to
maintain, with financially sound and reputable independent insurers, insurance
with respect to its material properties and business against loss or damage of
the kinds customarily insured against by Persons engaged in the same or similar
business, of such types and in such amounts as are customarily carried under
similar circumstances by such other Persons.
6.07. Payment of Obligations.
The Company shall, and shall cause each Material Subsidiary to, pay and
discharge as the same shall become due and payable, all their respective
obligations and liabilities, including all tax liabilities, assessments and
governmental charges or levies upon it or its properties or assets, unless the
same are being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the Company or such
Subsidiary.
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6.08. Compliance with Laws.
The Company shall comply, and shall cause each Subsidiary to comply, in
all material respects with all Requirements of Law of any Governmental Authority
having jurisdiction over it or its business (including the Federal Fair Labor
Standards Act), except such as may be contested in good faith or as to which a
bona fide dispute may exist and except where non-compliance is not reasonably
expected to have a Material Adverse Effect.
6.09. Compliance with ERISA.
The Company shall, and shall cause each of its ERISA Affiliates to: (a)
maintain each Plan in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state law; (b) cause each
Plan which is qualified under Section 401(a) of the Code to maintain such
qualification; and (c) make all required contributions to any Plan subject to
Section 412 of the Code.
6.10. Inspection of Property and Books and Records.
The Company shall maintain and shall cause each Subsidiary to maintain
proper books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and matters involving the assets and business of the Company and
such Subsidiary. The Company shall permit, and shall cause each Subsidiary to
permit, representatives and independent contractors of the Bank to visit and
inspect any of their respective properties, to examine their respective
corporate, financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, and independent public accountants and at such
reasonable times during normal business hours and as often as may be reasonably
desired, upon reasonable advance notice to the Company; provided, however, when
an Event of Default exists the Bank may do any of the foregoing at the expense
of the Company at any time during normal business hours and without advance
notice.
6.11. Environmental Laws.
The Company shall, and shall cause each Subsidiary to, conduct its
operations and keep and maintain its property in compliance with all
Environmental Laws except where the failure to comply is not expected to have a
Material Adverse Effect.
6.12. Use of Proceeds.
The Company shall use the proceeds of the Loans for working capital and
for financing of Acceptable Acquisitions.
6.13. Subsidiary Guarantors.
The Company will cause any Domestic Subsidiary which meets the criteria
set forth in the definition of Required Guarantor to execute and deliver a
Subsidiary Guaranty to the Bank within ten (10) Business Days following the date
of the delivery of the consolidating financial statements reflecting the fact
that such Domestic Subsidiary meets such definition of Required
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<PAGE> 39
Guarantor. In the event that the sum of the Shareholder's Equity of the Company
and each Subsidiary Guarantor as reflected in a consolidating balance sheet of
the Company (such sum hereinafter referred to as the "Guaranty Equity Sum") does
not exceed 70% of the Shareholder's Equity of the Company as determined on a
Consolidated basis (the "Guaranty Equity Threshold"), then the Company shall
cause such other Domestic Subsidiaries to execute and deliver a Subsidiary
Guaranty as may be needed to cause the Guaranty Equity Sum to exceed the
Guaranty Equity Threshold. If the Guaranty Equity Sum does not exceed the
Guaranty Equity Threshold after the execution of a Subsidiary Guaranty by all of
the Domestic Subsidiaries, then the Bank and the Company shall agree to a
mutually acceptable guaranty or security arrangement, or within thirty (30) days
after notice from the Bank to the Company, the Company shall cause such Foreign
Subsidiaries as are necessary to meet the Guaranty Equity Threshold to execute
and deliver to the Bank a Subsidiary Guaranty acceptable in form and substance
to the Bank. In the event that any Foreign Subsidiary shall have Shareholder's
Equity as determined on a consolidating balance sheet of the Company in excess
of 20% of the Shareholder's Equity of the Company as determined on a
Consolidated basis then either (i) the Company and the Bank shall agree to a
mutually acceptable guaranty or security arrangement, or (ii) within thirty (30)
days after notice from the Bank to the Company the Company shall cause such
Foreign Subsidiary to execute and deliver to the Bank a Subsidiary Guaranty
acceptable in form and substance to the Bank (for example: if Foreign Subsidiary
A has Shareholder's Equity of 21% of the Shareholder's Equity of the Company and
Foreign Subsidiary B has Shareholder's Equity of 21% of the Shareholder's Equity
of the Company, then both Foreign Subsidiary A and Foreign Subsidiary B shall be
subject to the requirements of this sentence).
ARTICLE VII - NEGATIVE COVENANTS
So long as the Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Bank waives
compliance in writing:
7.01. Limitation on Liens.
The Company shall not, and shall not suffer or permit any Subsidiary
to, directly or indirectly, make, create, incur, assume or suffer to exist any
Lien upon or with respect to any part of its property, whether now owned or
hereafter acquired, other than the following ("Permitted Liens"):
(a) any Lien existing on property of the Company or any Subsidiary
on the Closing Date and set forth in Schedule 7.01 securing
Indebtedness outstanding on such date;
(b) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or
to the extent that non-payment thereof is permitted by Section 6.07;
provided that no notice of lien has been filed or recorded under the
Code;
(c) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the
ordinary course of business which are not delinquent or remain payable
without penalty or which are being contested in good faith
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and by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto;
(d) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
social security legislation;
(e) Liens on the property of the Company or its Subsidiary
securing (i) the non-delinquent performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, (ii)
contingent obligations on surety and appeal bonds, and (iii) other
non-delinquent obligations of a like nature; in each case, incurred in
the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the businesses of the Company
and its Subsidiaries;
(g) Liens securing obligations in respect of import letters of
credit incurred by the Company in the ordinary course of its business;
(h) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained
with a creditor depository institution; provided that (i) such deposit
account is not a dedicated cash collateral account and is not subject
to restrictions against access by the Company in excess of those set
forth by regulations promulgated by the FRB, and (ii) such deposit
account is not intended by the Company or any Subsidiary to provide
collateral to the depository institution; and
(i) Liens on the property or assets of a corporation which becomes
a Subsidiary after the date hereof securing Indebtedness permitted by
Section 7.05(e), provided that (1) such Liens existing at the time such
corporation became a Subsidiary and were not created in anticipation of
the Acquisition, (2) any such Lien does not by its terms cover any type
of property or assets after the time such Person becomes a Subsidiary
which were not of a type covered immediately prior thereto, and (3) any
such Lien does not by its terms secure any Indebtedness other than
Indebtedness existing immediately prior to the existing time as such
Person becomes a Subsidiary.
7.02. Disposition of Assets.
The Company shall not, and shall not suffer or permit any Subsidiary
to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise
dispose of (whether in one or a series of transactions) any property (including
accounts and notes receivable, with or without recourse) or enter into any
agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
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(b) to the Company or a Subsidiary so long as no Default or Event
of Default shall have occurred and is continuing;
7.03. Consolidations and Mergers.
The Company shall not, and shall not suffer or permit any Subsidiary
to, merge, consolidate with or into, or convey, transfer, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to or
in favor of any Person, except:
(a) any Subsidiary may merge with the Company; provided that the
Company shall be the continuing or surviving corporation, or with any
one or more Subsidiaries; provided that if any transaction shall be
between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned
Subsidiary shall be the continuing or surviving corporation;
(b) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Company or another
Wholly-Owned Subsidiary; and
(c) the Company may effect any Acceptable Acquisition.
7.04. Loans and Investments.
The Company shall not purchase or acquire, or suffer or permit any
Subsidiary to purchase or acquire, or make any commitment therefor, any capital
stock, equity interest, or any obligations or other securities of, or any
interest in, any Person, or make or commit to make any Acquisitions, or make or
commit to make any advance, loan, extension of credit or capital contribution to
or any other investment in, any Person including any Affiliate of the Company
(together, "Investments"), except for:
(a) Investments held by the Company or Subsidiary in the form of
Cash Equivalents;
(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in
the ordinary course of business;
(c) extensions of credit by the Company to any of its Wholly-Owned
Subsidiaries or by any of its Wholly-Owned Subsidiaries to another of
its Wholly-Owned Subsidiaries; and
(d) Acceptable Acquisitions.
7.05. Limitation on Indebtedness.
The Company shall not, and shall not suffer or permit any Subsidiary
to, create, incur, assume, suffer to exist, or otherwise become or remain
directly or indirectly liable with respect to, any Indebtedness, except:
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(a) Indebtedness of the Company incurred pursuant to this
Agreement;
(b) Indebtedness of the Company consisting of Contingent
Obligations permitted pursuant to Section 7.08;
(c) Indebtedness of the Company existing on the Closing Date and
set forth in Schedule 7.05;
(d) Indebtedness of the Company incurred in connection with leases
permitted pursuant to Section 7.09;
(e) Subordinated Debt;
(f) Indebtedness of a Person which becomes a Subsidiary after the
date hereof, provided that (i) such Indebtedness existed at the time
such corporation became a Subsidiary and was not created in
anticipation of the acquisition and (ii) immediately after giving
effect to the acquisition of such Person by the Company no Default or
Event of Default shall have occurred and be continuing;
(g) Indebtedness of Foreign Subsidiaries consisting of
intercompany borrowings equal to an aggregate of no more than
$10,000,000 outstanding at any given time;
(h) Indebtedness of Foreign Subsidiaries to third parties equal to
an aggregate of no more than $5,000,000 outstanding at any given time;
(i) Indebtedness in respect of letters of credit issued for the
account of the Company and Subsidiaries in an aggregate face amount
outstanding of up to $2,000,000;
(j) Indebtedness in respect of the existing $400,000 letter of
credit issued by the Bank in favor of the Company's landlord; and
(k) other Indebtedness of the Company and domestic Subsidiaries
equal to an aggregate of no more than $5,000,000 outstanding at any
given time.
7.06. Transactions with Affiliates.
The Company shall not, and shall not suffer or permit any Subsidiary
to, enter into any transaction with any Affiliate of the Company, except upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would obtain in a comparable arm's-length transaction with a Person not an
Affiliate of the Company or such Subsidiary.
7.07. Use of Proceeds.
(a) The Company shall not, and shall not suffer or permit any
Subsidiary to, use any portion of the Loan proceeds, directly or
indirectly, (i) to purchase or carry Margin Stock in violation of
Regulation U, (ii) to repay or otherwise refinance indebtedness of the
Company or others incurred to purchase or carry Margin Stock in
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violation of Regulation U, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock in violation of Regulation U,
or (iv) to acquire any security in any transaction that is subject to
Section 13 or 14 of the Exchange Act.
(b) The Company shall not, and shall not suffer or permit any
Subsidiary to use any portion of the Loan proceeds, directly or
indirectly, to make any Acquisition that is not an Acceptable
Acquisition.
7.08. Contingent Obligations.
The Company shall not, and shall not suffer or permit any Subsidiary
to, create, incur, assume or suffer to exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course
of business;
(b) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in Schedule 7.08;
(c) Contingent Obligations with respect to Surety Instruments
incurred in the ordinary course of business;
(d) Swap obligations of the Company; and
(e) Guaranty Obligations with respect to Indebtedness of
Subsidiaries permitted pursuant to Section 7.05(e).
(f) Contingent Obligations under checks issued to customers in the
ordinary course of business under the Company's Relationship Guarantee
Program not to exceed an aggregate amount at any one time outstanding
of $1,500,000.
7.09. Lease Obligations.
The Company shall not, and shall not suffer or permit any Subsidiary
to, create or suffer to exist any obligations for the payment of rent for any
property under lease or agreement to lease, except for:
(a) leases by the Company or any Subsidiary of real estate which,
in the aggregate, do not result in annual rental obligations exceeding
five percent (5%) of the annual consolidated gross revenues of the
Company and its Subsidiaries for such year;
(b) leases by the Company or any Subsidiary, other than leases of
real estate, in existence on the Closing Date and any renewal,
extension or refinancing thereof;
(c) additional operating leases, other than leases of real estate,
entered into by the Company or any Subsidiary after the Closing Date
such that the annual rental payments for such additional leases do not
exceed an aggregate of $2,000,000; or
(d) leases, other than leases of real estate or as permitted in
the clause (c)
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above, entered into by the Company or any Subsidiary after the Closing
Date pursuant to sale-leaseback transactions in an aggregate net
present value not to exceed $2,000,000.
7.10. Change in Business.
The Company shall not, and shall not suffer or permit any Subsidiary
to, engage in any material line of business substantially different from those
lines of business carried on by the Company and its Subsidiaries on the date
hereof.
7.11. Accounting Changes.
The Company shall not, and shall not suffer or permit any Subsidiary
to, make any significant change in accounting treatment or reporting practices,
except as required by GAAP, or change the fiscal year of the Company or of any
Subsidiary.
7.12. Financial Covenants.
The Company shall not:
(a) permit its Leverage Ratio as determined at the end of any
fiscal quarter to be more than 2.50 to 1.00.
(b) permit its Interest Coverage Ratio as determined at the end of
any fiscal quarter to be less than 3.00 to 1.00.
(c) permit its Current Ratio at any time to be less than 1.25 to
1.00.
(d) permit its Net Worth at any time to be less than the Net Worth
as reported on the Company's audited 1997 fiscal year end statements,
plus (i) seventy-five percent (75%) of the amount of the net proceeds
to the Company of any offering of new equity interests issued by the
Company after the date hereof, plus (ii) on a cumulative basis
commencing with the fiscal quarter ending on March 31, 1998, fifty
percent (50%) of Net Income (if positive) for any fiscal quarter ending
on or after March 31, 1998.
7.13. Optional Payments of Subordinated Debt and Modifications of
Related Debt.
The Company shall not make any optional payment or prepayment on or
redemption, defeasance or purchase of any Indebtedness, including, without
limitation, the Subordinated Debt, or amend, modify or change, or consent or
agree to any amendment, modification or change to any of the terms relating to
the payment or prepayment or principal of or interest on, any such Indebtedness,
other than any amendment, modification or change which would extend the maturity
or reduce the amount of any payment of principal thereof or which would reduce
the rate or extend the date for payment of interest thereon.
7.14. No Losses.
The Company shall not have EBIT of less than $0 during any fiscal year.
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ARTICLE VIII - EVENTS OF DEFAULT
8.01. Event of Default.
Any of the following shall constitute an "Event of Default":
(a) The Company fails to pay, (i) when and as required to be paid
herein, any amount of principal of any Loan or (ii) within three (3)
days after the same becomes due, any interest, fee or any other amount
payable hereunder or under any other Loan Document; or
(b) Any representation or warranty by the Company or any
Subsidiary made or deemed made herein, in any Loan Document or which is
contained in any certificate, document or financial or other statement
by the Company or any Responsible Officer, furnished at any time under
this Agreement, or in or under any other Loan Document, is incorrect in
any material respect on or as of the date made or deemed made; or
(c) The Company fails to perform or observe any term, covenant or
agreement contained in any of Section 6.03 or 6.09 or in ARTICLE VII;
or
(d) The Company or any Subsidiary Guarantor fails to perform or
observe any other term or covenant contained in this Agreement or any
other Loan Document, and such default shall continue unremedied for a
period of 30 days after the earlier of (i) the date upon which a
Responsible Officer knew or reasonably should have known of such
failure or (ii) the date upon which written notice thereof is given to
the Company by the Bank; or
(e) (i) The Company or any Subsidiary (A) fails to make any
payment in respect of any Indebtedness or Contingent Obligation (other
than in respect of Swap Contracts), having an aggregate principal
amount (including undrawn committed or available amounts and including
amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $500,000 when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) and
such failure continues after the applicable grace or notice period, if
any, specified in the relevant document on the date of such failure; or
(B) fails to perform or observe any other condition or covenant, or any
other event shall occur or condition exist, under any agreement or
instrument relating to any such Indebtedness or Contingent Obligation,
and such failure continues after the applicable grace or notice period,
if any, specified in the relevant document on the date of such failure
if the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of
such holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its stated
maturity, or such Contingent Obligation to become payable or cash
collateral in respect thereof to be demanded; or (ii) there occurs
under any Swap Contract an Early Termination Date (as defined in such
Swap Contract) resulting from (1) any event of default under such Swap
Contract as to which the Company or any Subsidiary is the Defaulting
Party (as defined in such Swap
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Contract) or (2) any Termination Event (as so defined) as to which the
Company or any Subsidiary is an Affected Party (as so defined), and, in
either event, the Swap Termination Value owed by the Company or such
Subsidiary as a result thereof is greater than $500,000; or
(f) The Company or any Subsidiary Guarantor (i) ceases or fails to
be solvent, or generally fails to pay, or admits in writing its
inability to pay, its debts as they become due, subject to applicable
grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course;
(iii) commences any Insolvency Proceeding with respect to itself; or
(iv) takes any action to effectuate or authorize any of the foregoing;
or
(g) (i) Any involuntary Insolvency Proceeding is commenced or
filed against the Company or any Material Subsidiary, or any writ,
judgment, warrant of attachment, execution or similar process, is
issued or levied against a substantial part of the Company's or any
Material Subsidiary's properties, and any such proceeding or petition
shall not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully
bonded within 60 days after commencement, filing or levy; (ii) the
Company or any Material Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for
relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (iii) the Company or any Material Subsidiary
acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent therefor),
or other similar Person for itself or a substantial portion of its
property or business; or
(h) (i) An ERISA Event shall occur with respect to a Pension Plan
or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Company under Title IV of ERISA
to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate
amount in excess of $100,000 during any consecutive two year period;
(ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $100,000 during any consecutive two
year period; or (iii) the Company or any ERISA Affiliate shall fail to
pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under
Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount
in excess of $100,000 during any consecutive two year period; or
(i) One or more non-interlocutory judgments, non-interlocutory
orders, decrees or arbitration awards is entered against the Company or
any Material Subsidiary involving in the aggregate a liability (to the
extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series
of transactions, incidents or conditions, of $250,000 or more singly,
or $1,000,000 or more in the aggregate and the same shall remain
unsatisfied, unvacated and unstayed pending appeal for a period of 45
days after the entry thereof; or
(j) Any non-monetary judgment, order or decree is entered against
the Company or any Subsidiary which does or would reasonably be
expected to have a Material Adverse Effect, and there shall be any
period of 45 consecutive days during
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which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(k) There shall exist any actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Company, threatened
or contemplated, at law, in equity, in arbitration or before any
Governmental Authority, against the Company, or its Subsidiaries or any
of their respective properties:
(i) which purport to affect or pertain to this Agreement or
any other Loan Document, or any of the transactions contemplated
hereby or thereby; or
(ii) which, if determined adversely to the Company or its
Subsidiaries, could result in a Material Adverse Effect.
(l) any Subsidiary Guaranty shall at any time after its execution
and delivery and for any reason cease to be in full force and effect or
shall be declared null and void, or the validity and enforceability
thereof shall be contested by any Subsidiary Guarantor or any
Subsidiary Guarantor shall deny it has any further liability or
obligations thereunder and shall fail to perform its obligations
thereunder.
8.02. Remedies.
If any Event of Default occurs, the Bank may,
(a) declare the Commitment to be terminated, whereupon such
Commitment shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or
payable hereunder or under any other Loan Document to be immediately
due and payable, without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the Company;
and
(c) exercise on behalf of itself all rights and remedies available
to it under the Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
8.01(f) or 8.01(g) (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of the Bank
to make Loans shall automatically terminate and the unpaid principal amount of
all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Bank.
8.03. Rights Not Exclusive.
The rights provided for in this Agreement and the other Loan Documents are
cumulative and are not exclusive of any other rights, powers, privileges or
remedies provided by law or in equity, or under any other instrument, document
or agreement now existing or hereafter arising.
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ARTICLE IX - MISCELLANEOUS
9.01. Amendments and Waivers.
No amendment or waiver of any provision of this Agreement or any other
Loan Document, and no consent with respect to any departure by the Company or
any applicable Subsidiary therefrom, shall be effective unless the same shall be
in writing and signed by the Bank and the Company, and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
9.02. Notices.
(a) All notices, requests, consents, approvals, waivers and other
communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that
any matter transmitted by facsimile (i) shall be immediately confirmed
by a telephone call to the recipient at the number specified on
Schedule 9.02, and (ii) shall be followed promptly by delivery of a
hard copy original thereof) and mailed, faxed or delivered, to the
address or facsimile number specified for notices on Schedule 9.02; or,
as directed to the Company or the Bank, to such other address as shall
be designated by such party in a written notice to the other party.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when
delivered for overnight (next-day) delivery, or transmitted in legible
form by facsimile machine, respectively, or if mailed, upon the third
Business Day after the date deposited into the U.S. mail, or if
delivered, upon delivery; except that notices pursuant to ARTICLE II to
the Bank shall not be effective until actually received by the Bank.
(c) Any agreement of the Bank herein to receive certain notices by
telephone or facsimile is solely for the convenience and at the request
of the Company. The Bank shall be entitled to rely on the authority of
any Person purporting to be a Person authorized by the Company to give
such notice and the Bank shall not have any liability to the Company or
other Person on account of any action taken or not taken by the Bank in
reliance upon such telephonic or facsimile notice. The obligation of
the Company to repay the Loans shall not be affected in any way or to
any extent by any failure by the Bank to receive written confirmation
of any telephonic or facsimile notice or the receipt by the Bank of a
confirmation which is at variance with the terms understood by the Bank
to be contained in the telephonic or facsimile notice.
9.03. No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the
Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.
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9.04. Costs and Expenses.
The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse The Chase Manhattan Bank within five
Business Days after demand (subject to subsection 4.01(j)) for all
reasonable costs and expenses incurred by The Chase Manhattan Bank in
connection with the development, preparation, delivery and execution
of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any Loan Document
and any other documents prepared in connection herewith or therewith,
and the consummation of the transactions contemplated hereby and
thereby, including reasonable Attorney Costs incurred by The Chase
Manhattan Bank with respect thereto; and
(b) pay or reimburse the Bank within five Business Days after
demand (subject to subsection 4.01(j)) for all reasonable costs and
expenses (including Attorney Costs) incurred by it in connection with
the enforcement, attempted enforcement, or preservation of any rights
or remedies under this Agreement or any other Loan Document during the
existence of an Event of Default or after acceleration of the Loans
(including in connection with any "workout" or restructuring regarding
the Loans, and including in any Insolvency Proceeding or appellate
proceeding).
9.05. Company Indemnification.
Whether or not the transactions contemplated hereby are consummated,
the Company shall indemnify, defend and hold the Bank and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including reasonable Attorney Costs but
excluding costs covered by Section 9.04(a)) of any kind or nature whatsoever
which may at any time (including at any time following repayment of the Loans)
be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action taken
or omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
any Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that the Company shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities to
the extent resulting from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive payment of all
other Obligations.
9.06. Payments Set Aside.
To the extent that the Company makes a payment to the Bank or the Bank
exercises its right of set-off, and such payment or the proceeds of such set-off
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required
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(including pursuant to any settlement entered into by the Bank in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then to the extent of
such recovery the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such set-off had not occurred.
9.07. Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Company may not assign or transfer any of its rights or
obligations under this Agreement without the prior written of the Bank.
9.08. Assignments, Participations, etc.
(a) The Bank may, with the consent of the Company (which consent
shall not be unreasonably be withheld) at any time assign and delegate
to an Eligible Assignee (an "Assignee") the Loans, the Commitment, and
the other rights and obligations of the Bank hereunder. Upon the making
of such an assignment the Assignee shall, for all purposes, be
considered the "Bank" under this Agreement.
(b) The Bank may at any time sell to one or more commercial banks
or other financial institutions not Affiliates of the Company (a
"Participant") participating interests in any ratable part (but not
all) of any Loans, the Commitment of the Bank and the other interests
of the Bank hereunder and under the other Loan Documents; provided,
however, that (i) the Bank's obligations under this Agreement shall
remain unchanged, (ii) the Bank shall remain solely responsible for the
performance of such obligations, (iii) the Company, shall continue to
deal solely and directly with the Bank in connection with the Bank's
rights and obligations under this Agreement and the other Loan
Documents, and (iv) the Bank shall not transfer or grant any
participating interest under which the Participant has rights to
approve any amendment to, or any consent or waiver with respect to,
this Agreement or any other Loan Document. In the case of any such
participation, the Participant shall not have any rights under this
Agreement, or any of the other Loan Documents, and all amounts payable
by the Company hereunder shall be determined as if the Bank had not
sold such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of
its participating interest in amounts owing under this Agreement to the
same extent as if the amount of its participating interest were owing
directly to it as a Bank under this Agreement.
(c) Notwithstanding any other provision in this Agreement, the
Bank may at any time create a security interest in, or pledge, all or
any portion of its rights under and interest in this Agreement in favor
of any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal
Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law.
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9.09. Confidentiality.
The Bank agrees to, and to take those steps reasonably required to
cause its Affiliates, representatives and independent contractors to, take
normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information provided to it or on its behalf by the
Company or any Subsidiary, under this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information other than
in connection with or in enforcement of this Agreement and the other Loan
Documents or in connection with other business now or hereafter existing or
contemplated with the Company or any Subsidiary; except to the extent such
information (i) was or becomes generally available to the public other than as a
result of disclosure by the Bank, or (ii) was or becomes available on a
non-confidential basis from a source other than the Company, provided that such
source is not bound by a confidentiality agreement with the Company known to the
Bank; provided, however, that the Bank may disclose such information (A) at the
request or pursuant to any requirement of any Governmental Authority to which
the Bank is subject or in connection with an examination of the Bank by any such
authority; (B) pursuant to subpoena or other court process provided the Company
is given prior notice of such process; (C) when required to do so in accordance
with the provisions of any applicable Requirement of Law provided the Company is
given prior notice of such process; (D) to the extent reasonably required in
connection with any litigation or proceeding to the Bank or its Affiliates may
be party; (E) to the extent reasonably required in connection with the exercise
of any remedy hereunder or under any other Loan Document; (F) to the Bank's
independent auditors and other professional advisors; (G) to any Participant or
Assignee, actual or potential, provided that such Person agrees in writing to
keep such information confidential to the same extent required of the Bank
hereunder; (H) as to the Bank or its Affiliate, as expressly permitted under the
terms of any other document or agreement regarding confidentiality to which the
Company or any Subsidiary is party or is deemed party with the Bank or such
Affiliate; and (I) to its Affiliates.
9.10. Set-off.
In addition to any rights and remedies of the Bank provided by law, if
an Event of Default exists and the Loans have been accelerated, the Bank is
authorized at any time and from time to time, without prior notice to the
Company, any such notice being waived by the Company to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, the Bank to or for the credit or the account
of the Company against any and all Obligations owing to the Bank, now or
hereafter existing, irrespective of whether or not the Bank shall have made
demand under this Agreement or any Loan Document and although such Obligations
may be contingent or unmatured. The Bank agrees promptly to notify the Company
after any such set-off and application made by the Bank; provided, however, that
the failure to give such notice shall not affect the validity of such set-off
and application.
9.11. Counterparts.
This Agreement may be executed in any number of separate counterparts,
each of which, when so executed, shall be deemed an original, and all of said
counterparts taken together shall be deemed to constitute but one and the same
instrument.
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9.12. Severability.
The illegality or unenforceability of any provision of this Agreement
or any instrument or agreement required hereunder shall not in any way affect or
impair the legality or enforceability of the remaining provisions of this
Agreement or any instrument or agreement required hereunder.
9.13. No Third Parties Benefited.
This Agreement is made and entered into for the sole protection and
legal benefit of the Company and the Bank, and their permitted successors and
assigns, and no other Person shall be a direct or indirect legal beneficiary of,
or have any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.
9.14. Governing Law and Jurisdiction.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE
BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY
AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO
THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY AND
THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS,
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY
DOCUMENT RELATED HERETO. THE COMPANY AND THE BANK EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
9.15. Waiver of Jury Trial.
THE COMPANY AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL
BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED
TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY, PARTICIPANT OR ASSIGNEE,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY
AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY
A COURT TRIAL WITHOUT A JURY. WITHOUT
-48-
<PAGE> 53
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
9.16. Termination of Existing Credit.
This Amended and Restated Credit Agreement amends, restates and
supersedes the Existing Credit Agreement. The Bank's commitment to make loans to
the Company pursuant to the terms of the Existing Credit Agreement is hereby
terminated. The Bank releases (a) any security interests in the assets of the
Company and its Subsidiaries granted by the Company to the Bank in connection
with the Existing Credit Agreement, and (a) the guarantees in favor of the Bank
given by the Subsidiaries that executed the Unlimited Guaranty dated May 5,
1995, except for the obligations of any Subsidiary Guarantor which have been
amended and restated in connection herewith.
9.17. Entire Agreement.
This Agreement, together with the other Loan Documents, embodies the
entire agreement and understanding among the Company and the Bank and supersedes
all prior or contemporaneous agreements and understandings of such Persons,
verbal or written, relating to the subject matter hereof and thereof.
-49-
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New Jersey by their proper and duly authorized
officers as of the day and year first above written.
Dendrite International, Inc.
By: /s/ George Robson
---------------------------
George Robson
Chief Financial Officer and Senior Vice
President
The Chase Manhattan Bank
By: /s/ Leonard D. Noll
----------------------------
Leonard D. Noll
Vice President
-50-
<PAGE> 55
SCHEDULES
Schedule 5.05 Disclosed Litigation
Schedule 5.12 Environmental Matters
Schedule 5.16 Subsidiaries and Minority Interests
Schedule 5.17 Insurance Matters
Schedule 7.01 Permitted Liens
Schedule 7.05 Permitted Indebtedness
Schedule 7.08 Contingent Obligations
Schedule 9.02 Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Revolving Loan Note
Exhibit D Form of Compliance Certificate
Exhibit E Form of Legal Opinion of Company's Counsel
<PAGE> 56
Schedule 5.05
Disclosed Litigation
1. Solvay Pharmaceuticals GmbH ("Solvay") v. Dendrite Netherlands
BV ("Dendrite").
a. Name of the court:
"Arrondissementsrechtbank's-Gravenhage".
b. The writ of summons was served upon Dendrite on April
24, 1998 to appear before the Court on May 12, 1998;
Solvay filed their statement of claim on September
15, 1998.
c. Parties: "Solvay Pharmaceuticals GmbH" and "Dendrite
Netherlands BV".
d. The claim is basically breach of contract, relief
sought:
*DM 1,604,900 - external costs (license fee,
adjustments, training, etc.)
*DM 88,300 - current external costs (maintenance)
*DM 1,137,300 - internal costs
*DM 340,000 - current internal costs
*DM 2,000,000 - lost profit
=total of DM 5,170,000 plus interest as from April
25, 1997
*NLG 10,000 - external judicial costs
*costs of the proceeding(s)
<PAGE> 57
Schedule 5.12
Environmental Matters
None
<PAGE> 58
Schedule 5.16
Subsidiaries and Minority Interests
See Attached
<PAGE> 59
Schedule 5.16
Subsidiaries and Minority Interests
1. Dendrite Delaware, Inc., a Delaware corporation
2. Dendrite Corporate Services, Inc., a New Jersey corporation
3. Dendrite UK Ltd., organized under the laws of the United Kingdom
4. Dendrite Japan K.K., organized under the laws of Japan
5. Dendrite Pty. Ltd., organized under the laws of Australia
6. Dendrite (New Zealand) Ltd., organized under the laws of New Zealand
7. Dendrite Netherlands, B.V., organized under the laws of the Netherlands
8. Dendrite France, S.A., organized under the laws of France
9. Dendrite Italia, S.r.l., organized under the laws of Italy
10. Dendrite (Deutschland) GmbH, organized under the laws of Germany
11. Dendrite Brasil Ltda., organized under the laws of Brazil
12. Dendrite Financial Services, Inc., a Delaware corporation
13. Dendrite Holdings Inc., a Delaware corporation
14. Dendrite Portugal, organized under the laws of Portugal
15. Dendrite Belgium S.A., organized under the laws of Belgium
16. Associated Business Computing N.V., organized under the laws of Belgium
17. Adem Information N.V., organized under the laws of Belgium
<PAGE> 60
Schedule 5.17
Insurance Matters
None
<PAGE> 61
Schedule 7.01
Permitted Liens
See Attached
<PAGE> 62
Schedule 7.01
Permitted Liens
1. Mortgage in favor of KBC Bank in Belgium on building owned by
Associated Business Computing N.V. located at Residentie Permeke, Baron de
Vironlaan 62 B6,1700 DILBEEK, BELGIUM in the outstanding principal amount of
11,682,115 B.F. (B.F. = Belgian Francs).
2. See attached list of additional liens.
<PAGE> 63
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 001
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
** DEBTOR **
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
HELLER FINANCIAL INC
500 WEST MONROE
CHICAGO, IL 60661
FILING NUM FILING DATE / TIME MAT DATE
1813681 01/27/1998 9:01 A.M. 01/27/2003
1815993 02/06/1998 9:01 A.M. 02/06/2003
COMMUNITY FIRST FINANCIAL INC
520 MAIN
FARGO, ND 58124
FILING NUM FILING DATE / TIME MAT DATE
1670645 12/07/1995 9:01 A.M. 12/07/2000
COMPUTER SALES INTERNATIONAL INC
10845 OLIVE BLVD STE 300
ST LOUIS, MO 63141-7760
FILING NUM FILING DATE / TIME MAT DATE
1671602 12/13/1995 9:01 A.M. 12/13/2000
1813680 01/27/1998 9:01 A.M. 01/27/2003
Continued on next page . . .
<PAGE> 64
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 002
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
** DEBTOR **
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
COMMUNITY FIRST FINANCIAL INC
520 MAIN AVENUE
FARGO, ND 58134-0001
FILING NUM FILING DATE / TIME MAT DATE
1676791 01/12/1996 9:01 A.M. 01/12/2001
1695743 05/03/1996 9:01 A.M. 05/03/2001
COMPUTER SALES INTERNATIONAL INC
10845 OLIVE BLVD SUITE 300
ST LOUIS, MO 63141-7760
FILING NUM FILING DATE / TIME MAT DATE
1822432 03/13/1998 9:01 A.M. 03/13/2003
1840361 06/03/1998 9:01 A.M. 06/03/2003
SANWA BUSINESS CREDIT CORP
ONE S WACKER DRIVE
CHICAGO, IL 60606
FILING NUM FILING DATE / TIME MAT DATE
1666212 11/06/1995 9:01 A.M. 11/06/2000
Continued on next page . . .
<PAGE> 65
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 003
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
** DEBTOR **
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
SANWA BUSINESS CREDIT CORP
ONE SOUTH WACKER DRIVE
CHICAGO, IL 60606
FILING NUM FILING DATE / TIME MAT DATE
1659286 09/27/1995 9:01 A.M. 09/27/2000
1659287 09/27/1995 9:01 A.M. 09/27/2000
1666326 11/06/1995 9:01 A.M. 11/06/2000
PITNEY BOWES CREDIT CORPORATION
201 MERRITT SEVEN
NORWALK, CT 06856
FILING NUM FILING DATE / TIME MAT DATE
1718004 08/21/1996 9:01 A.M. 08/21/2001
LDI CORPORATION
4770 HINCKLEY INDUSTRIAL PARKWAY
CLEVELAND, OH 44109
FILING NUM FILING DATE / TIME MAT DATE
1617399 02/07/1995 9:01 A.M. 02/07/2000
1620385 02/27/1995 9:01 A.M. 02/27/2000
1620388 02/27/1995 9:01 A.M. 02/27/2000
1627327 04/03/1995 9:01 A.M. 04/03/2000
1638942 06/09/1995 9:01 A.M. 06/09/2000
1671746 12/13/1995 9:01 A.M. 12/13/2000
Continued on next page . . .
<PAGE> 66
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 004
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
** DEBTOR **
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
FILING NUM FILING DATE / TIME MAT DATE
1671747 12/13/1995 9:01 A.M. 12/13/2000
1685237 03/04/1996 9:01 A.M. 03/04/2001
1685242 03/04/1996 9:01 A.M. 03/04/2001
1685779 03/06/1996 9:01 A.M. 03/06/2001
1687153 03/18/1996 9:01 A.M. 03/18/2001
1701500 06/04/1996 9:01 A.M. 06/04/2001
LDI CORP
4770 HINCKLEY INDUSTRIAL WAY
CLEVELAND, OH 44109
FILING NUM FILING DATE / TIME MAT DATE
1666214 11/06/1995 9:01 A.M. 11/06/2000
NATIONSCREDIT COMMERCIAL CORP
4770 HINCKLEY INDUSTRIAL PKWY
CLEVELAND, OH 44109
FILING NUM FILING DATE / TIME MAT DATE
1734083 11/19/1996 9:01 A.M. 11/19/2001
1734084 11/19/1996 9:01 A.M. 11/19/2001
NATIONSCREDIT COMMERCIAL CORPORATION
4770 HINCKLEY INDUSTRIAL PKWY
CLEVELAND, OH 44109
Continued on next page . . .
<PAGE> 67
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 005
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
** DEBTOR **
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
FILING NUM FILING DATE / TIME MAT DATE
1721696 09/13/1996 9:01 A.M. 09/13/2001
1743550 01/08/1997 9:01 A.M. 01/08/2002
NTFC CAPITAL CORPORATION
220 ATHENS WAY 5TH FLOOR
NASHVILLE, TN 37228-1314
FILING NUM FILING DATE / TIME MAT DATE
1806240 12/09/1997 9:01 A.M. 12/09/2002
LDI CORP
4770 HINCKLEY INDUSTRIAL WAY
CLEVELAND, OH 44109
FILING NUM FILING DATE / TIME MAT DATE
1628147 04/06/1995 9:01 A.M. 04/06/2000
THE CHASE MANHATTAN BANK NATIONAL ASSOCIATION
1 CHASE MANHATTAN PLAZA
NEW YORK, NY 10081
FILING NUM FILING DATE / TIME MAT DATE
1637386 05/31/1995 9:01 A.M. 05/31/2000
Continued on next page . . .
<PAGE> 68
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 006
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
** DEBTOR **
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
SANWA BUSINESS CREDIT CORP
ONE SOUTH WACKER DRIVE
CHICAGO, IL 60606
FILING NUM FILING DATE / TIME MAT DATE
1647208 07/21/1995 9:01 A.M. 07/21/2000
1647209 07/21/1995 9:01 A.M. 07/21/2000
LDI CORPORATION
4770 HINCKLEY INDUSTRIAL PARKWAY
CLEVELAND, OH 44109
FILING NUM FILING DATE / TIME MAT DATE
1677706 01/18/1996 9:01 A.M. 01/18/2001
1677707 01/18/1996 9:01 A.M. 01/18/2001
NATIONSCREDIT COMMERCIAL CORPORATION
4770 HINCKLEY INDUSTRIAL PARKWAY
CLEVELAND, OH 44109
FILING NUM FILING DATE / TIME MAT DATE
1735396 11/25/1996 9:01 A.M. 11/25/2001
Continued on next page . . .
<PAGE> 69
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 007
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
**DEBTOR**
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
SANWA BUSINESS CREDIT CORPORATION
ONE SOUTH WACKER DRIVE
CHICAGO, IL 60606
FILING NUM FILING DATE / TIME MAT DATE
1742460 01/03/1997 9:01 A.M. 01/03/2002
COMPUTER SALES INTERNATIONAL INC
10845 OLIVE BLVD SUITE 300
ST LOUIS, MO 63141-7760
FILING NUM FILING DATE / TIME MAT DATE
1813378 01/27/1998 9:01 A.M. 01/27/2003
1816705 02/11/1998 9:01 A.M. 02/11/2003
NATIONSCREDIT COMMERCIAL CORPORATION
4770 HINCKLEY INDUSTRIAL PARKWAY
CLEVELAND, OH 44109
FILING NUM FILING DATE / TIME MAT DATE
1776803 07/03/1997 9:01 A.M. 07/03/2002
HELLER FINANCIAL INC
500 WEST MONROE
CHICAGO, IL 60661
<PAGE> 70
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 008
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
**DEBTOR**
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
FILING NUM FILING DATE / TIME MAT DATE
1830238 04/17/1998 9:01 A.M. 04/17/2003
COMPUTER SALES INTERNATIONAL INC
10845 OLIVE BLVD SUITE 300
ST LOUIS, MO 63141-7760
FILING NUM FILING DATE / TIME MAT DATE
1825951 03/27/1998 9:01 A.M. 03/27/2003
1844657 06/23/1998 9:01 A.M. 06/23/2003
1848590 07/16/1998 9:01 A.M. 07/16/2003
1848591 07/16/1998 9:01 A.M. 07/16/2003
1859790 09/14/1998 9:01 A.M. 09/14/2003
COMPUTER SALES INTERNATIONAL INC
10845 OLIVE BLVD SUITE 300
ST LOUIS, MO 63141-7760
FILING NUM FILING DATE / TIME MAT DATE
1862333 09/28/1998 9:01 A.M. 09/28/2003
1864651 10/07/1998 9:01 A.M. 10/07/2003
1866152 10/15/1998 9:01 A.M. 10/15/2003
<PAGE> 71
DEPARTMENT OF TREASURY - DIVISION OF REVENUE
10/09/1998 UNIFORM COMMERCIAL CODE SECTION PAGE 009
09:01 PO BOX 303
TRENTON, NJ 08625
SEARCH CERTIFICATE
SEARCH CERTIFICATE # 527722
**DEBTOR**
DENDRITE INTERNATIONAL INC
1200 MOUNT KEMBLE AVE
MORRISTOWN, NJ 07960
THE UNDERSIGNED FILING OFFICER HEREBY CERTIFIES THAT THE ABOVE LISTING IS A
RECORD OF ALL PRESENTLY EFFECTIVE FINANCING STATEMENTS WHICH NAME THE ABOVE
DEBTOR AND WHICH ARE ON FILE IN MY OFFICE AS OF 9TH OCTOBER, 1998 AT 9:01 AM.
/s/ James A. DiEleuterio, Jr.
-----------------------------
James A. DiEleuterio, Jr.
TREASURER
** A LIST OF DEBTORS WHICH MAY BE OF INTEREST TO YOU IS ATTACHED
<PAGE> 72
[LOGO]
DEBTOR NAME: DENDRITE INTERNATIONAL, INC.
JURISDICTION: NJ - MORRIS COUNTY CLERK
FILE NUMBER: 038387 Original to 038387
FILE DATE: JUNE 5, 1995
SECURED PARTY: THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
FILE NUMBER: 096077 Original to 096077
FILE DATE: DECEMBER 11, 1995
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
FILE NUMBER: 096078 Original to 096078
FILE DATE: DECEMBER 11, 1995
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
FILE NUMBER: 043371 Amendment to 096078
FILE DATE: JUNE 3, 1996
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
FILE NUMBER: 053871 Assignment to 096078
FILE DATE: JULY 3, 1996
SECURED PARTY: COMMUNITY FIRST FINANCIAL CORPORATION
FILE NUMBER: 000818 Original to 000818
FILE DATE: JANUARY 4, 1996
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
FILE NUMBER: 079099 Amendment to 000818
FILE DATE: SEPTEMBER 18, 1996
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
<PAGE> 73
[LOGO]
FILE NUMBER: 085966 Assignment to 000818
FILE DATE: OCTOBER 9, 1996
SECURED PARTY: COMMUNITY FIRST FINANCIAL INC.
FILE NUMBER: 029846 Original to 029846
FILE DATE: APRIL 19, 1996
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
FILE NUMBER: 064147 Amendment to 029846
FILE DATE: AUGUST 5, 1996
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
FILE NUMBER: 071520 Assignment to 029846
FILE DATE: APRIL 19, 1998
SECURED PARTY: COMMUNITY FIRST FINANCIAL CORPORATION
FILE NUMBER: 108235 Original to 108235
FILE DATE: DECEMBER 24, 1996
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
FILE NUMBER: 022697 Amendment to 108235
FILE DATE: MARCH 25, 1997
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
FILE NUMBER: 048740 Assignment to 108235
FILE DATE: JUNE 19, 1997
SECURED PARTY: SWANA BUSINESS CREDIT CORPORATION
FILE NUMBER: 108236 Original to 108236
FILE DATE: DECEMBER 24, 1996
SECURED PARTY: COMPUTER SALES INTERNATIONAL, INC.
<PAGE> 74
[LOGO]
FILE NUMBER: 042978 Assignment to 108236
FILE DATE: JUNE 3, 1997
SECURED PARTY: COMMUNITY FIRST FINANCIAL INC.
FILE NUMBER: 001576 Original to 001576
FILE DATE: JANUARY 8, 1998
SECURED PARTY: SANWA BUSINESS CREDIT CORPORATION
FILE NUMBER: 003803 Original to 003803
FILE DATE: JANUARY 15, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 005996 Original to 005996
FILE DATE: JANUARY 23, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 029791 Amendment to 005996
FILE DATE: APRIL 3, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 043434 Assignment to 005996
FILE DATE: MAY 7, 1998
SECURED PARTY: HELLER FINANCIAL INC.
FILE NUMBER: 005997 Original to 005997
FILE DATE: JANUARY 23, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 033584 Amendment to 005997
FILE DATE: APRIL 15, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
<PAGE> 75
[Logo]
FILE NUMBER: 006860 Original to 006860
FILE DATE: JANUARY 27, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 008036 Original to 008036
FILE DATE: JANUARY 30, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 012281 Original to 012281
FILE DATE: FEBRUARY 13, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 016597 Original to 016597
FILE DATE: FEBRUARY 26, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 051091 Amendment to 016597
FILE DATE: MAY 28, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 022342 Original to 022342
FILE DATE: MARCH 13, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 028672 Original to 028672
FILE DATE: APRIL 1, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 050392 Original to 050392
FILE DATE: MAY 27, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
<PAGE> 76
[Logo]
FILE NUMBER: 105535 Amendment to 050392
FILE DATE: OCTOBER 16, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 059205 Original to 059205
FILE DATE: JUNE 17, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 065835 Original to 065835
FILE DATE: JULY 6, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 104453 Amendment to 065835
FILE DATE: OCTOBER 14, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 065836 Original to 065836
FILE DATE: JULY 6, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 104454 Amendment to 065836
FILE DATE: OCTOBER 14, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 088252 Original to 088252
FILE DATE: AUGUST 28, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 094177 Original to 094177
FILE DATE: SEPTEMBER 15, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
<PAGE> 77
[Logo]
FILE NUMBER: 99149 Original to 99149
FILE DATE: SEPTEMBER 29, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 102758 Original to 102758
FILE DATE: OCTOBER 8, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
FILE NUMBER: 105536 Original to 105536
FILE DATE: OCTOBER 16, 1998
SECURED PARTY: COMPUTER SALES INTERNATIONAL
994848/010-lge
<PAGE> 78
Schedule 7.05
Permitted Indebtedness
See Attached
<PAGE> 79
Schedule 7.05
Permitted Indebtedness
1. The Company escrows the source code for its products from time to time as
part of escrow arrangements it enters into with customers in the ordinary course
of business.
2. Mortgage in favor of KBC Bank in Belgium on building owned by Associated
Business Computing N.V. located in Residentie Permeke, Baron de Vironlaan 62 B6,
1700 DILBEEK, BELGIUM in the outstanding principal amount of 11,682,115 B.F.
(B.F. - Belgian Francs).
<PAGE> 80
Schedule 7.08
Contingent Obligations
See Attached
<PAGE> 81
Schedule 7.08
Contingent Obligations
1. From time to time the Company is required to guaranty the obligations of
its Subsidiaries with respect to customer contracts.
<PAGE> 82
Schedule 9.02
Addresses for Notices
The Company:
Dendrite International, Inc.
1200 Mount Kemble Avenue
Morristown, New Jersey 07960
Fax No: 973-425-2343
Attention: George Robson, Chief Financial Officer and
Senior Vice President
Christine Pellizzarri, Esq.
The Bank:
The Chase Manhattan Bank
East 36 Midland Avenue
Paramus, New Jersey 07652
Fax No: 201-599-6824
Attention: Leonard D. Noll
<PAGE> 83
EXHIBIT A
FORM OF NOTICE OF BORROWING
To: The Chase Manhattan Bank
Ladies and Gentlemen:
The undersigned, Dendrite International, Inc. (the "Company"), refers
to the Credit Agreement between the undersigned and The Chase Manhattan Bank
dated November 30, 1998 ("the Credit Agreement"), the terms defined therein
being used herein as therein defined, and hereby gives you notice irrevocably,
pursuant to Section 2.03 of the Credit Agreement, of the Borrowing specified
below:
1. The Business Day of the proposed Borrowing is __________, 19__.
2. The aggregate amount of the proposed Borrowing is $____________.
3. The Borrowing is to be comprised of $___________ of [Base Rate]
[Offshore Rate] Loans.
4. The duration of the Interest Period for the Offshore Rate Loans
included in the Borrowing shall be [________ months].
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the proposed Borrowing,
before and after giving effect thereto and to the application of the proceeds
therefrom:
(a) the representations and warranties of the Company
contained in the Credit Agreement are true and correct as though made
on and as of such date (except to the extent such representations and
warranties relate to an earlier date, in which case they are true and
correct as of such date);
(b) no Default or Event of Default has occurred and is
continuing, or would result from such proposed Borrowing; and
<PAGE> 84
(c) The proposed Borrowing will not cause the aggregate
principal amount of all outstanding Revolving Loans to exceed the
Commitment.
Dendrite International, Inc.
By:___________________________
Name:
Title:
<PAGE> 85
EXHIBIT B
FORM OF NOTICE OF CONVERSION/CONTINUATION
Date:_________, 19__
To: The Chase Manhattan Bank
Ladies and Gentlemen:
The undersigned, Dendrite International, Inc. (the "Company"), refers
to the Credit Agreement between the undersigned and the Chase Manhattan Bank
dated November 30, 1998 (the "Credit Agreement"), the terms defined therein
being used herein as therein defined, and hereby gives you notice irrevocably,
pursuant to Section 2.04 of the Credit Agreement, of the Borrowing specified
below:
(1) $______ of the presently outstanding principal amount of the
Revolving Loans,
(2) and all presently being maintained as [Base Rate Loans] [Offshore
Rate Loans with Interest Periods ending on ____________, _____],
(3) be [converted into] [continued as],
(4) [Offshore Rate Loans having an Interest Period of [one] [two]
[three] [six] month(s) [Base Rate Loans].
Dendrite International, Inc.
By:_________________________
Name:
Title:
<PAGE> 86
EXHIBIT C
FORM OF REVOLVING LOAN NOTE
Revolving Loan Note
November 30, 1998
$________________
Dendrite International, Inc. (the "Company"), for value received,
hereby promises to pay to the order of the Chase Manhattan Bank (the "Bank"), in
lawful money of the United States of America and in immediately available funds,
the principal sum of ______________ ($____________) Dollars or such lesser
unpaid principal amount as shall be outstanding hereunder, together with
interest from the date hereof on the unpaid principal balance of this Note,
payable on the dates and with interest at the rate provided for in the Credit
Agreement dated as of November 30, 1998 by and between the Company and the Bank,
as the same may be amended from time to time (the "Agreement"). Interest on any
amounts outstanding under this Note shall accrue at the rate provided for in the
Agreement. In no event shall the interest rate payable hereon exceed the maximum
rate of interest permitted by law. Capitalized terms used herein, which are
defined in the Agreement, shall have the meanings therein defined. This Note is
the Revolving Loan Note referred to in the Agreement, and is entitled to the
benefits and is subject to the terms of the Agreement. This Note is repayable in
the amounts and under the circumstances, and its maturity is subject to
acceleration upon the terms, set forth in the Agreement. In the event of any
conflict between the terms of this Note and the terms of the Agreement, the
terms of the Agreement shall control. Presentment for payment, demand, notice of
dishonor, protest, notice of protest and all other demands and notices in
connection with the delivery, performance, and enforcement of this Note are
hereby waived. Upon the occurrence of any Event of default specified in the
Agreement, all amounts then remaining unpaid on this Note may, pursuant to the
Agreement, be declared to be immediately due and payable, all as provided in the
Agreement. This Note shall be construed and enforceable in accordance with, and
be governed by the internal laws of, the State of New York. This Note may not be
changed orally, but only by an instrument in writing executed pursuant to the
provisions of the Agreement.
Dendrite International, inc.
By:__________________________
Name:
Title:
<PAGE> 87
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
Reference is made to the certain Credit Agreement dated as of
November 30, 1998 (as from time to time amended, extended, restated, modified or
supplemented, the "Credit Agreement"; capitalized terms used herein shall have
the meaning assigned to them in the Credit Agreement), between Dendrite
International, Inc. (the "Company") and The Chase Manhattan Bank (the "Bank").
The undersigned Responsible Officer hereby certifies, in his
capacity as a Responsible Officer, as of the date that he/she is the
____________ of the Company, and that, as such, is authorized to execute and
deliver this Certificate to the Bank on behalf of the Company, and that:
(a) The Leverage Ratio as of _________________ was _____________
__________________ and was based on the following financial covenant analyses,
which are true and accurate in all material respects on and as of the date of
this Certificate.
[insert analysis]
The maximum permissible Leverage Ratio determined at the end of
any fiscal quarter is 2.50 to 1.00.
(b) The Interest Coverage Ratio as of ______________ was
____________________ and was based on the following financial covenant analyses,
which are true and accurate in all material respects on and as of the date of
this Certificate.
[insert analysis]
The minimum permissible Interest Coverage Ratio as determined at
the end of any fiscal quarter is 3.00 to 1.00.
(c) The Current Ratio of _________________ was
__________________ and was based on the following financial covenant analyses,
which are true and accurate in all material respects on and as of the date of
this Certificate.
[insert analysis]
The minimum permissible Current Ratio at any time is 1.25 to 1.00.
<PAGE> 88
(d) The Net Worth as of _________________ was __________________
and was based on the following financial covenant analyses, which are true and
accurate in all material respects on and as of the date of this Certificate.
[insert analysis, together with analysis setting forth the
calculation of the minimum permissible Net Worth set forth in
Subsection 7.12(d) of the Credit Agreement]
(e) Since the Closing Date, the EBIT has not been less than $0 for
any fiscal year.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
as of _____________, 199__.
Dendrite International, Inc.
By:______________________
Name:
Title:
<PAGE> 89
EXHIBIT E
FORM OF LEGAL OPINION OF COMPANY'S COUNSEL
See Attached
<PAGE> 90
November 30, 1998
The Chase Manhattan Bank
East 36 Midland Avenue
Paramus, New Jersey 07652
We have acted as counsel to Dendrite International, Inc., a New Jersey
corporation (the "Borrower") and Dendrite Delaware Inc., a Delaware corporation
(the "Guarantor") in connection with the Credit Agreement, dated as of the date
hereof (the "Credit Agreement") between the Borrower and the Chase Manhattan
Bank, a New York-chartered banking association (the "Lender"). This letter is
submitted at our client's request pursuant to Section 4.01(i) of the Credit
Agreement.
In connection with rendering the opinions set forth below, we have
examined executed copies of the following documents (referred to herein as the
"Loan Documents"):
(i) the Credit Agreement;
(ii) the Revolving Loan Note dated as of the date hereof executed by the
Borrower (the "Revolving Loan Note"); and
(iii) the Subsidiary Guaranty (the "Subsidiary Guaranty") dated as of the
date hereof from the Guarantor in favor of the Lender.
We have also reviewed originals or copies, certified or otherwise
identified to our satisfaction, of the following:
(i) the Certificate of Incorporation of the Borrower and all amendments
thereto;
(ii) the By-laws of the Borrower and all amendments thereto;
(iii) a Certificate of the Treasurer of the State of New Jersey, dated
October 19, 1998, certifying that the Borrower is in good standing
in the State of New Jersey;
(iv) the Certificate of Incorporation of the Guarantor and all amendments
thereto;
(v) the By-laws of the Guarantor and all amendments thereto
<PAGE> 91
The Chase Manhattan Bank
Page 2
(vi) Certificate of the Secretary of State of the State of Delaware
dated October 16, 1998 certifying that the Guarantor is in good standing in the
State of Delaware;
(vii) the Secretary's Certificate, dated as of the date hereof, as to
corporate matters, executed by the Secretary of the Borrower; and
(viii) the Secretary's Certificate dated as of the date hereof, as to
corporate matters, executed by the Secretary of the Guarantor (Sections (vii)
and (viii) hereto are collectively referred to as the "Certificates.")
In rendering the opinions set forth below we have, with your consent,
assumed:
(a) the genuineness of all signatures of, and the authority of, the
persons signing the Loan Documents, the Certificates and the other documents on
behalf of the parties thereto, other than the signatures of the Borrower and the
Guarantor;
(b) the authenticity of all documents submitted to us as originals and the
conformity to the authentic original documents of all documents submitted to us
as copies;
(c) the due execution and delivery pursuant to due authorization of the
Loan Documents by the parties thereto other than the Borrower and the Guarantor,
and that the Lender has all corporate and legal power and authority necessary to
execute, deliver and perform its obligations under the Loan Documents and all
other documents and instruments executed and delivered by the Lender and that
such documents and instruments constitute the legal, valid and binding
obligation of the Lender enforceable against the Lender in accordance with their
respective terms;
(d) the legal capacity of natural persons;
(e) the correctness and accuracy of all facts set forth in all
certificates (including, without limitation, the Certificates) and reports
reviewed by us;
(f) that, to the extent that certain standards of conduct may be imposed
as a matter of law on the Lender as a condition to or as a requirement for the
enforceability of the Loan Documents (including, without limitation, any
requirement that the Lender act reasonably, in good faith, in a
commercially-reasonable manner, or otherwise in compliance with applicable law),
the Lender will comply with such standards of conduct, whether or not any other
action is permitted under the Loan Documents;
(g) the Lender is relying on the Subsidiary Guaranty and would not make
the loans evidenced by the Revolving Loan Note in the absence of the same;
<PAGE> 92
The Chase Manhattan Bank
Page 3
(h) the delivery or availability to or for the benefit of the Borrower at
or before the closing of the funds to be loaned pursuant to the Credit
Agreement; and
(i) the Lender is a New York-chartered banking association and is not
acquiring the Revolving Loan Note with a view to distribution.
As to questions of fact material to our opinions, we have not
independently established the relevant facts but instead we have relied solely
upon representations of the Borrower and the Guarantor.
We are members of the bar of the State of New Jersey and we do not express
any opinion as to any matters governed by any laws other than the laws of the
State of New Jersey, the federal laws of the United States of America and the
General Corporation Law of the State of Delaware.
Based upon the foregoing and such legal considerations as we have deemed
necessary, and subject to the qualifications and limitations hereinafter set
forth, we are of the opinion that:
1. The Borrower is a corporation validly existing and in good standing
under the laws of the State of New Jersey.
2. The Guarantor is a corporation validly existing and in good standing
under the laws of the State of Delaware.
3. The Borrower has the corporate power and corporate authority to enter
into and perform its obligations under the Loan Documents to which it is a
party.
4. The Guarantor has the corporate power and corporate authority to enter
into and perform its obligations under the Loan Documents to which it is a
party.
5. Each of the Loan Documents to which the Borrower is a party has been
duly authorized by all necessary corporate action on the part of the Borrower
and constitutes the valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with its respective terms.
6. Payment by the Borrower of the interest charged under the Credit
Agreement and the Revolving Loan Note will not violate any usury laws of the
State of New Jersey or the United States of America. The opinion expressed in
the preceding sentence is qualified by reference to N.J.S.A. 2C:21-19, which
provides, among other things, that a person who makes a loan to a corporation at
a rate exceeding 50% per annum is guilty of a criminal usury. In light of the
fact that the payments required to be made by Borrower may fluctuate and may
also require the Borrower to pay interest on interest, we do not express any
opinion as to whether such payments would violate such criminal usury statute.
<PAGE> 93
The Chase Manhattan Bank
Page 4
7. The Subsidiary Guaranty has been duly authorized by all necessary
corporate action on the part of the Guarantor and constitutes the valid and
binding obligation of the Guarantor enforceable in accordance with its terms.
8. The execution, delivery and performance of the Loan Documents by the
Borrower and the Guarantor does not require the consent or approval of, or other
action by or filing with, any state or federal governmental body or other
regulatory authority and are not in contravention of or in conflict with any New
Jersey or federal law or regulation having applicability to the Borrower or the
Guarantor as presently in effect and interpreted, or any term or provision of
either the Borrower's or Guarantor's Certificate of Incorporation or By-laws as
the case may be.
9. The execution, delivery and performance of the Loan Documents will not
breach or constitute a default under, or grounds for the acceleration of the
maturity of, any agreement, indenture, undertaking or other instrument of which
we are aware, to which the Borrower or the Guarantor are a party or by which
they or any of their property may be bound or affected, nor will the execution,
delivery and performance result in the creation or imposition of (or the
obligation to create or impose) any lien, charge or encumbrance on, or security
interest in, any of their property pursuant to the provisions of any of the
foregoing, other than in favor of the Lender; nor will the execution, delivery
or performance of the Loan Documents conflict with or result in the violation of
any judgment, order or decree of any court or arbiter, of which we are aware, to
which the Borrower or the Guarantor is a party.
10. We are not aware of any material pending or threatened lawsuits or
claims against or affecting the Borrower or the Guarantor or their property.
11. It is not necessary, in connection with the making and delivery of the
Revolving Loan Note under the circumstances contemplated by the Credit
Agreement, to register the Revolving Loan Note under the Securities Act of 1933,
as amended, or under any securities or "Blue Sky" laws, or to qualify an
indenture with respect to the Revolving Loan Note under the Trust Indenture Act
of 1939, as amended.
The foregoing opinions are subject to the following qualifications:
(a) the validity, enforceability, binding effect and performance of any
provisions of the Loan Documents and of any rights granted pursuant thereto may
be limited or otherwise subject to the effect of (i) any applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent conveyance or
transfer or other similar laws affecting creditors' rights generally, (ii)
general principles of equity (regardless of whether considered in a proceeding
in equity or at law), including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and (iii) any statute or public
policy limiting the right to waive or otherwise not to seek or enforce the
benefits of statutory provisions or of common law rights;
<PAGE> 94
The Chase Manhattan Bank
Page 5
(b) the opinions expressed herein are limited to the laws of the State of
New Jersey, the federal laws of the United States of America and the General
Corporation Law of the State of Delaware and we express no opinion on the laws
of any other jurisdiction.
The foregoing opinions are based upon the following further assumptions
and are subject to the following further exceptions, qualifications and
limitations:
A. This opinion is given as of the date hereof and is necessarily limited
to the laws and judicial decisions now in effect and the facts and circumstances
currently brought to our attention. We are under no obligation and we assume no
responsibility for updating our opinion including, without limitation, any
updating to take into account any event, action, interpretation, or similar item
after the date hereof.
B. Courts of applicable jurisdiction may exercise discretion to grant or
deny equitable remedies such as specific performance or injunctive relief.
C. We express no opinion with respect to (i) any particular provisions of
or enforcement of the Loan Documents which may be limited by defenses such as
estoppel, waiver and other equitable considerations, or matters of public
policy, or (ii) any provisions of the Loan Documents which waive or limit any
rights to notice, or which in each case waive various rights of the Borrower or
Guarantor which cannot be waived under applicable law.
D. No opinion is expressed as to the enforceability under certain
circumstances of any provisions in the Loan Documents to the effect that failure
to exercise or delay in exercising rights or remedies has not or will not
operate as a waiver of any such right.
E. We express no opinion as to the enforceability of any indemnification
provision of any of the Loan Documents where the indemnitee has engaged in any
act or omission of negligence, misconduct or bad faith.
F. This opinion is limited to the matters expressly stated herein and no
opinion is implied or may be inferred beyond the matters expressly stated.
G. As used in this opinion letter, the phrase "we are not aware of" or
similar phrase means the awareness of the attorneys in this firm who have had
active involvement in the preparation of this opinion letter.
H. This opinion letter is provided to you as a legal opinion only, and not
as a guaranty or warranty of the matters discussed herein.
This opinion is provided solely to Chase Manhattan Bank in connection with
the closing of the Loan Documents. Without the prior written consent of this
firm, this opinion may not be quoted in whole or in part or otherwise referred
to in any other document or be relied upon in
<PAGE> 95
The Chase Manhattan Bank
Page 6
whole or in part by any person or entity other than Chase Manhattan Bank;
provided, McCarter & English may rely on this opinion in connection with its
representation of Chase Manhattan Bank in connection with the closing of the
Loan Documents.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
<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.,
January 26, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John E. Bailye, George T. Robson and Christopher
J. French, and each of them as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to the Registration Statement, or a
Registration Statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done as fully to all
extents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ JOHN E. BAILYE
- ---------------------------------------------------
John E. Bailye Chief Executive Officer, President and Director
/s/ GEORGE T. ROBSON
- --------------------------------------------------- Senior Vice President and Chief Financial
George T. Robson Officer
/s/ BERNARD M. GOLDSMITH
- ---------------------------------------------------
Bernard M. Goldsmith Director
/s/ EDWARD J. KFOURY
- ---------------------------------------------------
Edward J. Kfoury Director
/s/ PAUL A. MARGOLIS
- ---------------------------------------------------
Paul A. Margolis Director
/s/ JOHN H. MARTINSON
- ---------------------------------------------------
John H. Martinson Director
/s/ TERENCE H. OSBORNE
- ---------------------------------------------------
Terence H. Osborne Director
</TABLE>
