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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
Exchange Act of 1934
For the fiscal year ended December 31, 1999
[ ]TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
Exchange Act of 1934
For the transition period from
Commission File Number 0-26138
Dendrite International, Inc.
(Exact name of registrant as specified in its Charter)
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New Jersey 22-2786386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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1200 Mt. Kemble Avenue
Morristown, NJ 07960-6797
973-425-1200
(Address, including zip code, and telephone number (including
area code) of registrant's principal executive office)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class
Common Stock, no par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter time period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of the Common Stock held by
nonaffiliates of the registrant was approximately $679,948,122 based upon the
closing price of the Common Stock on March 15, 2000, which was $21.00. The
number of shares of Common Stock outstanding on that date was 38,957,422.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART
Registrant's Notice of Annual Meeting of Shareholders and
Proxy Statement for the 2000 fiscal year expected to be filed III
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on or about April 5, 2000.
Note: The reader should be aware that, unless otherwise indicated, for
purposes of this Form 10-K, all share and per share data have been
adjusted to reflect a three-for-two stock split of Dendrite's common
stock, which became effective on October 8, 1999. Dendrite(R),
Catalyst(TM), ForceAnalyzeRx(TM), ForceCompanion(TM), ForceOne(R),
ForcePharma (TM), J Force(TM), Medicheck (TM), SalesPlus(TM), ScripMax
(TM), Series 4(TM), Series 5(TM), Series 6(TM), and Voyager (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. The Company
and any of its U.S. or international subsidiaries are sometimes
collectively referred to herein as "Dendrite," "we," "our" or "the
Company."
PART I
ITEM 1. BUSINESS.
GENERAL
Dendrite International, Inc. is a leading worldwide supplier of a
comprehensive range of sales force software products and support services to
the pharmaceutical industry. We design, develop and sell comprehensive customer
relationship management sometimes called CRM solutions that enable customers
to effectively manage the activities of large sales forces in complex selling
environments. These solutions also permit customers to coordinate diverse home
office functions, such as distribution of product literature, sales call
follow-up activities and organization of educational programs.
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 given us a
commanding position in this portion of our target market. We are presently the
world's largest supplier of customer relationship management solutions to the
prescription-only pharmaceutical industry based on the number of sales
representatives we support. In the fourth quarter of 1998 we announced our
global reach strategy which expanded our target market to mid-size
pharmaceutical companies as well as to subsidiaries in emerging markets. Our
customers' sales forces now range in size from as few as 50 representatives in
smaller European countries to several thousand representatives in the United
States.
Our solutions enable our pharmaceutical customers to maximize the return on
the investments made conducting sales calls to physicians and improves the
profitability of their operations by allowing them to:
- analyze prescriber patterns to target physicians to ensure the delivery
of the right message at the right time;
- coordinate the activities and sales call content of multiple sales forces
calling on the same physicians;
- provide integrated data from multiple sources quickly to direct
individual sales representatives;
- provide technical and support services to maximize the selling time of
the sales representatives; and
- provide Internet-based training and meetings to minimize out of territory
time of the sales representatives.
We also supply our solutions to manufacturers of consumer packaged goods.
Our consumer packaged goods or CPG products are targeted at manufacturers whose
sales representatives call on retail outlets and 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 products can integrate sales information from a number of data
sources. By using our products, consumer packaged goods manufacturers can
measure the effect of their promotions activities and can effectively plan and
execute sales strategies in ways that bring them significant competitive
benefits.
Our pharmaceutical customers include: Allergan; Aventis; Block;
Bristol-Meyers Squibb; Eli Lilly; Forrest; Johnson & Johnson; Kissei; Novo
Nordisk; Parke-Davis; Pfizer; Savage; Searle; SmithKline Beecham; Solvay;
Takeda; and 3M. Our customers in the consumer packaged goods market include:
Bacardi-Martini; Federal Express; Gillette; and Rayovac.
Our current offering of sales force software products includes:
ForcePharma; Catalyst; Voyager; SalesPlus; J Force; Force Companion; Medicheck;
ForceOne; ForceAnalyzeRx; ScripMax and WebSessions, each of which is described
below under "Products and Services."
We also offer a broad range of support services that enable our customers
to maximize the effectiveness of our software products. These services include
software configuration and implementation, technical and hardware support,
sales force support and data integration and analysis. We typically provide
these services under multi-year agreements.
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We develop and market a comprehensive range of sales force solutions
consisting of software products and a wide range of support services. These
solutions, among other things, enable our customers to:
- centralize data to maintain a history of all contacts with each
physician;
- target specific physicians with specific messages;
- realign sales territories;
- reallocate sales personnel on a customer or formulary basis;
- share data among sales representatives calling on the same physician;
and
- redeploy sales and marketing resources more rapidly and more precisely.
Our sales force software products integrate and process large volumes of
time-sensitive sales-related data for use in developing sales strategies and
campaigns. Our current sales force software product offerings allow customers to
select many different combinations of features for different types of sales
forces. Our current product offerings typically do not require customization
(i.e., modification of source code) in order to be implemented, however, they
are generally significantly configured to address data, market and other
specific customer requirements.
We price our sales force software products based on the geographic area in
which a customer uses our software product, the software configuration and the
total number of users. We also charge additional up front fees to configure and
install the software and to train the sales representatives as well as annual
fees for continuing services and project specific fees.
PHARMACEUTICAL SALES FORCE SOFTWARE PRODUCTS
Our pharmaceutical sales force software products are designed to provide
information to those involved in sales and sales management and also to 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.
We currently offer our pharmaceutical customers 4 primary software
products: ForcePharma; Catalyst; SalesPlus; and J Force. We also offer our
pharmaceutical customers 3 additional Windows CE(TM)-based software products
known as Force Companion, Voyager and Medicheck.
FORCEPHARMA. ForcePharma is our sales force management software product
targeted at large multinational pharmaceutical customers. ForcePharma can be
configured to support sales representatives and managers at all levels within a
sales organization. The ForcePharma product can also be configured to address a
customer's specific business requirements, including the creation of new data
structures. New functions, which integrate fully with the existing
configuration, can be added over time, therefore allowing the customer to
acquire a system that is capable of evolving as the customer's business
requirements change. A typical major pharmaceutical customer will select a
configuration depending on the structure of the customer's sales force, the
geographic region involved and the type of pharmaceutical sales data available.
Each function is offered with specific continuing support services. The
ForcePharma software product can be combined with a number of our other CRM
tools to enhance its value to the customer.
CATALYST. Our Catalyst product provides a suite of comprehensive SFE tools
tailored to the specific needs of mid-size pharmaceutical, medical device,
biopharmaceutical, biotechnology, and contract sales organizations. Catalyst's
flexible architecture and application development tools permit extensive
configuration to meet a customer's unique business requirements and subsequent
implementation within condensed time frames. Through the integration of
third-party sales data, comprehensive opportunity and contact management
functionality and sophisticated targeting capabilities, Catalyst empowers
healthcare product sales organizations with critical customer intelligence. Like
ForcePharma, Catalyst uses object-oriented programming technology and can be
configured for all user levels within a sales organization.
SALESPLUS. SalesPlus is marketed to mid-tier European pharmaceutical
companies. We configure SalesPlus prior to sale, which saves our customers the
time and costs associated with configuration. This product is offered to those
pharmaceutical customers whose business needs do not require all of the features
of the ForcePharma product. Like ForcePharma, this product supports all levels
within a sales organization.
J FORCE. Our J Force product was specifically developed for the Japanese
market and contains functionality similar to that of ForcePharma. J Force is
highly configured and has graphical user interface and local market requirements
that reflect the unique characteristics of the Japanese prescription-only
pharmaceutical market.
FORCE COMPANION. Force Companion, our Windows CE(TM)-based companion
software, is designed to work in conjunction with Force Pharma and provides
sales representatives with access to critical client information at the point of
contact and allows for
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remote information capture and subsequent synchronization with Force Pharma.
VOYAGER. Voyager, a Windows CE(TM)-based handheld application provides
robust functionality comparable to many laptop applications at a reduced cost.
Optimized for growth-focused organizations of all sizes that require greater
portability, instant data access and lower cost of hardware ownership, Voyager
provides comprehensive functionality, two- or three-tier synchronization
capabilities, and a common enterprise architecture with Catalyst. Voyager
enables organizations to increase sales effectiveness by delivering and
capturing information at the prescriber point of contact and enabling sales
representatives to effectively and timely target prescribers.
MEDICHECK. Medicheck, a Windows CE(TM)-based palm-top solution, is used by
pharmaceutical company sales representatives in emerging markets where highly
portable, lower cost hardware is essential. The multiple module palm-top system
replaces paper based systems and permits information sharing among multiple
levels within a sales organization.
CPG INDUSTRY PRODUCT
Our CPG software product is generally configured in a manner similar to our
pharmaceutical software products.
FORCEONE. Force One is our sales force software product for the consumer
packaged goods or CPG markets and is sold in Europe, the United States and
Canada. 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, however, to date this market segment has outsourced
very few ongoing support services.
ANALYTICAL TOOLS
We currently offer certain analytical software and reporting tools under
the ForceAnalyzeRx and ScripMax product names, which may be used either with our
sales force software products or on a stand-alone basis. These software products
allow users to analyze data, such as prescription trends, and produce reports
based on the results of these analyses. These products also provide customers
with timely information that they can use in developing sales strategies. The
custom applications that we design with these products address a wide variety of
client business needs including sales, market research, clinical trials, new
product launch analyses and sales reporting.
Additional capabilities of these analytical products include the ability
to: predict prescriber switching allowing early intervention to encourage or
forestall a change in prescribing behavior; provide detailed analysis of the
effectiveness of various promotional activities; provide promotional activity
optimization solutions; and deliver the results of such analysis to the user via
e-mail or over the Internet.
SERVICES
Our customers generally enter into agreements covering software
implementation, technical and hardware support and sales force support services.
We also provide data related services including: data scrubbing; match, merge
and purge activities; and a variety of data analysis services. Virtually all
customers sign a software maintenance agreement that covers, among other things,
software defect resolution.
For the year ended December 31, 1999, service revenues represented
approximately 86% of our total revenues. As a result of providing these ongoing
services, we have developed long-term strategic relationships with our
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 and variety 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 and market research databases being
integrated and manipulated by our software products require highly specialized
information systems skills, particularly as new sources of data must be
integrated. The creation of a customer's database requires loading third party
data onto a central server or servers and encoding that data with proprietary
Dendrite data links. This encoding process allows the data to be integrated into
a functional sales-related database used by our sales force software products.
We initially perform these services during installation and, if requested, may
continue to manage these information
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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 a full range of support services to all of our customers. However,
because customers of our SalesPlus, Medicheck, and ForceOne products often
require less functionality, we expect the amount of support services for these
customers to be less than the amount provided to customers of our other
products.
The principal categories of services we offer are implementation services,
technical and hardware support services and sales force support services.
IMPLEMENTATION SERVICES. Our implementation services include: the
configuration, if applicable, and implementation of our sales force software
products to meet customer requirements; creation of the customer's specific
version of our data model; creation of the customer's integrated database; the
loading of data onto the customer's remote computer hardware and training
customer employees on use and capabilities of Dendrite sales force software
products.
TECHNICAL AND HARDWARE SUPPORT SERVICES. Our technical and hardware support
service offerings consist of: the management of technical support for Dendrite
sales force software products; customization of source code, if applicable, to
meet the customer's needs; continued support of the customer's database,
including: loading and linking new releases of third party data purchased by the
customer; identifying new functional segments for data analysis; providing
software defect resolution and issuing performance enhancements; feature changes
and, in certain circumstances, new versions of products; operation and
maintenance of server computers; providing asset control and maintaining remote
computer hardware, including recapture of data on defective equipment and
replacement of defective equipment; and developing business interruption plans
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.
SALES FORCE SUPPORT SERVICES. Our sales force support services include:
project management; providing ongoing training on use and capabilities of
Dendrite sales force software products; assisting the customer in planning and
executing realignments of sales territories or functional (e.g.,
formulary-based) segments to allow more effective resource allocation; providing
direct customer service telephone support for Dendrite sales force and certain
third party software products (available seven days a week and in many foreign
languages); providing pro-active prescription data analysis at a territory and
physician level to a customer's sales representatives to improve sales and
promotional campaigns, and providing data integration and data management
services with data our customers obtain from third party sources.
When a large customer licenses a Dendrite sales force software product, we
typically establish an implementation services and ongoing support group focused
on that customer, as well as a separate support service group composed of both
customer support and technical support personnel who are primarily dedicated to
servicing that customer. However, for customers with smaller sales forces or
sales forces with specialized needs, such as non-home country language
capability, the service group may have responsibility for more than one client.
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. Depending upon the size of the customer and the scope of services to
be performed, a dedicated service group may be comprised of 5 to 100 persons.
SOFTWARE CONFIGURATION
Our pharmaceutical sales force software products are configured to allow
information access and communication among geographically dispersed sales and
marketing personnel and regional and home offices. The core of the configuration
is a central database server, which stores the customer information and
integrates and controls all data flow from external points. Most of the servers
used by our customers are manufactured by IBM, Compaq, Hewlett-Packard or Sun
Microsystems and run on UNIX(TM) or Windows NT(R) operating systems. Servers are
purchased or leased by Dendrite's customers or leased for them by Dendrite. Some
smaller customers lease space on our servers located in various offices
worldwide.
Remote databases are stored on laptop and palm-top computers used by sales
representatives in the field and updated regularly 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.
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Our pharmaceutical sales force software products permit a sales
representative to send updated information to the central database server.
Similarly, the sales representative can receive information concerning upcoming
calls as well as additional sales efforts planned by other sales representatives
within the same company. This server, in most cases located at one of our
facilities, contains the customer's own database of sales-related information
which is generally maintained and operated for the customer by us.
CUSTOMERS
Our customers include major multinational pharmaceutical companies,
including: Allergan; Aventis; Block; Bristol-Myers Squibb; Eli Lilly;
Johnson & Johnson; Kissei; Novo Nordisk; Parke-Davis; Pfizer; Savage; Searle;
Smith-Kline Beecham; Solvay; Takeda; and 3M. In addition, in the CPG market, our
customers include: Bacardi-Martini; Federal Express; Gillette; and Rayovac.
Approximately 37% of our total revenues in 1999 came from Pfizer and
Johnson & Johnson. Approximately 49% of our total revenues in 1998 came from
Pfizer, Johnson & Johnson and Parke-Davis. Approximately 51% of our total
revenues in 1997 came from Pfizer, Johnson & Johnson and Rhone-Poulenc Rorer.
The loss of all or a significant part of the business of any of these customers
could have a material adverse effect on us.
SALES AND MARKETING
We actively market our sales force software products and services to
prescription-only and over the counter pharmaceutical, medical device,
biopharmaceutical, biotechnology and CPG companies worldwide using regional and
local sales and marketing personnel. Sales presentations are typically made to
the customer's management information services department or sales department.
The selection of a sales force software product often entails an extended
decision-making process that typically takes nine to eighteen months. This
process may involve senior levels of management and, in some cases, the board of
directors. See Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors that May Affect Future Operating
Results -- Our quarterly results of operations may fluctuate significantly and
may not meet market expectations -- Our lengthy sales and implementation cycles
make it difficult to predict quarterly revenues".
We work with a potential customer to identify its business requirements in
light of its markets, sales organization and operating structure. We draw upon
our broad product functionality and our experience in the applicable vertical
market to provide a comprehensive, yet highly targeted SFE solution.
The positive response of our customers' sales representatives can influence
the decisions of those customers to license additional functionality and/or to
contract for expanded support services. Accordingly, we try to address the
concerns of sales personnel during the training portion of our implementation
services. We also promptly respond to customer communications and evaluate them
for indications of potential systemic problems or changing market trends.
We believe that our relationships with existing customers create additional
sales and marketing opportunities. Further, we believe that our network of
international offices allows us to serve our existing customers in new
locations. Many of our prescription-only pharmaceutical customers also have
over-the-counter operations that provide us with additional sales opportunities.
Finally, we have occasionally entered into arrangements with business
partners to market our products and/or services jointly. In addition, we
occasionally resell computer hardware and third-party software.
COMPETITION
The current market for sales force software, customer relationship
management products and support services is highly competitive. Many companies
offer sales force automation or SFA and SFE products and/or services in the
prescription-only pharmaceutical and CPG industries. We believe that there are
approximately eight other companies that sell sales force software products and
specifically target the pharmaceutical industry, including:
- three competitors that are actively selling in more than one country;
and
- two competitors that also offer sales force support services.
SFA software products differ greatly in terms of functionality, flexibility
and the type of hardware platform supported. Vendors of SFA software products
also generally do not provide support services to the same extent as SFE or CRM
vendors. We believe that our sales
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force software products and support services offer customers a more
comprehensive solution than SFA software products. We believe that potential
competitors must incur significant expense in order to develop an integrated,
configurable solution for the problems presented by complex multinational
selling environments. While we believe SFA software products are less compelling
solutions, these software products, nonetheless, often cost less than SFE or CRM
solutions. We also face competition from many vendors that market and sell SFA
and sales force software products and services in the CPG market. In addition,
we also compete with many companies that provide support services similar to our
services.
Our sales force products and services compete with others principally on
the basis of the following factors:
- product flexibility and configuration;
- platform configuration;
- name recognition;
- global competence;
- service standards;
- breadth of customer base; and
- technical support and service.
We believe our solutions compete favorably with respect to these
factors, and that we are positioned to maintain our market leadership position
through innovative new product and application developments and continued focus
on support services. Some of our existing competitors, as well as a number of
potential market entrants, have larger technical staffs, larger marketing and
sales organizations and greater financial resources than we do.
In the prescription-only pharmaceutical vertical market, two of our
competitors, IMS Health Strategic Technologies and TVF (Cegedim), own and
control, either directly or through affiliated entities, proprietary data
collection systems. It may be possible for a competitor to gain a competitive
advantage in the pricing of its sales force software products with respect to
customers who are interested in purchasing the data it or its affiliates
collect. In addition, as new data sources emerge, companies providing such data
may enter the market and provide solutions to our customers directly.
We believe that competition will increase as new competitors enter the
market to supply sales force software products and/or services and as existing
competitors expand their product lines, consolidate or offer more compelling
solutions. 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 may face competition from CRM vendors who do not currently
compete in our vertical market. We also face potential competition from our
current 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.
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EMPLOYEES
As of December 31, 1999, we employed 1,333 employees: 962 in the United
States and Canada; 247 in Europe; 56 in the Pacific Rim; and 68 in Latin
America.
We believe that relations with our employees are good. Our employees
generally are not part of any collective bargaining unit except for our
employees in France who are subject to a national collective bargaining
agreement. We believe that our future growth and success will depend upon our
ability to attract and retain skilled and motivated personnel, which is becoming
progressively more difficult for many technology and services companies in many
countries.
ADDITIONAL INFORMATION
For additional information regarding the Company's business, see Item 7 of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 2. PROPERTIES.
We lease a 101,500 square foot building, which serves as our corporate
headquarters in Morristown, New Jersey; a 31,575 square foot building in
Stroudsburg, Pennsylvania, which houses customer support personnel; 26,280
square feet of office space in Basking Ridge, New Jersey, which houses customer
support personnel; a 10,000 square foot building in Stroudsburg, Pennsylvania
which serves as a hardware repair and maintenance facility; 9,490 square feet of
office space in Durham, North Carolina, which houses customer support personnel;
a 5,000 square foot warehouse in Somerset, New Jersey; and a 120 square foot
office in Newark, Delaware. We also lease a total of 57,670 square feet in
fifteen locations in Australia, Belgium, Brazil, Canada, Ecuador, France,
Germany, Hungary, Italy, Japan, Mexico, New Zealand, Spain and the United
Kingdom for local management, sales offices and customer support operations. We
believe that our existing U.S. corporate facilities will become insufficient for
our needs in 2000, but that adequate space will be available as needed.
Servers located at our facilities are commonly maintained in a secured area
and are often subject to regular audit and inspection by our customers. We
maintain database servers located at our facilities for substantially all of our
U.S. customers and for a substantial majority of our international customers.
For these customers, we offer a business interruption service which is intended
to protect these customers' businesses in the event of any unforeseen
interruption, interference or disruption of the Company's 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.
ITEM 3. LEGAL PROCEEDINGS.
We are occasionally involved in litigation relating to personnel and other
claims arising in the ordinary course of business. We are not currently engaged
in any legal proceedings that are expected, individually or in the aggregate, to
have a materially adverse effect on our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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Our common stock, no par value, is quoted on the Nasdaq National Market
under the symbol "DRTE". As of March 15, 2000 there were approximately 142
holders of record of our common stock.
The following table sets forth for the periods indicated the high and low
sale prices for our common stock as reported by the Nasdaq National Market
System. Such market prices have been adjusted to give retroactive effect to the
three-for-two forward stock split of our common stock which became effective on
October 8, 1999.
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Period High Low
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Quarter Ended March 31, 1998........ $10.25 $6.29
Quarter Ended June 30, 1998......... 12.67 8.52
Quarter Ended September 30, 1998.... 18.59 10.33
Quarter Ended December 31, 1998..... 19.66 10.83
Quarter Ended March 31, 1999........ 21.17 13.63
Quarter Ended June 30, 1999......... 25.33 13.17
Quarter Ended September 30, 1999.... 33.67 19.25
Quarter Ended December 31, 1999..... 39.00 25.00
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We have never paid any cash dividends on our common 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
plus 75% of the net proceeds to us of any stock offerings. This covenant
effectively limits the amount of cash dividends we may pay. See Note 4 of "Notes
to Consolidated Financial Statements" for a discussion of our line of credit
agreement.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
SELECTED FINANCIAL DATA
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YEAR ENDED DECEMBER 31,
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1995 1996 1997 1998 1999
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
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License fees........................... $ 6,961 $ 10,310 $ 9,074 $ 14,955 $ 24,244
Services.............................. 53,625 66,573 82,248 115,678 148,441
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60,586 76,883 91,322 130,633 172,685
Costs of revenues:
Cost of license fees................... 712 832 1,758 2,314 2,360
Cost of services....................... 27,153 37,771 45,078 57,887 72,380
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27,865 38,603 46,836 60,201 74,740
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Gross margin........................... 32,721 38,280 44,486 70,432 97,945
Operating expenses:
Selling, general and administrative.... 23,073 28,519 33,305 44,046 56,927
Research and development............... 2,518 7,361 3,674 4,584 7,669
Mergers and acquisitions............... -- -- -- -- 3,466
Write-off of in-process research and
Development.......................... -- 2,640 -- 1,230 --
--------- --------- --------- --------- ----------
25,591 38,520 36,979 49,860 68,062
--------- --------- --------- --------- ----------
Operating income (loss)................ 7,130 (240) 7,507 20,572 29,883
Interest income............................. 559 1,168 531 1,099 1,880
Other income (expense)...................... 227 (240) (261) (466) (189)
--------- --------- --------- --------- ----------
Income (loss) before income taxes...... 7,916 688 7,777 21,205 31,574
Income taxes................................ 3,082 1,467 3,002 8,446 12,234
--------- --------- --------- --------- ----------
Net income (loss)........................... $ 4,834 $ (779) $ 4,775 $ 12,759 $ 19,340
========= ========= ========= ========= ==========
Net income (loss) per share:
Basic.................................. $ 0.21 $ (0.02) $ 0.13 $ 0.35 $ 0.51
========= ========= ========= ========= ==========
Diluted................................ $ 0.14 $ (0.02) $ 0.13 $ 0.32 $ 0.48
========= ========= ========= ========= ==========
Shares used in computing net income (loss)
per share:
Basic.................................. 23,501 35,370 35,601 36,080 37,725
========= ========= ========= ========= ==========
Diluted................................ 33,365 35,370 36,870 39,392 40,599
========= ========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- ------------- ------------- ------------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ 29,063 $ 31,530 $ 34,813 $ 50,608 $ 78,131
Total assets..................................... 47,704 54,176 57,876 81,831 124,720
Capital lease obligations, less current portion.. 51 201 353 544 285
Stockholders' equity............................. 33,510 37,511 40,672 61,049 101,116
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements that we believe
are within the meaning of Section 27A of the Securities Act of 1933 and Section
21-E of the Securities Exchange Act of 1934, which are intended to be covered by
the safe harbors created by such acts. For this purpose, any statements that are
not statements of historical fact may be deemed to be forward-looking
statements, including the statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
regarding our strategy, future operations, financial position and objectives of
management. Those statements in this Form 10-K containing the words "believes,"
"anticipates," "plans," "expects" and similar expressions constitute
forward-looking statements, although not all forward-looking statements contain
such identifying words. These forward-looking statements are based on our
current expectations, assumptions, estimates and projections about our company
and the pharmaceutical and consumer packaged goods industries. All
forward-looking statements involve risks and uncertainties, including those
risks identified under "Risk Factors," many of which are beyond our control.
Although we believe that the assumptions underlying our forward-looking
statements are reasonable, any of the assumptions could be inaccurate and actual
results may differ from those indicated by the forward-looking statements
included in this Form 10-K, as more fully described under "Risk Factors". In
light of the
10
<PAGE> 11
significant uncertainties inherent in the forward-looking statements included in
this Form 10-K, 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.
OVERVIEW
We succeeded in 1991 to a business co-founded in 1986 by John E. Bailye,
the Company's current Chairman, President and Chief Executive Officer. The
business was established to provide Sales Force Effectiveness or SFE solutions
that would enable companies to manage, coordinate and control the activities of
large sales forces in complex selling environments, primarily in the
prescription-only pharmaceutical industry. Today, our solutions combine software
products with a wide range of specialized support services. These services
include software implementation, technical and hardware support and sales force
support. We develop, implement and service sales force software products through
our own sales, support and technical personnel located in 21 offices worldwide.
We generate revenues from both services and licenses. Service revenues,
which account for a substantial majority of our revenues, consist of fees from a
wide variety of contracted services which we make available to our customers,
generally under multi-year contracts. We generate implementation fees from
services provided to configure and implement the sales force software products
for our customers, sometimes as part of longer projects when enhancing customer
relationships is our goal. We receive technical and hardware support fees for
services related to, among other things, ongoing technical support, maintenance
of our customers' databases, operations of our customers' server computers,
maintenance for our customers' remote hardware and asset control. Technical and
hardware support fees also include fees for software maintenance services such
as software defect resolution and performance enhancements. We charge fees for
these maintenance services based on a percentage of total license fees plus
configuration fees, if any. 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 particular software licensed by
the customer.
The Company generally recognizes license fees as revenue using the
percentage of completion method over a period of time that commences with the
exceution of a license agreement and ends when the product configuration is
complete and it is ready for use in the field. This period of time usually
includes initial customization or configuration and concludes with quality
assurance and testing. In those historically rare cases when there is no
initial customization or configuration the company generally recognizes the
license fees from those products upon delivery assuming any services to be
provided are not essential to the functionality of the software. Additionally,
license revenues will be recognized immediately when user count for previously
delivered software increases and/or a third party is used for implementation
and configuration. The Company's software licensing agreements provide for a
warranty period (typically 180 days from the date of excution of the
agreement). The portion of the license fee associated with the warranty period
is unbundled from the license fee and is recognized ratably over the warranty
period. The Company does not recognize any license fees unless persuasive
evidence of an arrangement exists, the license amount is fixed and determinable
and collectability is probable.
The United States, the United Kingdom, France and Japan are our main
markets. We generated approximately 36% of our total revenues outside the United
States during the year ended December 31, 1997; approximately 23% during the
year ended December 31, 1998; and approximately 24% during the year ended
December 31, 1999.
We bill services provided by our foreign branches and subsidiaries in local
currency. License fees for our products are generally billed in U.S. dollars
regardless of where they originate. Foreign license fees are shown as United
States 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 local technical and customer support personnel,
costs associated with opening new facilities or expanding existing facilities
and our ability to increase service revenues faster than the growth in selling,
general and administrative expenses.
11
<PAGE> 12
MERGERS AND ACQUISITIONS
We regularly evaluate opportunities to acquire products or businesses
that represent strategic enhancements to our operations. Such acquisition
opportunities, if they arise, and are successfully completed, may involve
the use of cash or equity instruments. We currently have no agreements to
make any acquisitions.
In accordance with this policy, the Company has engaged in the following
acquisitions over the last few years:
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 consolidated
statements of operations. The Company also recorded $2,226,000 as goodwill.
ABC's results of operations have been included in the Company's consolidated
financial statements from the date of acquisition.
On May 27, 1999, the Company exchanged 2,220,807 shares of its common stock
for all the outstanding shares of common stock of CorNet International, Ltd.
("CorNet"), a provider of sales force effectiveness solutions for the U.S.
pharmaceutical, consumer and business to business markets. The merger has been
accounted for under the pooling of interests method. Accordingly, the Company's
financial statements have been restated to reflect the acquisition of CorNet
under the pooling of interests method.
On June 30, 1999, the Company purchased all of the assets and assumed
certain liabilities, as defined, of Marketing Management International, Inc. and
certain affiliated companies (collectively, "MMI"), providers of palm-top
software and paper based sales force effectiveness solutions and consulting
services to subsidiaries of multinational pharmaceutical companies operating in
emerging markets, such as Latin America, Eastern Europe and Southeast Asia.
Under the terms of the acquisition agreement, MMI received $6,640,000 in cash,
which includes estimated transaction costs, and $3,435,000 in Dendrite common
stock. The acquisition has been accounted for using the purchase method with the
purchase price allocated to the fair value of the acquired assets and
liabilities. The excess purchase price over the fair value of the net assets
acquired has been allocated between capitalized software development costs and
goodwill based upon an independent appraisal. MMI's results of operations have
been included in the Company's consolidated financial statements from the date
of acquisition.
On January 6, 2000, the Company purchased all of the assets and assumed
certain liabilities, as defined, of Analytika, Inc. ("Analytika"), a provider of
advanced analytical products, consulting services and outsourced operations
services to the pharmaceutical industry. The final purchase price was
approximately $9,000,000 in Dendrite common stock and assumed liabilities, with
transaction costs of $400,000. The acquisition will be accounted for using the
purchase method with the purchase price allocated to the fair value of the
acquired assets and liabilities. The excess purchase price over the fair value
of the net assets acquired will be allocated between capitalized software
development costs and goodwill based upon an independent appraisal.
12
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1997 1998 1999
---- ---- ----
Revenues:
<S> <C> <C> <C>
License fees................................... 10% 11% 14%
Services....................................... 90 89 86
---- ---- ----
100 100 100
Costs of Revenues:
Cost of license fees........................... 2 2 2
Cost of services............................... 50 44 42
---- ---- ----
52 46 44
---- ---- ----
Gross Margin................................... 48 54 56
Operating Expenses:
Selling, general and administrative............ 36 33 33
Research and development....................... 4 4 4
Mergers and acquisitions....................... -- -- 2
Write-off in-process research and development.. -- 1 --
---- ---- ----
40 38 39
---- ---- ----
Operating income......................... 8 16 17
Other income....................................... 1 -- 1
---- ---- ----
Income before income taxes.................... 9 16 18
Income taxes....................................... 4 6 7
---- ---- ----
Net Income ........................................ 5% 10% 11%
==== ==== ===
</TABLE>
Certain reclassifications have been made to prior year amounts to conform
with current year presentations. During the second quarter of 1998, we
determined that costs associated with certain activities that were previously
classified as research and development expense should be classified as cost of
services as these expenditures relate to client-specific activities. For
consistency of presentation, all prior periods have been reclassified.
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUES. Total revenues increased $42,052,000 to $172,685,000 in 1999, up
32% from $130,633,000 in 1998.
License fee revenues increased $9,289,000 to $24,244,000 in 1999, up 62%
from $14,955,000 in 1998. License fee revenues as a percentage of total revenues
were 14% in 1999 as compared to 11% in 1998. This increase was attributable
primarily to sales to new pharmaceutical customers, sales force expansions and
software upgrades by existing pharmaceutical customers.
Service revenues increased $32,763,000 to $148,441,000 in 1999, up 28% from
$115,678,000 in 1998. Service revenues as a percentage of total revenues were
86% in 1999 as compared to 89% in 1998. The increase in the absolute dollar
amount of service revenues was primarily the result of an increase in the number
of installed users of Dendrite sales force software products at both new and
existing customers, as well as the provision of additional services for our
existing customers. The Company expects the approximate current relationship of
license to service revenues to continue in the future.
COST OF REVENUES. Cost of revenues increased $14,539,000 to $74,740,000 in
1999, up 24% from 60,201,000 in 1998.
Cost of license fees increased $46,000 to $2,360,000 in 1999 up 2% from
$2,314,000 in 1998. Cost of license fees for 1999 represents the amortization of
purchased software and capitalized software development costs of $1,654,000 and
third party vendor license fees of $706,000. Cost of license fees for 1998
represents the amortization of capitalized software development costs of
$1,392,000 and third party vendor license fees of $922,000. The increase in the
amortization of capitalized software development costs in 1999 was primarily due
to the increase in purchased capitalized software associated with the
acquisitions of ABC and MMI software development costs in 1999 as compared to
1998.
Cost of services increased $14,493,000 to $72,380,000 in 1999, up 25% from
$57,887,000 in 1998. This increase was primarily due to an increase in staff
required to support greater client activity including the use of higher cost
consultants and contractors. As a percentage of service revenues however, cost
of services decreased from 50% of service revenues in 1998 to 49% in 1999. This
13
<PAGE> 14
decrease was primarily the result of increased operational efficiencies in 1999.
Total Gross Margin for 1999 rose to 57%, up from 54% in 1998. This increase
is due to the improvement in both service and license margins as described
above, as well as the higher proportion of license to service revenues in 1999.
This is due to the launch of several new products. The Company believes that
the appropriate targeted gross margin rate should be between 58%-60%.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses
increased $12,881,000 to $56,927,000 in 1999, up 29% from $44,046,000 in 1998.
As a percentage of revenues, SG&A expenses remained constant at 33% for the
years ended 1999 and 1998. The increase in the absolute dollar amount of SG&A
expenses was primarily attributable to an increase in sales and marketing
expenses from both our existing businesses and our newly acquired businesses, as
well as increases related to additional leased facilities in Morristown, New
Jersey. The Company's annual targeted SG&A expenses, as a percentage of total
revenues, are 30-32%.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
$3,085,000 to $7,669,000 in 1999 up 67% from $4,584,000 in 1998. The increase in
research and development expenses during the most recent period was attributable
primarily to increased spending on development of our laptop pharmaceutical
sales force software products and a new version of our palmtop pharmaceutical
sales force software product. 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.
MERGERS AND ACQUISITIONS. During the second quarter 1999, the Company
acquired CorNet in a transaction accounted for as a pooling of interests and
incurred a one time expense for the costs related to the acquisition and the
cancellation of a proposed common stock offering.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. On July 24, 1998,
we acquired 100% of the capital stock of ABC. We assigned $1,230,000 to
in-process research and development and such amount was written-off in the
accompanying statement of operations for the three months ended September 30,
1998.
PROVISION FOR INCOME TAXES. The effective rate decreased to 39% in 1999
from 40% in 1998. The effective rate for both the years ended December 31, 1999
and 1998 included one-time charges, which are not deductible for tax purposes.
Excluding the effect of these charges the effective rate would have been reduced
to 36% in 1999 from 38% in 1998. This decrease was due to the continued
implementation of tax planning strategies throughout the world.
YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Total revenues increased $39,311,000 to $130,633,000 in 1998, up
43% from $91,322,000 in 1997.
License fee revenues increased $5,881,000 to $14,955,000 in 1998, up 65%
from $9,074,000 in 1997. This increase was attributable primarily to the
recognition of revenues related to license fees from several significant
contracts in the pharmaceutical division, sales to new customers in our consumer
business division and increased sales of third party software.
Service revenues increased $33,430,000 to $115,678,000 in 1998, up 41% from
$82,248,000 in 1997. This increase was primarily the result of an increase in
our installed base of sales force software products for 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 $13,365,000 to $60,201,000 in
1998, up 29% from $46,836,000 in 1997.
Cost of license fees increased $556,000 to $2,314,000 in 1998, up 32% from
$1,758,000 in 1997. In 1998, the cost of license fees represents the
amortization of capitalized costs of $1,392,000 and third party vendor license
fees of $922,000. Cost of license fees for 1997 represents the amortization of
capitalized costs of $1,100,000 and third party vendor license fees of $658,000.
The increase in the amortization of capitalized software development costs in
1998 was due to the increase in gross capitalized software development costs in
1998 as compared to 1997. The increase in third party vendor license fees in
1998 was attributable to the increase in third party software sales in 1998.
Cost of services increased $12,809,000 to $57,887,000 in 1998, up 28% from
$45,078,000 in 1997. This increase was primarily due to an increase in staff
required to support greater client activity including the use of higher cost
consultants and contractors. As a percentage of service revenues, however, cost
of services decreased from 55% of service revenues in 1997 to 50% in 1998. This
decrease was primarily the result of increased operational efficiencies in 1998
as well as unusually high costs in the first quarter of 1997.
The total gross margin for 1998 rose to 54% from 49% in 1997. This increase
is primarily attributable to the improved service's margin resulting from
increased operational efficiencies in 1998.
14
<PAGE> 15
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses
increased $10,741,000 to $44,046,000 in 1998 up 32% from $33,305,000 in 1997.
This increase was primarily attributable to increased staff required for sales
and support operations. As a percentage of revenue, SG&A expenses decreased from
36% in 1997 to 33% in 1998, due to leveraging the fixed cost elements in general
and administrative expenses over a higher revenue base.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$910,000 to $4,584,000 in 1998 up 25% from $3,674,000 in 1997. As a percentage
of revenues, research and development expenses remained relatively constant at
4%. The increase in research and development expenses during the most recent
period wasprimarily attributable to increased spending on development of our CPG
products, the continued development of ForceMultiplieRx and the development of
our next generation pharmaceutical sales force software product, ForcePharma.
With respect to future research and development expenses, subject to market
conditions, we currently anticipate that such expenses will be approximately 4%
to 6% of total revenues.
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 ABC. This amount represents
the estimated fair values, based on an independent appraisal, related to
in-process research and development projects which had not yet reached
technological feasibility.
PROVISION FOR INCOME TAXES. The effective tax rate, excluding the impact of
the write-off of in-process research and development which is not tax
deductible, decreased to 38% for the year ended December 31, 1998 as opposed to
39% during 1997. This decrease was due primarily to the implementation of tax
minimization strategies throughout the world.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data expressed in U.S. dollars for our eight most recently ended
fiscal quarters. This data has been derived from our unaudited consolidated
financial statements and, in the opinion of management, includes all adjustments
consisting only of normal recurring adjustments necessary for a fair
presentation in accordance with generally accepted accounting principles. Our
results of operations for a particular quarter are not necessarily indicative of
our results of operations for any future period. Our quarterly results have
varied considerably in the past and are likely to vary from quarter to quarter
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors that May Affect Future Operating Results --
Our quarterly results of operations may fluctuate significantly and may not meet
market expectations" in this Item 7.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
1998 1998 1998 1998 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License fees................. $ 3,273 $ 4,735 $ 1,621 $ 5,326 $ 4,054 $ 6,747 $ 6,891 $ 6,552
Services..................... 23,564 27,930 33,314 30,870 33,580 35,104 38,855 40,902
--------- --------- --------- --------- --------- --------- --------- --------
26,837 32,665 34,935 36,196 37,634 41,851 45,746 47,454
Costs of Revenues:
Cost of license fees......... 361 1,024 379 550 398 592 535 835
Cost of services............. 12,270 14,751 16,248 14,618 16,503 17,722 18,847 19,307
--------- --------- --------- --------- --------- --------- --------- --------
12,631 15,775 16,627 15,168 16,901 18,314 19,382 20,142
--------- --------- --------- --------- --------- --------- --------- --------
Gross margin................. 14,206 16,890 18,308 21,028 20,733 23,537 26,364 27,312
Operating Expenses:
Selling, general and
administrative............ 9,374 10,826 11,254 12,592 12,627 14,397 14,716 15,186
Research and development..... 1,111 1,094 1,059 1,320 1,638 1,835 2,393 1,803
Mergers and acquisitions..... -- -- -- -- -- 3,466 -- --
Write-off of in-process
research and development.. -- -- 1,230 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------
10,485 11,920 13,543 13,912 14,265 19,698 17,109 16,989
--------- --------- --------- --------- --------- --------- --------- --------
Operating income .......... 3,721 4,970 4,765 7,116 6,468 3,839 9,255 10,323
Interest income.................. 196 215 283 405 418 440 408 613
Other income (expense)........... (344) (30) 120 (212) (125) 43 (10) (97)
--------- --------- --------- --------- --------- --------- --------- ---------
Income before
income taxes (benefit)..... 3,573 5,155 5,168 7,309 6,761 4,322 9,653 10,839
Income taxes (benefit)........... 1,408 1,949 2,320 2,769 2,562 2,296 3,475 3,901
--------- --------- --------- --------- --------- --------- --------- --------
Net income ...................... $ 2,165 $ 3,206 $ 2,848 $ 4,540 $ 4,199 $ 2,026 $ 6,178 $ 6,938
========= ========= ========= ========= ========= ========= ========= ========
Net income per share:
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic........................ $ 0.06 $ 0.09 $ 0.08 $ 0.12 $ 0.11 $ 0.05 $ 0.16 $ 0.18
========= ========= ========= ========= ========= ========= ========= ========
Diluted...................... $ 0.06 $ 0.08 $ 0.07 $ 0.11 $ 0.11 $ 0.05 $ 0.15 $ 0.17
========= ========= ========= ========= ========= ========= ========= ========
Shares used in computing net
income per share:
Basic........................ 35,694 35,835 36,266 36,534 37,026 37,545 38,025 38,305
========= ========= ========= ========= ========= ========= ========= ========
Diluted...................... 38,306 38,943 39,702 40,118 39,690 40,104 41,012 41,527
========= ========= ========= ========= ========= ========= ========= ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
We finance our operations primarily through cash generated by operating
activities. Net cash provided by operating activities was $31,811,000 for the
year ended December 31, 1999, compared to cash provided by operating activities
of $27,387,000 for the year ended December 31, 1998. This increase was due
primarily to higher net income and by the cash tax benefit provided from the
exercise of stock options during the year ended December 31, 1999, compared to
the year ended December 31, 1998.
Cash used in investing activities was $21,916,000 in the year ended
December 31, 1999, compared to cash used in investing activities of $13,370,000
in the year ended December 31, 1998. This increase was due primarily to
increased purchases of short-term investments as well as the purchase of ABC in
the year ended December 31, 1998.
On January 16, 1997, our 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 Dendrite's outstanding shares
of common stock. During the twelve month period ending December 31, 1997,
Dendrite repurchased 601,500 shares of common stock for a value of $1,927,000.
Dendrite did not repurchase any shares of common stock during the year ending
December 31, 1998 and 1999.
We obtained $7,903,000 of cash from financing activities in the year ended
December 31, 1999, compared to obtaining $2,471,000 in cash from financing
activities in the year ended December 31, 1998. The change in our cash provided
from financing activities was due to an increase in the issuance of common
stock, primarily from the exercise of employee stock options during the year
ended December 31, 1999.
We maintain a $15.0 million 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 terms of this agreement require us
to maintain a minimum consolidated net worth, among other covenants, measured
quarterly, which is equal to our net worth as of December 31, 1999, plus 50% of
our net income earned after January 1, 1998 plus 75% of the net proceeds to us
of any equity offering. This covenant effectively limits the amount of cash
dividends we may pay. At December 31, 1999, there were no borrowings outstanding
under the agreement and we satisfied all of our covenant obligations.
Our working capital was approximately $78,131,000 at December 31, 1999 and
$50,608,000 at December 31, 1998. We have no significant capital spending or
purchasing commitments other than normal purchase commitments and commitments
under facility and capital leases.
YEAR 2000 READINESS DISCLOSURE
We spent approximately $355,000 to evaluate, test and
remediate, if necessary, our internal computer software and operating systems,
collectively, our Internal Programs and Systems, for Year 2000 compliance
problems. These costs were funded with cash from our operations and such costs
were expensed or capitalized, depending on the nature of the expenditure. Since
January 1, 2000, the Company has not had any Year 2000-related problems
associated with its Internal Programs and Systems or software products licensed
to its customers, and is not aware of any Year 2000-related problems associated
with the systems or software of its vendors, distributors or suppliers. Although
the Company expects most material Year 2000 compliance problems to have arisen
or occurred on or after January 1, 2000, there can be no assurance, however,
that the Year 2000 problem will not adversely affect the Company's business,
financial condition, results of operations or cash flows.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
OUR BUSINESS IS HEAVILY DEPENDENT ON THE PHARMACEUTICAL INDUSTRY
Most of our sales force software products and services are currently
16
<PAGE> 17
used in connection with the marketing and sale of prescription-only drugs. This
market is undergoing a number of significant changes. These include:
- - consolidations and mergers which may reduce the number of our existing and
potential customers, also could alter implementation or purchase cycles;
- - reclassification of formerly prescription-only drugs to permit their
over-the-counter sale;
- - competitive pressures on our pharmaceutical customers resulting from the
continuing shift to delivery of healthcare through managed care
organizations; and
- - changes in law, such as government mandated price reductions for
prescription- only drugs, that affect the healthcare systems in the
countries where our customers and potential customers are located.
We cannot assure you that we can respond effectively to any or all of these
and other changes in the marketplace. Our failure to do so could have a material
adverse effect on our business, operating results or financial condition.
OUR QUARTERLY RESULTS OF OPERATIONS MAY FLUCTUATE SIGNIFICANTLY
AND MAY NOT MEET MARKET EXPECTATIONS
Our results of operations may vary from quarter to quarter due to lengthy
sales and implementation cycles for our products, our fixed expenses in relation
to our fluctuating revenues and variations in our customers' budget cycles, each
of which is discussed below. As a result, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. It is possible that in some future period our results of
operations may be below the expectations of the public market analysts and
investors. If this happens, the price of our common stock may decline.
OUR LENGTHY SALES AND IMPLEMENTATION CYCLES MAKE IT DIFFICULT
TO PREDICT OUR QUARTERLY REVENUES
The selection of a sales force software product often entails an extended
decision-making process because of the strategic implications and substantial
costs associated with a customer's license of the software. Given the importance
of the decision, senior levels of management often are involved and, in some
instances, the board of directors may be involved in this process. As a result,
the decision-making process typically takes nine to eighteen months, although in
some cases it may take even longer. Accordingly, we cannot control or predict
the timing of our execution of contracts with customers.
In addition, an implementation process of three to six months is customary
before the software is rolled out to a customer's sales force. However, if a
customer were to delay or extend its implementation process, our quarterly
revenues may decline below expected levels and could adversely affect our
results of operations.
OUR FIXED COSTS MAY LEAD TO FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
IF REVENUES FALL BELOW EXPECTATIONS
We establish our expenditure levels for product development, sales and
marketing and some of our other operating expenses based in large part on our
expected future revenues and anticipated competitive conditions. In particular,
we frequently add staff in advance of new business to permit adequate time for
training. If the new business is subsequently delayed or canceled, we will have
incurred expenses without the associated revenues. 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.
OUR BUSINESS IS AFFECTED BY VARIATIONS IN OUR CUSTOMERS' BUDGET CYCLES
We have historically realized a greater percentage of our license fees and
service revenues in the second half of the year than in the first half because,
among other things, our customers typically spend more of their annual budget
authorization for SFE solutions in the second half of the year. However, the
relationship between the amounts spent in the first and second halves of a year
may vary from year to year and from customer to customer. In addition, changes
in our customers' budget authorizations may reduce the amount of revenues we
receive from the license of additional software or the provision of additional
services. As a result, our operating results could be adversely affected.
17
<PAGE> 18
WE DEPEND ON A FEW MAJOR CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES
We derive a significant portion of our revenues from a limited number of
customers (considering all affiliates of each customer as part of that
customer). Approximately 36% of our total revenues in 1999 came from Pfizer and
Johnson & Johnson. Approximately 49% of our total revenues in 1998 came from
Pfizer, Johnson & Johnson and Parke-Davis. Approximately 51% of our total
revenues in 1997 came from Pfizer, Johnson & Johnson and Rhone-Poulenc Rorer. We
believe that the costs to our customers of switching to a competitor's software
product, or of taking significant system management functions in-house, are
substantial. Nevertheless, some of our customers have switched, and in the
future, other customers may switch to software products and/or services offered
by our competitors or by in-house staff. If any of our major customers were to
make such a change, our business, operating results or financial condition would
be materially and adversely affected.
WE MAY BE UNABLE TO SUCCESSFULLY INTRODUCE NEW PRODUCTS OR RESPOND TO
TECHNOLOGICAL CHANGE
The market for CRM products changes rapidly because of frequent
improvements in computer hardware and software technology. Our future success
will depend, in part, on our ability to:
- - use available technologies and data sources to develop new products and
services and to enhance our current products and services;
- - introduce new solutions that keep pace with developments in our target
markets; and
- - address the changing and increasingly sophisticated needs of our customers.
We cannot assure you that we will successfully develop and market new
products or product enhancements that respond to technological advances in the
marketplace, or that we will do so in a timely fashion. We also cannot assure
you that our products will adequately and competitively address the needs of the
changing marketplace.
Competition for software products has been characterized by shortening
product cycles. We may be materially and adversely affected by this trend if the
product cycles for our products prove to be shorter than we anticipate. If that
happens, our business, operating results or financial condition could be
adversely affected.
To remain competitive, we also may have to spend more of our revenues on
product research and development than we have in the past. As a result, our
results of operations could be materially and adversely affected.
Further, our software products are technologically complex and may contain
previously undetected errors or failures. Such errors have occurred in the past
and we cannot assure you that, despite our testing, our new products will be
free from errors. Errors that result in losses or delays could have a material
adverse effect on our business, operating results or financial condition.
INCREASED COMPETITION MAY RESULT IN PRICE REDUCTIONS AND DECREASED DEMAND FOR
OUR PRODUCTS AND SERVICES
We believe there are eight other companies that sell sales force software
products that specifically target the pharmaceutical industry, including:
- - Three competitors that are actively selling sales force software products in
more than one country; and
- - Two competitors that also offer sales force support services.
We believe the sales force software products and/or services offered by
most of our competitors do not address the variety of Pharmaceutical and CPG
customer needs that our solutions address. However, these competing solutions
may cost less than our solutions. We also face competition from many vendors
that market and sell sales force automation and CRM solutions in the consumer
packaged goods or CPG market. In addition, we also compete with various
companies that provide support services similar to our services. We believe our
ability to compete depends on many factors, some of which are beyond our
control, including:
- - the number and success of new market entrants supplying competing sales
force products or support services;
18
<PAGE> 19
- - expansion of product lines by, or consolidation among, our existing
competitors; and
- - development and/or operation of in-house sales force software products or
services by our customers and potential customers.
Some of our competitors and potential competitors are part of large
corporate groups and have longer operating histories and significantly greater
financial, sales, marketing, technology and other resources than we have. We
cannot assure you that we will be able to compete successfully with these
companies or that competition will not have a material adverse effect on our
business, operating results or financial condition.
SOME OF OUR CUSTOMERS RELY ON OUR COMPETITORS FOR MARKET DATA
Current market data on the sales of prescription-only pharmaceutical
products is an important element for the operation of our sales force software
products in the prescription-only pharmaceutical industry. Our customers use
this data to guide and organize their sales forces and marketing efforts. Some
of the leading purveyors of this market information compete with us either
directly or through affiliates or may compete with us in the future. If these
purveyors of market information require pharmaceutical companies to use their
sales force products and/or services, our business, operating results and
financial condition may be materially and adversely affected.
OUR INTERNATIONAL OPERATIONS HAVE RISKS THAT OUR DOMESTIC OPERATIONS DO NOT
The sale of our products and services in foreign countries accounts for,
and is expected in the future to account for, a material part of our revenues.
These sales are subject to risks inherent in international business activities,
including:
- - any adverse change in the political or economic environments in these
countries;
- - 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.
WE MAY FACE RISKS ASSOCIATED WITH ACQUISITIONS
Our business could be materially and adversely affected as a result of
the risks associated with acquisitions. As part of our business strategy, we
have acquired businesses that offer complementary products, services, or
technologies. These acquisitions are accompanied by the risks commonly
encountered in an acquisition of a business, including:
- - the effect of the acquisition on our financial and strategic position;
- - the failure of an acquired business to further our strategies;
- - the difficulty of integrating the acquired business;
- - the diversion of our management's attention from other business concerns;
- - the impairment of relationships with customers of the acquired business;
- - the potential loss of key employees of the acquired company; and
- - the maintenance of uniform company-wide standards, procedures and policies.
19
<PAGE> 20
These factors could have a material adverse effect on our
revenues and earnings. We expect that the consideration paid for future
acquisitions, if any, could be in the form of cash, stock, rights to purchase a
stock or a combination of these. To the extent that we issue shares of stock or
other rights to purchase stock in connection with any future acquisition,
existing shareholders will experience dilution and potentially decreased
earnings per share.
OUR SUCCESS DEPENDS ON RETAINING OUR KEY SENIOR MANAGEMENT TEAM AND ON
ATTRACTING AND RETAINING QUALIFIED PERSONNEL
Our future success depends, to a significant extent, upon the contributions
of our executive officers and key sales, technical and customer service
personnel. Our future success also depends on our continuing ability to attract
and retain highly qualified technical and managerial personnel. Competition for
such personnel is intense. We have at times experienced difficulties in
recruiting qualified personnel and we may experience such difficulties in the
future. Any such difficulties could adversely affect our business, operating
results or financial condition.
OUR INABILITY TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
To manage our growth effectively we must continue to strengthen our
operational, financial and management information systems and expand, train and
manage our work force. However, we may not be able to do so effectively or on a
timely basis. Failure to do so could have a material and adverse effect upon our
business, operating results or financial condition.
OUR BUSINESS DEPENDS ON PROPRIETARY TECHNOLOGY THAT WE MAY NOT BE ABLE TO
PROTECT COMPLETELY
We rely on a combination of trade secret, copyright and trademark laws,
non-disclosure and other contractual agreements and technical measures to
protect our proprietary technology. We cannot assure you that the steps we take
will prevent misappropriation of this technology. Further, protective actions we
have taken or will take in the future may not prevent competitors from
developing products with features similar to our products. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries. We have, on occasion, in response to a request by our
customer, entered into agreements which require us to place our source code in
escrow to secure our service and maintenance obligations.
Further, we believe that our products and trademarks do not infringe upon
the proprietary rights of third parties. However, third parties may assert
infringement claims against us in the future that may result in the imposition
of damages or injunctive relief against us. In addition, any such claims may
require us to enter into royalty arrangements. Any of these results could
materially and adversely affect our business, operating results or financial
condition.
THERE ARE CHARACTERISTICS IN THE CONSUMER PACKAGED GOODS MARKET THAT DIFFER
FROM THE PHARMACEUTICAL MARKET.
We market and sell CRM solutions to companies in the CPG market. The
selling environment in this market has unique characteristics that differentiate
it from the pharmaceutical market. In addition, we believe that the CPG market
is composed of sub-markets, each of which may have unique characteristics.
Accordingly, we cannot assure you that we will be able to replicate in this
market the success we have achieved in the ethical pharmaceutical market.
PROVISIONS OF OUR CHARTER DOCUMENTS AND
NEW JERSEY LAW MAY DISCOURAGE AN ACQUISITION OF DENDRITE
Provisions of our Restated Certificate of Incorporation, our By-laws and
New Jersey law may make it more difficult for a third party to acquire us. For
example, the Board of Directors may, without the consent of the stockholders,
issue preferred stock with rights senior to those of the common stock.
OUR COMMON STOCK MAY BE SUBJECT TO PRICE FLUCTUATIONS
The market price of our common stock may be significantly affected by the
following factors:
- - the announcement or the introduction of new products by us or our
competitors;
20
<PAGE> 21
- - 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK
Because we have operations in a number of countries and our service
agreements in such countries are denominated in a foreign currency, we face
exposure to adverse movements in foreign currency exchange rates. As currency
rates change, translation of the income statements of our international entities
from local currencies to U.S. dollars affects year-over-year comparability of
operating results. We do not hedge translation risks because we generally
reinvest the cash flows from international operations.
Management estimates that a 10% change in foreign exchange rates would
impact reported operating profit by less than $500,000. This sensitivity
analysis disregards the possibility that rates can move in opposite directions
and that losses from one area may be offset by gains from another area.
The introduction of the Euro as a common currency for members of the
European Monetary Union took place on January 1, 1999. The eleven participating
countries will issue sovereign debt exclusively in Euro and will redenominate
outstanding sovereign debt. The legal currencies will continue to be used as
legal tender through January 1, 2002, at which point the legacy currencies will
be canceled and Euro bills and coins will be used for cash transactions in the
participating countries. There can be no assurance that such Euro conversion
will not adversely effect our business, financial condition, results of
operations or cash flows. We have not determined what impact, if any, the Euro
has on our foreign exchange exposure.
INTEREST RATE RISK
We earn interest income from our larger balances of cash and short term
investments. This interest income is subject to market risk related to changes
in interest rates primarily to our investment portfolio. We invest in
instruments that meet high credit quality standards, as specified in our
investment policy. The policy also limits the amount of credit exposure to any
one issue, issuer and type of investment.
As of December 31, 1999, our investments consisted primarily of commercial
paper maturing over the following three months. Due to the average maturity and
conservative nature of our investment portfolio, a sudden change in interest
rates would not have a material effect on the value of the portfolio. Management
estimates that if the average yield of the Company's investments decreased by
100 basis points, our interest income for the year ended December 31, 1999 would
have decreased by less than $500,000. This estimate assumes that the decrease
occurred on the first day of 1999 and reduced the yield of each investment
instrument by 100 basis points. The impact of future changes in investment
yields on our future interest income will depend largely on the gross amount of
our investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's 1999 Financial Statements, together with the report thereon
of Arthur Andersen LLP, are included elsewhere herein. See Item 14 for a list of
Financial Statements and Financial Statement Schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
21
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors and executive officers of the Company will
be set forth in the Registrant's Notice of Annual Meeting of Shareholders and
Proxy Statement, expected to be filed on or about April 5, 2000 (the "Proxy
Statement"), which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding the Company's compensation of its directors and
executive officers will be set forth in the Proxy Statement, which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management will be set forth in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding transactions with the Company's directors and
executive officers will be set forth in the Proxy Statement, which information
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
None.
3. Exhibits:
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated herein by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission (the "Commission") June
30, 1996)
3.2 By-laws of the Company, as amended (incorporated herein by
reference to the Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995, filed
with the Commission November 13, 1995)
4.1 Specimen of Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
22
<PAGE> 23
4.2 Registration Rights Agreement dated October 2, 1991 between
the several purchasers named therein and the Company
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
4.3 Amendment to Registration Rights Agreement dated April 23,
1992 between the Company and the parties named therein as
shareholders of the Company (incorporated herein by reference
to Exhibit 4.3 of Amendment 1 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.1 1992 Stock Plan, as amended*
10.2 1992 Senior Management Stock Option Plan , as
amended*
10.3 1997 Stock Incentive Plan, as amended*
10.4 1997 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8, filed with the Commission April 1,
1997)*
10.5 Lease of 1200 Mount Kemble Avenue, Morristown, New Jersey
(incorporated herein by reference to Exhibit 10.40 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.6 Form of Indemnification Agreement dated as of October 28,
1998 (incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q, filed with the
Commission November 18, 1998)*
10.7 Amended and Restated Credit Agreement, entered into as of
November 30, 1998, between the Company and The Chase
Manhattan Bank, N.A. (incorporated herein by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K,
filed with the Commission March 26, 1999)
10.8 Employment Agreement dated March 25, 1997 with John E. Bailye
(incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q/A filed with the
Commission May 16, 1997)*
10.9 Employment Agreement dated June 2, 1997 with George T. Robson
(incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q, filed with the
Commission August 14,1997)*
10.10 Employment Agreement dated June 9, 1997 with Mark Cieplik
(incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q, filed with the
Commission August 14, 1997)*
10.11 Employment Agreement dated July 24, 1997 with Bruce Savage
(incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q, filed with the
Commission November 14, 1997)*
10.12 Employment Agreement dated October 1, 1991 with Teresa F.
Winslow (incorporated herein by reference to Exhibit 10.50 to
the Company's Registration Statement on Form S-1, filed with
the Commission February 5, 1996)*
10.13 Consulting Agreement dated as of January 5, 1998 with Edward
Kfoury (incorporated herein by reference to Exhibit 10.1 of
the Company's Quarterly Report filed with the Commission May
14, 1998.)
10.14 Deferred Compensation Plan dated as of September 1,1998
(incorporated herein by reference to Exhibit 10.1 of the
Company's Quarterly Report filed with the Commission August
14, 1998.)*
23
<PAGE> 24
10.15 Deferred Compensation Plan Trust Agreement dated as of
September 1, 1998 (incorporated herein by reference to
Exhibit 10.2 of the Company's Quarterly Report filed with the
Commission August 14, 1998.)*
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K on June 1, 1999 pursuant
to "Item 5. Other Events." relating to the acquisition of CorNet International
Ltd. consummated on May 27, 1999.
* These contracts are identified pursuant to the requirement in Item 14 to
identify "each management contract or compensatory plan or arrangement
required to be filed as an exhibit".
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DENDRITE INTERNATIONAL, INC.
Date: March 30, 2000 By: /s/ John E. Bailye
------------------
John E. Bailye
Chief Executive Officer and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ John E. Bailye Chief Executive Officer, March 30, 2000
- ------------------
John E. Bailye President and Director
(Principal Executive Officer)
/s/ George T. Robson Executive Vice President March 30, 2000
- -------------------- and Chief Financial Officer
George T. Robson (Principal Financial Officer
and Principal Accounting Officer)
/s/ Bernard M. Goldsmith Director March 30, 2000
- ------------------------
Bernard M. Goldsmith
/s/ Edward J. Kfoury Director March 30, 2000
- --------------------
Edward J. Kfoury
/s/ Paul A. Margolis Director March 30, 2000
- --------------------
Paul A. Margolis
/s/ John H. Martinson Director March 30, 2000
- ---------------------
John H. Martinson
/s/ Terence H. Osborne Director March 30, 2000
- ----------------------
Terence H. Osborne
</TABLE>
25
<PAGE> 26
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, 1998 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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 did not audit the financial
statements of CorNet International, Ltd., a company acquired during 1999 in a
transaction accounted for as a pooling of interests, as discussed in Note 2, as
of December 31, 1998 and 1997 and for each of the years in the two-year period
ended December 31, 1998. Such statements are included in the consolidated
financial statements of Dendrite International, Inc. and reflect total assets
and total revenues of 9 percent and 14 percent in 1998, and 8 percent and 14
percent in 1997, respectively, of the related consolidated totals. These
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts included for CorNet
International, Ltd., is based solely upon the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audit and the report of the other auditors,
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, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
January 21, 2000
F-1
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CorNet International, Ltd.:
We have audited the accompanying consolidated balance sheets of CorNet
International, Ltd. (a Pennsylvania Corporation) as of December 31, 1997 and
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the two years in the period ended December
31, 1998, which are not presented herein. 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 a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, which are not
presented herein, present fairly, in all material respects, the financial
position of CorNet International, Ltd as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Allentown, Pennsylvania
February 16, 1999
F-2
<PAGE> 28
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
--------- ---------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents........................................ $ 32,555 $ 50,024
Short-term investments........................................... 9,614 15,151
Accounts receivable, net......................................... 20,378 29,374
Prepaid expenses and other....................................... 3,391 3,659
Prepaid taxes.................................................... 921 114
Deferred tax asset............................................... 675 1,368
--------- ---------
Total current assets........................................ 67,534 99,690
PROPERTY AND EQUIPMENT, net........................................... 7,221 10,249
DEFERRED TAXES........................................................ 1,077 --
GOODWILL, net......................................................... 2,496 8,716
PURCHASED CAPITALIZED SOFTWARE, net 779 2,399
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net........................... 2724 3,666
--------- ---------
$ 81,831 $ 124,720
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 2,249 $ 3,735
Income taxes payable............................................. 1,036 --
Accrued compensation and benefits................................ 4,321 6,000
Other accrued expenses........................................... 7,493 8,001
Deferred revenues................................................ 1,827 3,822
--------- ---------
Total current liabilities................................... 16,926 21,558
--------- ---------
DEFERRED RENT......................................................... 392 --
--------- ---------
CAPITALIZED LEASE OBLIGATIONS......................................... 544 285
DEFERRED TAXES........................................................ 2,920 1,761
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares authorized, none
issued........................................................ -- --
Common stock, no par value, 150,000,000 shares authorized;
37,245,675 and 39,042,606 shares issued as of December 31, 1998
and 1999 respectively; 36,644,175 and 38,441,106 shares outstanding
as of December 31, 1998 and 1999 respectively ................ 41,442 61,550
Retained earnings................................................ 23,998 43,338
Deferred compensation............................................ (1,970) (777)
Accumulated other comprehensive income........................... (494) (1,068)
Less treasury stock, at cost..................................... (1,927) (1,927)
--------- ---------
Total stockholders' equity.................................. 61,049 101,116
--------- ---------
$ 81,831 $ 124,720
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 29
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1998 1999
--------------------- --------------------- ---------------------
REVENUES:
<S> <C> <C> <C>
License fees......................................... $ 9,074 $ 14,955 $ 24,244
Services............................................. 82,248 115,678 148,441
--------- --------- ----------
91,322 130,633 172,685
--------- --------- ----------
COSTS OF REVENUES:
Cost of license fees................................. 1,758 2,314 2,360
Cost of services..................................... 45,078 57,887 72,380
--------- --------- ----------
46,836 60,201 74,740
--------- --------- ----------
Gross margin.................................... 44,486 70,432 97,945
--------- --------- ----------
OPERATING EXPENSES:
Selling, general and administrative.................. 33,305 44,046 56,927
Research and development............................. 3,674 4,584 7,669
Write-off of in-process research and development..... -- 1,230 --
Mergers and acquisitions............................. -- -- 3,466
--------- --------- ----------
36,979 49,860 68,062
--------- --------- ----------
Operating income................................ 7,507 20,572 29,883
INTEREST INCOME........................................... 531 1,099 1,880
OTHER (EXPENSE)/INCOME.................................... (261) (466) (189)
--------- --------- ----------
Income (loss) before income taxes............... 7,777 21,205 31,574
INCOME TAXES.............................................. 3,002 8,446 12,234
--------- --------- ----------
NET INCOME ............................................... $ 4,775 $ 12,759 $ 19,340
========= ========= ==========
NET INCOME PER SHARE:
Basic................................................ $ 0.13 $ 0.35 $ 0.51
========= ========= ==========
Diluted.............................................. $ 0.13 $ 0.32 $ 0.48
========= ========= ==========
SHARES USED IN COMPUTING NET INCOME PER SHARE:
Basic................................................ 35,601 36,080 37,725
========= ========= ==========
Diluted.............................................. 36,870 39,392 40,599
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 30
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------ RETAINED DEFERRED COMPREHENSIVE COMPREHENSIVE TREASURY STOCKHOLDERS'
SHARES DOLLARS EARNINGS COMPENSATION INCOME INCOME STOCK EQUITY
------- ------- -------- ----------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1996............................. 35,699 $32,726 $ 6,464 $(1,227) $ (453) $ -- $ 37,510
Issuance of common stock..... 500 616 -- (20) -- -- 596
Amortization of deferred
Compensation............... -- -- -- 106 -- -- 106
Purchase of 601,500 shares
of treasury stock.......... (602) -- -- -- -- (1,927) (1,927)
Comprehensive income:
Net income................... -- -- 4,775 -- -- $4,775 -- 4,775
Other comprehensive
income:
Currency translation
Adjustment............. -- -- -- -- (388) (388) -- (388)
Comprehensive income..... $4,387
------ ------ ------ ------ ------ ====== ------ ------
BALANCE, DECEMBER 31, 1997....... 35,597 33,342 11,239 (1,141) (841) (1,927) 40,672
Issuance of common stock..... 1,047 6,740 -- (1,257) -- -- 5,483
Amortization of deferred
Compensation............... -- -- -- 428 -- -- 428
Stock option income
tax benefits............... 1,360 -- -- -- 1,360
Comprehensive income:
Net income................... -- -- 12,759 -- -- $12,759 -- 12,759
Other comprehensive
Income:
Currency translation
Adjustment............. -- -- -- -- 347 347 -- 347
Comprehensive income..... $13,106
------ ------ ------ ------ ------ ======= ------ ------
BALANCE, DECEMBER 31, 1998....... 36,644 41,442 23,998 (1,970) (494) (1,927) 61,049
Issuance of common stock..... 1,797 11,621 -- 899 12,520
Amortization of deferred
Compensation............... -- -- -- 294 -- 294
Stock option income
tax benefits............... -- 8,487 -- ---- -- 8,487
Comprehensive income:
Net income................... -- -- 19,340 -- -- $19,340 -- 19,340
Other comprehensive
Income:
Currency translation
Adjustment............. -- -- -- -- (574) (574) -- (574)
Comprehensive income......
------ ------ ------ ------ ------ ------ ------
BALANCE, DECEMBER 31,
1999............................ 38,441 $61,550 $43,338 $ (777) $(1,068) $18,766 $(1,927) $101,116
====== ======= ======= ====== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 31
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1998 1999
--------- --------- ---------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income............................................................ $ 4,775 $ 12,759 $ 19,340
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization...................................... 3,417 4,197 6,118
Compensation expense............................................... -- -- 688
Deferred income taxes (benefit).................................... 749 25 24
Tax benefit from employee stock options -- 1,360 8,487
Write-off of in-process research and development................... -- 1,230 --
Changes in assets and liabilities, net of effect from acquisition:
(Increase) decrease in accounts receivable....................... (5,230) 6,099 (6,047)
Increase in prepaid expenses and other........................... (772) (870) (371)
(Increase) decrease in prepaid income taxes...................... 1,397 (921) 1,052
Increase in accounts payable and accrued expenses................ 922 3,335 3,136
Increase (decrease) in deferred rent............................. (128) (206) (392)
Increase (decrease) in income taxes payable...................... (378) 22 (2,219)
(Increase) decrease in deferred revenues......................... (691) 357 1,995
--------- --------- ---------
Net cash provided by operating activities..................... 4,061 27,387 31,811
--------- --------- ---------
INVESTING ACTIVITIES:
Purchases of short-term investments................................... (3,800) (13,552) (39,341)
Sales of short-term investments....................................... 9,266 6,893 33,804
Purchases of businesses, net of cash acquired......................... -- (2,295) (6,640)
Purchases of property and equipment................................... (2,022) (2,779) (7,512)
Additions to capitalized software development costs................... (919) (1,637) (2,227)
--------- --------- -----------
Net cash provided by (used in) investing activities........... 2,525 (13,370) (21,916)
--------- ---------- -----------
FINANCING ACTIVITIES:
Payments on capital lease obligations................................. (188) (302) (788)
Purchase of treasury stock............................................ (1,927) -- --
Issuance of common stock.............................................. 596 3,703 8,691
Proceeds from bank loan............................................... 5,805 4,625 --
Repayments from bank loan............................................. (5,572) (5,555) --
--------- --------- ----------
Net cash provided by (used in) financing activities........... (1,286) 2,471 7,903
---------- --------- ----------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH......................... (283) 130 (329)
---------- --------- -----------
NET INCREASE (DECREASE) IN CASH......................................... 5,017 16,618 17,469
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............................ 10,920 15,937 32,555
--------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR.................................. $ 15,937 $ 32,555 $ 50,024
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 32
DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Dendrite International, Inc. and Subsidiaries (the "Company") provides
comprehensive Sales Force Effectiveness solutions used to manage, coordinate and
control the activities of large sales forces in complex selling environments
primarily within the ethical pharmaceutical industry. The Company also markets
its products in the consumer packaged goods industry. The Company's solutions
combine proprietary software products with extensive system support services.
On May 27, 1999, the Company acquired Cornet International, Ltd ("CorNet")
in a transaction accounted for as a pooling of interests (see Note 2).
Accordingly, the accompanying financial statements have been restated to reflect
the acquisition of CorNet under the pooling of interests method.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Dendrite
International, Inc. and its wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation. Pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation,"
substantially all assets and liabilities of the Company's wholly-owned
international subsidiaries are translated at their respective period-end
currency exchange rates and revenues and expenses are translated at average
currency exchange rates for the period. The resulting translation adjustments
are accumulated in a separate component of stockholders' equity. All foreign
currency transaction gains and losses are included in other expense on the
accompanying statements of operations and are immaterial in each year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company generally recognizes license fees as revenue using the
percentage of completion method over a period of time that commences with the
execution of a license agreement and ends when the product configuration is
completed and it is ready for use in the field. This period of time usually
includes initial customization or configuration and concludes with quality
assurance and testing. In those historically rare cases when there is no
initial customization or configuration the company generally recognizes the
license fees from those products upon delivery, assuming any services to be
provided are not essential to the functionality of the software. Additionally,
license revenues will be recognized immediately when user count for previously
delivered software increases and/or a third party is used for implementation
and configuration. The Company's software licensing agreements provide for a
warranty period (typically 180 days from the date of execution of the
agreement). The portion of the license fee associated with the warranty period
is unbundled from the license fee and is recognized ratably over the warranty
period. The Company does not recognize any license fees unless persuasive
evidence of an arrangement exists, the license amount is fixed and determinable
and collectability is probable.
F-7
<PAGE> 33
The Company recognizes license fees when it resells certain third party
software. 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,
1997, 1998 and 1999, the Company recorded $796,000, $1,208,000 and $1,640,000,
respectively, of license fees and $658,000, $922,000 and $706,000, 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 term of the agreements.
Services are generally provided under multiyear contracts. The contracts
specify the payment terms, which are generally over the term of the contract and
generally provide for termination in the event of breach, as defined in the
contract.
Deferred Revenues
Deferred revenues represent amounts collected from or invoiced to customers
in excess of revenues recognized. This predominantly occurs in two
situations A) Annual billings of software maintenance fees and B) Upfront
billings of license fees that are recognized over time. The value of deferred
revenues will increase and decrease based on the timing of invoices and
recognition of license revenues.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental Cash Flow Information
For the years ended December 31, 1997, 1998 and 1999, the Company paid
interest of $85,000, $86,000 and $42,000. For the years ended December 31, 1997,
1998 and 1999, the Company paid income taxes of $1,273,000, $7,776,000 and
$5,828,000, respectively.
The following table lists noncash assets that were acquired and liabilities
that were assumed as a result of the acquisitions discussed in Note 2:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1999
------------ -------------
Noncash assets:
<S> <C> <C>
Accounts receivable............................. $ 301,000 $ 1,826,000
Prepaid expenses................................ 59,000 --
Property and equipment.......................... 408,000 --
Capitalized software development costs.......... 850,000 1,989,000
Goodwill........................................ 2,226,000 7,235,000
------------ -------------
3,844,000 11,050,000
Assumed liabilities:
Accounts payable................................ (294,000) (243,000)
Income taxes payable............................ (121,000) (39,000)
Other accrued expenses.......................... (396,000) (300,000)
Deferred revenues............................... (107,000) (393,000)
Deferred taxes.................................. (323,000) --
------------ -------------
Net noncash assets acquired.................. 2,603,000 10,075,000
Write-off of in-process research and development.. 1,230,000 --
Purchase price paid in stock...................... (1,538,000) (3,435,000)
------------ -------------
Cash paid, net of cash acquired................... $ 2,295,000 $ 6,640,000
============ =============
</TABLE>
Short-Term Investments
The Company follows SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Management determines the appropriate
classification of debt and equity securities at the time of purchase and
reevaluates such designation as of each balance sheet date. The Company invests
in highly rated corporate bonds and municipal bonds. At December 31, 1998 and
1999, all marketable securities have been classified as available-for-sale.
Available-for-sale securities are carried at fair value, based on quoted
F-8
<PAGE> 34
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 and Purchased Capitalized Software
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, 1999, 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 $4,362,000 and $5,647,000 at December 31, 1998 and 1999, respectively. The
Company capitalized software development cost of $919,000, $1,637,000 and
$2,227,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Amortization of capitalized software development costs for the years ended
December 31, 1997, 1998 and 1999, was $1,100,000, $1,321,000 and $1,285,000,
respectively and is included in cost of license fees in the accompanying
consolidated statements of operations.
In connections with certain business acquisitions, the Company has
purchased software that was determined to have reached technological
feasibility. During 1998 the Company purchased $850,000 of capitalized software
in connection with the acquisition of Associated Business Computing N.V. and an
affiliated company (collectively, "ABC"). During 1999, the Company purchased
$1,989,000 of capitalized software in connection with the acquisition of
Marketing Management International, Inc. and subsidiaries (collectively, "MMI").
Capitalized software from the acquisition of other companies is net of
accumulated amortization of $71,000 and $440,000 at December 31, 1998 and 1999
respectively. Purchased capitalized software is being amortized on a
straight-line basis over a period ranging from five to seven years. Amortization
of purchased capitalized software for the years ended December 31, 1998 and 1999
was $71,000 and $369,000, respectively, and is included in cost of license fees
in the accompanying consolidated statement of operations.
In aggregate capitalized software development costs are net of accumulated
amortization of $4,433,000 and $6,087,000 at December 31, 1998 and 1999,
respectively. In aggregate amortization of capitalized software development
costs for the years ended December 31, 1997, 1998, and 1999, was $1,100,000
$1,392,000 and $1,654,000, respectively.
F-9
<PAGE> 35
Goodwill
Goodwill of $10,322,000 is being amortized on a straight-line basis over
five to seven years (see Note 2). Amortization of goodwill for the years ended
December 31, 1997, 1998 and 1999 was $172,000, $305,000 and $1,015,000,
respectively.
Impairment of Long-Lived Assets
The Company follows SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
reviews its long-lived assets, including property and equipment, capitalized
software development costs, and goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. To determine recoverability of its long-lived assets, the
Company evaluates the probability that future undiscounted net cash flows,
without interest charges, will be less than the carrying amount of the assets.
Impairment is measured at fair value.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates
that are expected to be in effect when the differences reverse.
At December 31, 1999, there were approximately $4,891,000 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
In the year ended December 31, 1997, the Company derived approximately 28%
and 13% of its revenues from its two largest customers. In the year ended
December 31, 1998, the Company derived approximately 31%, and 11% of its
revenues from its two largest customers, both of which were among the Company's
largest customers in 1997. In the year ended December 31, 1999, the Company
derived approximately 26%, and 11% of its revenues from its two largest
customers, both of which were among the Company's largest customers in 1997 and
1998.
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 Per Share
The Company has presented net income per share pursuant to Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," and the
Securities and Exchange Commission Staff Accounting Bulletin No. 98.
Basic income per share (Basic EPS) was computed by dividing the net income
for each year by the weighted average number of shares of common stock
outstanding for each year. Diluted income per share (Diluted EPS) was computed
by dividing net income for each year by the weighted average number of shares
of common stock and common stock equivalents outstanding during each year.
The computation of shares used for Basic EPS and Diluted EPS is as follows:
F-10
<PAGE> 36
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997 1998
------------------------------------------------ ----------------------------------------------
INCOME
LOSS SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------- ----------- ------------- ------------
<S> <C> <C>
Net income......... $ 4,775 $ 12,759
Basic EPS.......... 35,601 $0.13 36,080 $0.35
Effect of dilutive
securities
Stock options.... 1,269 3,312
------- -------
Diluted EPS........ 36,870 $0.13 39,392 $0.32
======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
1999
-----------------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -----------
<S> <C>
Net income......... $ 19,340
Basic EPS.......... 37,725 $0.51
Effect of dilutive
securities
Stock options.... 2,874
-----
Diluted EPS........ 40,599 $0.48
====== ====
</TABLE>
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
and is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Management believes that SFAS 133 will have no impact on the Company's
consolidated financial statements.
Recapitalization
In August 1998 and October 1999, the Company amended its articles of
incorporation to reflect a 2-for-1 and 3-for-2 forward stock split,
respectively, of its common shares and to change the number of authorized common
shares to 150,000,000. All references in the consolidated financial statements
to the number of shares and to per share amounts have been retroactively
restated to reflect these changes.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with current year presentation.
2. ACQUISITIONS:
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 consolidated
statements of operations. The Company also recorded $2,226,000 as goodwill and
$850,000 as capitalized software. ABC's results of operations have been included
in the Company's consolidated financial statements from the date of acquisition.
F-11
<PAGE> 37
On May 27, 1999, the Company exchanged 2,220,807 shares of its common stock
for all the outstanding shares of common stock of CorNet. The merger has been
accounted for under the pooling-of-interest method. Accordingly, the Company's
financial statements have been restated to reflect the acquisition of CorNet
under the pooling of interests method.
Separate results of Dendrite International, Inc. and CorNet for the three
month period and two years prior to the consummation of the merger are as
follows:
<TABLE>
<CAPTION>
Dendrite Cornet Combined
----------------------------------------------------------------
Three months ended March 31, 1999 (unaudited)
<S> <C> <C> <C>
Total Revenue $ 32,402,000 $ 5,232,000 $ 37,634,000
Net Income $ 3,688,000 $ 511,000 $ 4,199,000
Year ended December 31, 1998
Total revenue $ 112,518,000 $ 18,115,000 $ 130,633,000
Net income $ 11,267,000 $ 1,492,000 $ 12,759,000
Year ended December 31, 1997
Total revenue $ 78,446,000 12,876,000 $ 91,322,000
Net income $ 4,610,000 $ 165,000 $ 4,775,000
</TABLE>
On June 30, 1999, the Company purchased all of the assets of Marketing
Management International, Inc. ("MMI"), as well as assumed certain liabilities,
as defined, for $6,640,000 in cash, which includes estimated transaction costs,
and $3,435,000 in stock. The acquisition has been accounted for using the
purchase method with the purchase price allocated to the fair value of the
acquired assets and liabilities. The excess purchase price over the fair value
of the net assets acquired will be allocated between capitalized software
development costs and goodwill based upon an independent appraisal. The Company
recorded $7,235,000 as goodwill and $1,989,000 as capitalized software. MMI's
results of operations have been included in the Company's consolidated
financial statements from the date of acquisition.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Computer hardware and other equipment..... $ 10,596,000 $ 15,312,000
Furniture and fixtures.................... 2,188,000 2,590,000
Leasehold improvements.................... 2,028,000 2,420,000
------------- -------------
Gross Property and Equipment 14,812,000 20,322,000
Less -- Accumulated depreciation and
amortization............................ (7,591,000) (10,073,000)
------------- -------------
$ 7,221,000 $ 10,249,000
============= =============
</TABLE>
4. REVOLVING LINE OF CREDIT:
During the year ended December 31, 1998, the Company amended its revolving
line of credit agreement with a bank which provides for borrowings of up to
$15,000,000 and is available to finance working capital needs and possible
future acquisitions. The agreement requires, among other covenants, that the
Company maintain a minimum consolidated net worth, measured quarterly, which is
equal to the Company's net worth as of December 31, 1997 plus 50% of the
Company's net income earned after January 1, 1998, and 75% of the net proceeds
of any stock offerings. This covenant has the effect of limiting the amount of
cash dividends the Company may pay. As of December 31, 1999, approximately
$37,400,000 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.
In addition, CorNet maintained a line of credit with a bank which
permitted short term borrowings up to $1,500,000. Interest expense for this line
of credit for the years ended December 31, 1997, 1998 and 1999 was $45,000,
$35,000 and $42,000, respectively. This line of credit expired on June 30, 1999
and was not renewed.
F-12
<PAGE> 38
5. INCOME TAXES:
The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1998 1999
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Domestic... $ 6,226,000 $20,765,000 $ 29,663,000
Foreign.... 1,551,000 440,000 1,911,000
------------- ----------- -------------
$ 7,777,000 $21,205,000 $ 31,574,000
============= =========== =============
</TABLE>
The components of income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1998 1999
------------------------ ------------------------ ------------------------
Current Provision:
<S> <C> <C> <C>
Federal..................... $2,032,000 $ 7,797,000 $ 9,528,000
State....................... 31,000 295,000 1,612,000
Foreign..................... 190,000 329,000 1,070,000
---------- ------------ ------------
2,253,000 8,421,000 12,210,000
Deferred Provision (Benefit):
Federal..................... 25,000 (301,000) 524,000
State....................... 376,000 366,000 (8,000)
Foreign..................... 348,000 (40,000) (492,000)
---------- ------------ ------------
749,000 25,000 24,000
---------- ------------ ------------
$3,002,000 $ 8,446,000 $ 12,234,000
========== ============ ============
</TABLE>
The reconciliation of the statutory Federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate................................. 34.0% 34.0% 35.0%
Impact of foreign subsidiaries subject to higher (lower) tax
rates.................................................... 0.1 -- (0.3)
State income taxes, net of federal tax benefit............. 4.8 3.8 2.4
Nondeductible expenses..................................... 0.3 0.8 0.8
Write-off of in-process research and development........... -- 2.2 --
Nondeductible pooling costs................................ -- -- 2.2
Tax credits utilized....................................... (0.6) (1.0) (1.7)
Other...................................................... -- -- 0.3
---- ---- ----
38.6% 39.8% 38.7%
==== ==== ====
</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,
---------------------------------
1998 1999
------------- -------------
Gross deferred tax asset:
<S> <C> <C>
Depreciation and amortization........... $ 426,000 $ 377,000
Foreign net operating loss.............. 1,309,000 1,894,000
Accruals and revenues not currently
deductible........................... 301,000 1,026,000
Other................................... 475,000 145,000
------------- -------------
$ 2,511,000 $ 3,442,000
============= =============
Gross deferred tax liability:
Capitalized software development costs.. $ (1,357,000) $ (1,857,000)
Other................................... (2,322,000) (1,978,000)
------------- -------------
$ (3,679,000) $ (3,835,000)
============= =============
</TABLE>
The Company has recorded a deferred tax asset of $1,894,000 reflecting the
benefit of approximately $4,600,000 in foreign loss carryforwards, which expire
in varying amounts commencing in 2000. Realization is dependent on generating
sufficient foreign taxable income prior to the expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
F-13
<PAGE> 39
6. EQUITY PLANS:
STOCK OPTION PLANS
The Company has three stock option plans that provide for the granting of
options, the awarding of stock and the purchase of stock. Options granted under
the three stock option plans generally vest over a four-year period and are
exercisable over a period not to exceed ten years both as determined by the
Board of Directors. Incentive stock options are granted at fair value.
Nonqualified options are granted at exercise prices determined by the Board of
Directors.
Information with respect to the options under the three stock option plans
is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE WEIGHTED AVERAGE
SHARES PER SHARE EXERCISE PRICE
------ --------- --------------
<S> <C> <C> <C>
Outstanding December 31, 1996 1,754,550 $ 0.14 - $10.50 $ 3.60
Granted........................ 4,460,753 $ 2.09 - $ 6.98 4.70
Exercised...................... (394,226) $ 0.14 - $ 3.33 (0.48)
Canceled....................... (335,615) $ 0.14 - $10.50 (5.94)
---------- --------------- ------------
Outstanding December 31, 1997.... 5,485,462 $ 0.14 - $10.50 4.57
Granted........................ 1,888,620 $ 2.09 - $15.15 10.26
Exercised...................... (837,579) $ 0.14 - $10.50 (3.73)
Canceled....................... (564,841) $ 0.14 - $10.50 (4.38)
---------- --------------- ------------
Outstanding December 31, 1998.... 5,971,662 $ 0.14 - $15.15 6.51
Grants......................... 2,116,202 $10.97 - $27.88 17.52
Exercises...................... (1,551,242) $ 0.14 - $14.92 (4.70)
Canceled....................... (278,467) $ 1.45 - $19.79 (9.13)
---------- --------------- ------------
Outstanding December 31, 1999.... 6,258,155 $ 0.98 - $27.88 10.56
========== =============== ============
</TABLE>
At December 31, 1999, there were 2,211,088 options exercisable at
$0.98-$15.15 per share. The aggregate exercise price of these options was
$14,573,707 as of December 31, 1999.
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 and the employee stock purchase plan been determined
consistent with SFAS No. 123, the Company's net income and net income per share
would have been adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1998 1999
------------------------ ------------------------ ------------------------
Net income:
<S> <C> <C> <C>
As reported.................... $ 4,775,000 $ 12,759,000 $ 19,340,000
Pro forma...................... $ 2,473,000 $ 6,545,000 $ 11,483,000
Basic income per share:
As reported.................... $ .13 $ .35 $ .51
Pro forma...................... $ .07 $ .18 $ .30
Diluted income per share:
As reported.................... $ .13 $ .33 $ .48
Pro forma...................... $ .07 $ .17 $ .28
</TABLE>
Because the SFAS No. 123 method of accounting is not required to be applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. The weighted average fair value of options granted was $4.86, $11.35 and
$12.01 for the years ended December 31, 1997, 1998 and 1999, respectively.
Information with respect to the options outstanding under the three stock
option plans at December 31, 1999 is as follows:
F-14
<PAGE> 40
<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>
$0.98-$2.65 529,010 $ 2.38 7.38 229,840
$3.48-$6.42 2,311,653 $ 5.56 7.58 1,357,749
$7.83-$10.97 887,316 $ 9.07 7.91 482,330
$13.83-$14.92 583,907 $14.19 8.94 87,433
$15.08-$16.75 1,405,844 $16.58 9.27 53,736
$19.50-$27.85 540,425 $22.84 9.49 0
------------- ---------- ------ ---- ---------
6,258,155 $10.56 8.28 2,211,088
========== ====== ==== =========
</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 1997, 1998 and 1999: 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 4.0 to 6.0 years for the options; and expected
volatility of 70%.
EMPLOYEE STOCK PURCHASE PLAN
In 1997, the Company established an employee stock purchase plan that
provides full-time employees the opportunity to purchase shares at 85% of fair
value on dates determined by the Board of Directors, up to a maximum 10% of
their eligible compensation or $21,250, whichever is less. There were 450,000
shares available for purchase under this plan, of which 63,354, 83,787 and
72,122 were purchased in 1997,1998 and 1999, respectively.
ANNIVERSARY STOCK PLAN
The Company grants 200 shares of the Company's common stock to all
employees who commenced employment prior to December 31, 1998 in July following
their fifth anniversary of employment. The cost of the anniversary stock plan is
accrued over the employment period of the employees.
7. SAVINGS AND DEFERRED COMPENSATION PLANS:
The Company maintains Employee Savings Plans (the "Plans") that cover
substantially all of its full-time U.S. and U.K. employees. All eligible
employees may elect to contribute a portion of their wages to the Plans, subject
to certain limitations. In addition, the Company contributes to the Plans at the
rate of 50% of the employee's contributions up to a maximum of 3% of the
employee's salary. The Company's contributions to the Plans were $300,000,
$416,000 and $492,000 in the years ended December 31, 1997, 1998 and 1999,
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 $76,000, $74,000 and
$41,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
In 1998, the Company created a deferred compensation plan. Under the plan,
eligible, highly compensated employees, as defined, can elect to defer a portion
of their compensation and determine the nature of the investments which will be
used to calculate earnings on the deferred amounts. The Company will record the
deferrals as a liability and intends to place a corresponding amount into a
trust fund.
F-15
<PAGE> 41
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 $5,237,000, $5,992,000 and $7,390,000 for the years ended
December 31, 1997, 1998 and 1999, respectively. Future minimum rental payments
at December 31, 1999, on these leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000........ $ 6,639,000
2001........ 4,947,000
2002........ 2,338,000
2003........ 1,470,000
2004........ 632,000
Thereafter.. 544,000
-------------
$ 16,570,000
=============
</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 $33,000 and $15,000 for the years ended
December 31, 1997 and 1999, respectively, to an entity owned by the President
and Chief Executive Officer of the Company for rental and usage of an aircraft.
There were no payments made to this entity during 1998.
10. GEOGRAPHIC SEGMENT DATA:
See Note 1 for a brief description of the Company's business. The Company
is organized by geographic locations and has one reportable segment: the United
States. All license fees are recorded in the United States; service fees are
recorded in the location in which the sale originates and the service is
performed. All transfers between geographic areas have been eliminated from
consolidated net sales. Operating income consists of total net sales recorded in
the location less operating expenses and does not include interest income, other
expense or income taxes. This data is presented in accordance with SFAS No. 131
"Disclosure About Segments of an Enterprise and Related Information".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1998 1999
------------- -------------------- --------------
<S> <C> <C> <C>
Revenues:
United States............. $ 61,915,000 $ 103,765,000 $ 138,352,000
All Other................. 29,407,000 26,868,000 34,333,000
------------- -------------------- --------------
$ 91,322,000 $130,633,000 $172,685,000
============= ==================== ==============
Operating income:
United States............. $ 6,183,000 20,453,000 $ 26,893,000
All Other................. 1,324,000 119,000 2,991,000
------------- -------------------- --------------
$ 7,507,000 $ 20,572,000 $ 29,884,000
============= ==================== ==============
Identifiable assets:
United States............. $ 43,150,000 $ 67,211,000 $ 94,805,000
All Other................. 14,726,000 14,620,000 29,915,000
------------- -------------------- --------------
$ 57,876,000 $ 81,831,000 $ 124,720,000
============= ==================== ==============
</TABLE>
11. SUBSEQUENT EVENTS:
On January 6, 2000, the Company purchased all of the assets and assumed
certain liabilities, as defined, of Analytika, Inc. ("Analytika"), a provider
of advanced analytical products, consulting services and outsourced operations
services to the pharmaceutical industry. The final purchase price was
approximately $9,000,000 in stock and assumed liabilities, with transaction
costs of $400,000. The acquisition will be accounted for using the purchase
method with the purchase price allocated to the fair value of the acquired
assets and liabilities. The excess purchase price over the fair value of the
net assets acquired will be allocated between capitalized software development
costs and goodwill based upon an independent appraisal.
F-16
<PAGE> 42
EXHIBIT INDEX
Exhibit
No. Exhibit
3.1 Restated Certificate of Incorporation of the
Company, as amended (incorporated herein by
reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q, filed with the Securities and
Exchange Commission (the "Commission") June 30,
1996)
3.2 By-laws of the Company, as amended (incorporated
herein by reference to the Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995, filed with the Commission
November 13, 1995)
4.1 Specimen of Stock Certificate (incorporated herein
by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
4.2 Registration Rights Agreement dated October 2, 1991
between the several purchasers named therein and the
Company (incorporated herein by reference to Exhibit
4.2 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
4.3 Amendment to Registration Rights Agreement dated
April 23, 1992 between the Company and the parties
named therein as shareholders of the Company
(incorporated herein by reference to Exhibit 4.3 of
Amendment 1 to the Company's Registration Statement
on Form S-1, filed with the Commission May 17, 1995)
10.1 1992 Stock Plan, as amended.
10.2 1992 Senior Management Stock Option Plan, as
amended.
10.3 1997 Stock Incentive Plan , as amended.
10.4 1997 Employee Stock Purchase Plan (incorporated
herein by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-8, filed with the
Commission April 1, 1997)
10.5 Lease of 1200 Mount Kemble Avenue, Morristown, New
Jersey (incorporated herein by reference to Exhibit
10.40 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.6 Form of Indemnification Agreement dated as of
October 28, 1998 (incorporated herein by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q, filed with the Commission November 18,
1998)
10.7 Amended and Restated Credit Agreement, entered into
as of November 30, 1998, between the Company and The
Chase Manhattan Bank N.A. (incorporated herein by
reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K, filed with the commission March
26, 1999)
10.8 Employment Agreement dated March 25, 1997 with John
E. Bailye (incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q/A filed with the Commission May 16, 1997)
10.9 Employment Agreement dated June 2, 1997 with George
T. Robson (incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q, filed with the Commission August 14,
1997)
10.10 Employment Agreement dated June 9, 1997 with Mark
Cieplik (incorporated herein by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q,
filed with the Commission August 14, 1997)
10.11 Employment Agreement dated July 24, 1997 with Bruce
Savage
<PAGE> 43
(incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q,
filed with the Commission November 14, 1997)
10.12 Employment Agreement dated October 1, 1991 with
Teresa F. Winslow (incorporated herein by reference
to Exhibit 10.50 to the Company's Registration
Statement on Form S-1, filed with the Commission
February 5, 1996)
10.13 Consulting Agreement dated as of January 5, 1998
with Edward Kfoury (incorporated herein by reference
to exhibit 10.1 of the Company's Quarterly Report
filed with the Commission May 14, 1998.)
10.14 Deferred Compensation Plan dated as of September 1,
1998 (incorporated herein by reference to Exhibit
10.1 of the Company's Quarterly Report filed with
the Commission August 14, 1998.)
10.15 Deferred Compensation Plan Trust Agreement dated as
of September 1, 1998 (incorporated herein by
reference to Exhibit 10.2 of the Company's Quarterly
Report filed with the Commission August 14, 1998.)
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
27 Financial Data Schedule
<PAGE> 1
DENDRITE INTERNATIONAL, INC.
1992 STOCK PLAN
(AS AMENDED THROUGH MARCH 24, 2000(1))
1. PURPOSE. This 1992 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Dendrite International,
Inc. (the "Company"), its parent (if any) and any present or future subsidiaries
of the Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-qualified Options") (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options". Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board").
The Board may appoint a Stock Plan Committee (the "Committee") of
three or more of its members to administer this Plan. However, at
least two members of the Committee appointed by the Board to
administer the Plan and to perform the functions set forth herein
must be "outside directors" within the meaning of Section 162(m) of
the Code. If the Committee has been so appointed, no member of the
Committee, while a member, shall be eligible to participate in the
Plan. Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by the
Board (if so required by applicable state law), and subject to the
terms of the Plan, the Committee shall have the authority to (i)
determine the employees of the Company and Related Corporation (from
among the class of employees eligible under paragraph 3 to receive
ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make Purchases) to
whom Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at which
Options or Awards may be granted or Purchases made; (iii) determine
the Option price of shares subject to each Option, which price shall
not be less than the minimum price specified in paragraph 6, and the
purchase price of shares subject to each Purchase; (iv) determine
whether each Option granted shall be an ISO or a Non-Qualified
Option; (v) determine (subject to paragraph 7) the time or times when
each Option
- --------
(1) The Plan has been amended to reflect the three-for-two forward stock split
(the "Stock Split") of the Company's Common Stock which became effective on
October 8, 1999, and all share amounts and per share prices provided herein have
been adjusted to reflect such Stock Split.
1
<PAGE> 2
shall become exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase Options are to
be imposed on shares subject to Options, Awards and Purchases and the
nature of such restrictions, if any, and (vii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under Section 422 of the Code
and the regulations promulgated thereunder, to ensure that such
Option is not treated as an ISO. The interpretation and construction
by the Committee of any provisions of the Plan or of any Stock Right
granted under it shall be final unless otherwise determined by the
Board. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best. No member
of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any
Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and
place as it may determine. Acts by a majority of the Committee, or
acts reduced to or approved in writing by a majority of the members
of the Committee, shall be the valid acts of the Committee. From time
to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may
be granted to members of the Board, but any such grant shall be made
and approved in accordance with paragraph 2(D), if applicable. All
grants of Stock Rights to members of the Board shall in all other
respects be made in accordance with the provisions of this Plan
applicable to other eligible persons. Members of the Board who are
either (i) eligible for Stock Rights pursuant to the Plan or (ii)
have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant
to the Plan, except that no such member shall act upon the granting
to himself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting to him of
the Stock Rights.
D. COMPLIANCE WITH FEDERAL SECURITIES LAWS. In the event the
Company registers any class of any equity security pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any grant of Stock Rights to a member of the Board
(made at any time from the effective date of such registration until
six months after the termination of such registration) must be
approved by a majority vote of the Committee; provided, however, that
the Committee shall consist of two or more directors, each of whom is
a disinterested person, i.e., a director who is not, during the one
year prior to service as an administrator of the Plan, eligible to be
granted or awarded Options or equity securities pursuant to the Plan
or any other plan of the Company or a Related Company.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to an employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any
2
<PAGE> 3
individual or entity shall neither entitle that individual or entity to, nor
disqualify him from, participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, no par value per
share (the "Common Stock"), or shares of the Common Stock reacquired by the
Company in any manner. The aggregate number of shares, on a post-split adjusted
basis, which may be issued pursuant to Stock Rights under the Plan is 3,600,000,
subject to adjustment as provided in paragraph 13. If any Option granted under
the Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Awards or
authorizations to Purchase, the unpurchased shares subject to such Options and
any unvested shares so reacquired by the Company shall again be available for
grants of Stock Rights under the Plan. Subject to adjustment as provided in
paragraph 13, no employee shall be granted in any calendar year Options to
purchase more than 750,000 shares of Common Stock, on a post-split adjusted
basis.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time on or after January 21, 1992 and prior to January 20, 2002. The date
of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per
share specified in the agreement relating to each Non-Qualified
Option granted under the Plan shall in no event be less that the
lesser of (i) the book value per share of Common Stock as of the end
of the fiscal year of the company immediately preceding the date of
such grant, or (ii) fifty percent (50%) of the fair market value per
share of Common Stock on the date of such grant.
B. PRICE FOR ISOS. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not
be less than the fair market value per share of Common Stock on the
date of such grant. In the case of an ISO to be granted to an
employee owning stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or
any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on
the date of grant.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee
may be granted ISOs only to the extent that, in the aggregate under
this Plan and all incentive stock option plans of the Company and any
Related Corporation, such ISOs do not become exercisable for the
first time by such employee during any calendar year in a manner
which would entitle the employee to purchase more than $100,000 in
fair market value (determined at the time the ISOs were granted) of
Common Stock in that year. Any Options granted to an employee in
excess of such amount will be granted as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an
Option is granted under the Plan, the Common Stock is publicly
traded, "fair market value" shall be determined as of the last
business day for which prices or quotes are available prior to the
date such Option is granted and shall mean (i) the average (on that
date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is
3
<PAGE> 4
traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the Nasdaq National Market List, if the Common Stock
is not then traded on a national securities exchange; or (iii) the
closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq
National Market List. However, if the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as
determined by the Committee after taking into consideration all
factors which it deems appropriate, including, without limitation,
recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, which date shall be no more than (i) ten years and one day from the
date of grant in the case of Non-Qualified Options, (ii) ten years from the date
of grant in the case of ISOs other than those ISOs described in clause (iii),
and (iii) five years from the date of grant in the case of ISOs granted to an
employee owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Related
Corporation. Subject to earlier termination as provided in paragraphs 9 and 10,
the term of each ISO shall be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is converted
into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such
installments as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or
termination of the Option, unless otherwise specified by the
Committee.
C. PARTIAL EXERCISE. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for
up to the total number of shares with respect to which it is then
exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the
right to accelerate the date of exercise of any installment of any
Option; provided that the Committee shall not, without the consent of
an optionee, accelerate the exercise date of any installment of any
Option granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph 16) if
such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the
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Committee shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Company or any
Related Corporation to continue the employment of the optionee after the
approved period of absence. ISO's granted under the Plan shall not be affected
by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his death, any ISO
of his may be exercised, to the extent of the number of shares with
respect to which he could have exercised it on the date of his death,
by his estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution,
at any time prior to the earlier of the specified expiration date of
the ISO or 180 days from the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his disability,
he shall have the right to exercise any ISO held by him on the date
of termination of employment, to the extent of the number of shares
with respect to which he could have exercised it on that date, at any
time prior to the earlier of the specified expiration date of the ISO
or 180 days from the date of the termination of the optionee's
employment. For the purposes of the Plan, the term "disability" shall
mean "permanent and total disability" as defined in Section 22 (e)
(3) of the Code or successor statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS.
A. GENERAL TERMS AND CONDITIONS. Options shall be evidenced
by instruments (which need not be identical) in such forms as the
Committee may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in paragraphs 6 through
11 hereof and may contain such other provisions as the Committee
deems advisable which are not inconsistent with the Plan, including
restrictions applicable to shares of Common Stock issuable upon
exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject
to the restrictions set forth herein with respect to ISO's, or to
such other termination and cancellation provisions as the Committee
may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or
more officers of the Company to execute and deliver such instruments.
The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to
carry out the terms of such instruments.
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B. SPECIAL TERMS AND CONDITIONS. Without limiting the
generality of paragraph 12(A), the Committee may include in any such
instrument described in paragraph 12(A) one or more of the following
provisions:
1. ADDRESSING THE BEHAVIOR OF INDIVIDUALS
"The exercise of any Option after termination of employment
shall be subject to satisfaction of the condition precedent that the
optionee neither takes other employment nor renders services to
others without the written consent of the Company, nor conducts
himself/herself in a manner adversely affecting the Company."
2. LIMITING PUBLIC COMMENTS
"You agree not to make any false, misleading, or negative
statements, either orally or in writing, about the Company, its
Directors or organizations they represent, or its Officers or to
otherwise disparage them or any of them, and Dendrite's Directors and
the organizations they represent, and its Executive Officers, agree
not to make any false, misleading or negative statements, either
orally or in writing, about you or to otherwise disparage you. The
appropriate liquidated damages for each such incident will be
$25,000.00."
3. FORFEITURE OF BENEFITS
"The optionee acknowledges that a material part of the
inducement for the Company to enter into this agreement is the
optionee's covenants with respect to non-competition and
non-disparagement set forth in this agreement. The optionee agrees
that if he shall breach any of those covenants, the Company shall
have no further obligation to pay the optionee any benefits otherwise
payable hereunder (except as may otherwise be required at law) and
shall be entitled to such other legal and equitable relief as a court
or arbitrator shall reasonably determine, unless such breach is an
inadvertent breach that does not result in any significant harm to
the Company."
13. ADJUSTMENTS. Upon the occurrence of any of the events described in
subparagraphs A, B or D below, an optionee's rights with respect to Stock Rights
granted to him hereunder (and the securities reserved for issuance hereunder)
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the Stock Right recipient and the
Company relating to such Stock Right:
A. ADJUSTMENTS IN CAPITALIZATION. Subject to any specific
provisions in paragraph B below, in the event of any change in the
outstanding shares of Common Stock (including any increase or
decrease in such shares) by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other similar corporate change, or any
distributions to common stockholders other than regular cash
dividends, the Committee, the Board or the board of directors of any
entity assuming the obligations of the Company hereunder (the
"Successor Board") may make such substitution or adjustment, if any,
as it deems to be equitable, as to the number or kind of shares of
Common Stock or other securities reserved for issuance pursuant to
the Plan, or subject to outstanding ISOs, and to any other terms and
conditions of outstanding ISOs including the ISO exercise price.
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B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of
all or substantially all of the Company's assets or otherwise (an
"Acquisition"), the Committee, the Board, or the Successor Board,
shall, as to outstanding Options, either (i) make appropriate
provision for the continuation of such Options by substituting on an
equitable basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition; or (ii) upon written
notice to the optionees, provide that all Options must be exercised,
to the extent then exercisable, within a specified number of days of
the date of such notice, at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of the shares
subject to such ISOs (to the extent then exercisable) over the
exercise price thereof; or (iv) upon written notice to the optionees,
provided that all ISOs shall be immediately exercisable in full
regardless of any vesting schedule otherwise applicable.
C. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A or B with respect to
ISOs shall be made only after the Committee, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification
of such ISOs, it may refrain from making such adjustments.
D. DISSOLUTION OF LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at
such other time and subject to such other conditions as shall be
determined by the Committee.
E. FRACTIONAL SHARES. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash
in lieu of such fractional shares.
F. RESTRICTED COMMON STOCK. If any person or entity owning
restricted Common Stock obtained by exercise of a Stock Right made
hereunder receives shares or securities or cash in connection with a
corporate transaction described in subparagraph A or B above as a
result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and
restrictions applicable to the restricted Common Stock with respect
to which such shares or securities or cash were issued, unless
otherwise determined by the Committee or the Successor Board or
otherwise provided herein.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, or (c) at the discretion of the Committee, by delivery
of the grantee's personal recourse note bearing interest payable not less than
annually at not less than 100% of the lowest applicable Federal rate, as defined
in Section 1274(d) of the Code, or (d) at the discretion of the Committee,
through a cashless exercise procedure established with a broker dealer or (e) at
the discretion of the Committee, by any combination of (a), (b), (c) and (d)
above. If the committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in clauses (b), (c),
(d) or (e) of the preceding sentence, such discretion shall be
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exercised in writing at the time of the grant of the ISO in question. The holder
of a Stock Right shall not have the rights of a shareholder with respect to the
shares covered by his Stock Right until the date of issuance of a stock
certificate to him for such shares. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
January 21, 1992, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to January 20, 1993, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on January 20, 2002 (except as to Options outstanding on
that date). Subject to the provisions of paragraph 5 above, Stock Rights may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of stockholders obtained within 12 months before or
after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13); (b) the provisions of
paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c)
the provisions of paragraph 6(B) regarding the exercise price at which shares
may be offered pursuant to ISOs may not be modified (except by adjustment
pursuant to paragraph 13); and (d) the expiration date of the Plan may not be
extended. Except as otherwise provided in this paragraph 15, in no event may any
action of the Committee, the Board or stockholders alter or impair the rights of
a grantee, without his consent, under any Stock Right previously granted to him.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At the
time of such conversion, the Committee (with the consent of the optionee) may
impose such conditions on the exercise of the resulting Non-Qualified Options as
the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such conversion.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
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19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of any Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW: CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the Laws
of the State of New Jersey, without regard to the conflict of laws provisions
thereof. In construing this Plan, the singular shall include the plural and the
masculine gender shall include the feminine and neuter, unless the context
otherwise requires.
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DENDRITE INTERNATIONAL, INC.
1992 SENIOR MANAGEMENT INCENTIVE STOCK OPTION PLAN
(AS AMENDED THROUGH MARCH 24, 2000(1))
1. PURPOSE. This 1992 Senior Management Incentive Stock Option Plan
(the "Plan") is intended to provide incentives: (a) to the senior managers of
Dendrite International, Inc. (the "Company"), its parent (if any) and any
present or future subsidiaries of the Company (collectively, "Related
Corporations") by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which qualify as "incentive stock
options" under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code") ("ISO" or "ISOs"). As used in this Plan, the term "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board").
The Board may appoint a Stock Plan Committee (the "Committee") of
three or more of its members to administer this Plan. However, at
least two members of the Committee appointed by the Board to
administer the Plan and to perform the functions set forth herein
must be "outside directors" within the meaning of Section 162(m) of
the Code. If the Committee has been so appointed, no member of the
Committee, while a member, shall be eligible to participate in the
Plan or any other option plan of the Company. All references in this
Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of
each ISO by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee shall have the
authority to determine the employees of the Company and Related
Corporation (from among the class of employees eligible under
paragraph 3 to receive ISOs) to whom ISOs may be granted; (ii)
determine the time or times at which ISOs may be granted; (iii)
determine the option price of shares subject to each ISO, which price
shall not be less than the minimum price specified in paragraph 6;
(iv) determine (subject to paragraph 7) the time or times when each
ISO shall become exercisable and the duration of the exercise period;
(v) determine whether restrictions such as repurchase options are to
be imposed on shares subject to ISOs and the nature of such
restrictions, if any, and (vi) interpret the Plan and prescribe and
rescind rules and regulations relating to it. The interpretation and
construction by the Committee of any provisions of the Plan or of any
ISO granted under it shall be final unless otherwise determined by
the Board. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best. No member
of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any ISO
granted under it.
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(1) The Plan has been amended to reflect the three-for-two forward stock split
(the "Stock Split") of the Company's Common Stock which became effective on
October 8, 1999, and all share amounts and per share prices provided herein have
been adjusted to reflect such Stock Split.
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B. COMMITTEE ACTIONS. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and
place as it may determine. Acts by a majority of the Committee, or
acts reduced to or approved in writing by a majority of the members
of the committee, shall be the valid acts of the Committee. From time
to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
C. GRANT OF ISOS TO BOARD MEMBERS. ISOs may not be granted
to members of the Board under the terms of this Plan.
3. ELIGIBLE EMPLOYEES. ISOs may be granted to any employee of the
Company or any Related Corporation who is a senior manager. Employees of the
Company who are not senior managers may not be granted ISOs under the Plan. The
Committee may take into consideration a recipient's individual circumstances in
determining whether to grant an ISO. Granting of any ISO to any individual or
entity shall neither entitle that individual or entity to, nor disqualify him
from, participation in any other grant of stock rights under any other plan of
the Company. For purposes of this Plan, a "senior manager" shall include (i) any
employee in the United States or Japan who holds the position of Corporate
Executive or Senior Director, and (ii) any employee in Europe who holds the
position of Country Manager or European Regional Manager.
4. STOCK. The stock subject to ISOs shall be authorized but unissued
shares of Common Stock of the Company, no par value per share (the "Common
Stock"), or shares of the Common Stock reacquired by the Company in any manner.
The aggregate number of shares, on a post-split adjusted basis, which may issued
as ISOs pursuant to the Plan is 1,200,000, subject to adjustment as provided in
paragraph 13. If any ISO granted under the Plan expires or terminates for any
reason without having been exercised in full or ceases for any reason to be
exercisable in whole or in part, the unpurchased shares subject to such ISOs
shall again be available for grants of ISOs under the Plan. Subject to
adjustment as provided in paragraph 13, no employee shall be granted in any
calendar year ISOs to purchase more than 750,000 shares of Common Stock, on a
post-split adjusted basis.
5. GRANTING OF ISOS. ISOs may be granted under the Plan at any time
on or after October 21, 1992 and prior to October 20, 2002. The date of grant of
an ISO under the Plan will be the date specified by the Committee at the time it
grants the ISO; provided, however, that such date shall not be prior to the date
on which the Committee acts to approve the grant. The Committee shall have the
right, with the consent of the optionee, to convert an ISO granted under the
Plan to a non-qualified option pursuant to paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR ISOS. The exercise price per share specified
in the agreement relating to each ISO granted under the Plan shall
not be less than the fair market value per share of Common Stock on
the date of such grant. In the case of an ISO to be granted to an
employee owning stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock on the Company or
any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not
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be less than one hundred ten percent (110%) of the fair market value
per share of Common Stock on the date of grant.
B. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible
employee may be granted ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option plans of the
Company and any Related Corporation, such ISOs do not become
exercisable for the first time by such employee during any calendar
year in a manner which would entitle the employee to purchase more
than $100,000 in fair market value (determined at the time the ISOs
were granted) of Common Stock in that year. Any options granted to an
employee in excess of such amount will be granted as non-qualified
options.
C. DETERMINATION OF FAIR MARKET VALUE. If, at the time an
ISO is granted under the Plan, the Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day
for which the prices or quotes are available prior to the date such
ISO is granted and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the
Common Stock is then traded on a national securities exchange; or
(ii) the last reported sale price (on that date) of the Common Stock
on the Nasdaq National Market List, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the
Common Stock is not reported on the Nasdaq National Market List.
However, if the Common Stock is not publicly traded at the time an
ISO is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at
arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each ISO shall expire on the date specified by the
Committee, which date shall be no more than (i) ten years from the date of grant
in the case of ISOs other than those ISOs described in clause (ii), and (ii)
five years from the date of grant in the case of ISOs granted to an employee
owning stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Related Corporation. Subject
to earlier termination as provided in paragraphs 9 and 10, the term of each ISO
shall be the term set forth in the original instrument granting such ISO, except
with respect to any part of such ISO that is converted into a non-qualified
option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each ISO granted under the Plan shall be exercisable as follows:
A. VESTING. The ISO shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such
installments as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment
becomes exercisable it shall remain exercisable until expiration or
termination of the ISO, unless otherwise specified by the Committee.
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C. PARTIAL EXERCISE. Each ISO or installment may be
exercised at any time or from time to time, in whole or in part, for
up to the total number of shares with respect to which it is then
exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the
right to accelerate the date of exercise of any installment of any
ISO; provided that the Committee shall not, without the consent of an
optionee, accelerate the exercise date of any installment of any ISO
granted to any employee (and not previously converted into a
non-qualified option pursuant to paragraph 16) if such acceleration
would violate the annual vesting limitation contained in Section
422(d) of the Code, as described in paragraph 6(B).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be
employed by the Company and all Related Corporations other than by reason of
death or disability as defined in paragraph 10, no further installment of his
ISOs shall become exercisable, and his ISOs shall terminate after the passage of
ninety (90) days from the date of termination of his employment, but in no event
later than on their specified expiration dates, except to the extent that such
ISOs (or unexercised installments thereof) have been converted into
non-qualified options pursuant to paragraph 16. Employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute. A
bona fide leave of absence with the written approval of the Committee shall not
be considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISO's granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any guarantee of any ISO the right to be
retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his death, any ISO
of his may be exercised, to the extent of the number of shares with
respect to which he could have exercised it on the date of his death,
by his estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution,
at any time prior to the earlier of the specified expiration date of
the ISO or 180 days from the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his disability,
he shall have the right to exercise any ISO held by him on the date
of termination of employment, to the extent of the number of shares
with respect to which he could have exercised it on that date, at any
time prior to the earlier of the specified expiration date of the ISO
or 180 days from the date of the termination of the optionee's
employment. For the purposes of the Plan, the term "disability" shall
mean "permanent and total disability" as defined in Section 22 (e)
(3) of the Code or successor statute.
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11. ASSIGNABILITY. No ISO shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each ISO shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS.
A. GENERAL TERMS AND CONDITIONS. ISOs shall be evidenced by
instruments (which need not be identical) in such forms as the
Committee may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in paragraphs 6 through
11 of this Plan and may contain such other provisions as the
Committee deems advisable which are not inconsistent with the Plan,
including restrictions applicable to shares of Common stock issuable
upon exercise of Options. The Committee may from time to time confer
authority and responsibility on one or more of its own members and/or
one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and
directed to take any and all action necessary or advisable from time
to time to carry out the terms of such instruments.
B. SPECIAL TERMS AND CONDITIONS. Without limiting the
generality of paragraph 12(A), the Committee may include in any such
instrument described in paragraph 12(A) one or more of the following
provisions:
1. ADDRESSING THE BEHAVIOR OF INDIVIDUALS
"The exercise of any Option after termination of employment
shall be subject to satisfaction of the condition precedent that the
optionee neither takes other employment nor renders services to
others without the written consent of the Company, nor conducts
himself/herself in a manner adversely affecting the Company."
2. LIMITING PUBLIC COMMENTS
"You agree not to make any false, misleading, or negative
statements, either orally or in writing, about the Company, its
Directors or organizations they represent, or its Officers or to
otherwise disparage them or any of them, and Dendrite's Directors and
the organizations they represent, and its Executive Officers, agree
not to make any false, misleading or negative statements, either
orally or in writing, about you or to otherwise disparage you. The
appropriate liquidated damages for each such incident will be
$25,000.00."
3. FORFEITURE OF BENEFITS
"The optionee acknowledges that a material part of the
inducement for the Company to enter into this agreement is the
optionee's covenants with respect to non-competition and
non-disparagement set forth in this agreement. The optionee agrees
that if he shall breach any of those covenants, the Company shall
have no further obligation to pay the optionee any benefits otherwise
payable hereunder (except as may otherwise be required at law) and
shall be entitled to such other legal and equitable relief as a court
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<PAGE> 6
or arbitrator shall reasonably determine, unless such breach is an
inadvertent breach that does not result in any significant harm to
the Company."
13. ADJUSTMENTS. Upon the occurrence of any of the events described
in subparagraphs A, B or D below, an optionee's rights with respect to ISOs
granted to him under this Plan (and the securities reserved for issuance
hereunder), shall be adjusted as provided in this paragraph unless otherwise
specifically provided in the written agreement between the optionee and the
Company relating to such ISO:
A. ADJUSTMENTS IN CAPITALIZATION. Subject to any specific
provisions in paragraph B below, in the event of any change in the
outstanding shares of Common Stock (including any increase or
decrease in such shares) by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other similar corporate change, or any
distributions to common stockholders other than regular cash
dividends, the Committee, the Board or the board of directors of any
entity assuming the obligations of the Company hereunder (the
"Successor Board") may make such substitution or adjustment, if any,
as it deems to be equitable, as to the number or kind of shares of
Common Stock or other securities reserved for issuance pursuant to
the Plan, or subject to outstanding ISOs, and to any other terms and
conditions of outstanding ISOs including the ISO exercise price.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of
all or substantially all of the Company's assets or otherwise (an
"Acquisition"), the Committee, the Board, or the Successor Board,
shall, as to outstanding ISOs, either (i) make appropriate provision
for the continuation of such ISOs by substituting on a equitable
basis for the shares then subject to such ISOs the consideration
payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition; or (ii) upon written notice to the
optionees, provide that all ISOs must be exercised, to the extent
then exercisable, within a specified number of days of the date of
such notice, at the end of which period the ISOs shall terminate; or
(iii) terminate all ISOs in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such ISOs
(to the extent then exercisable) over the exercise price thereof; or
(iv) upon written notice to the optionees, provide that all ISOs
shall be immediately exercisable in full regardless of any vesting
schedule otherwise applicable.
C. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A or B with respect to
ISOs shall be made only after the Committee, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification
of such ISOs, it may refrain from making such adjustments.
D. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each ISO will terminate
immediately prior to the consummation of such proposed action or at
such other time and subject to such other conditions as shall be
determined by the Committee.
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<PAGE> 7
E. FRACTIONAL SHARES. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash
in lieu of such fractional shares.
F. RESTRICTED COMMON STOCK. If any person or entity owning
restricted Common Stock obtained by exercise of a ISO under this Plan
receives shares or securities or cash in connection with a corporate
transaction described in subparagraphs A or B above as a result of
owning such restricted Common Stock such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable
to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the
Committee or the Successor Board.
14. MEANS OF EXERCISING ISOS. A ISO (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the ISO being exercised and
specify the number of shares as to which such ISO is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, or (b) at the discretion of the Committee,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the ISO, or (c) at the
discretion of the Committee, by delivery of the grantee's personal recourse note
bearing interest payable not less than annually at not less than 100% of the
lowest applicable Federal rate, as defined in section 1274(d) of the Code, or
(d) at the discretion of the Committee, through a cash-less exercise procedure
established with a broker-dealer, or (e) at the discretion of the Committee, by
any combination of (a), (b), (c) and (d) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c), (d), or (e) of the preceding sentence,
such discretion shall be exercised in writing at the time of the grant of the
ISO in question. The holder of an ISO shall not have the rights of a shareholder
with respect to the shares covered by his ISO until the date of issuance of a
stock certificate to him for such shares. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
October 21, 1992, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders, or in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to October 20, 1993, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on October 20, 2002 (except as to ISOs outstanding on that
date). Subject to the provisions of paragraph 5 above, ISOs may be granted under
the plan prior to the date of stockholder approval of the plan. The Board may
terminate or amend the Plan in any respect at any time, except that, without the
approval of the stockholders obtained within 12 months before or after the Board
adopts a resolution authorizing any of the following actions: (a) the total
number of shares that may be issued under the Plan may not be increased (except
by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may any action of the
Committee, the Board or stockholders alter or impair the rights of a grantee,
without his consent,
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<PAGE> 8
under any ISO previously granted to him. In the event of a conversion of any ISO
into a non-qualified option, all references to ISOs shall be deemed to apply, to
the extent appropriate, to such non-qualified option.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF
ISOS. The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments there of) that have not been
exercised on the date of conversion into non-qualified options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may included, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting non-qualified
options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into non-qualified options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such conversion.
17. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of shares pursuant to ISOs issued under the Plan shall be used for
general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
non-qualified option, or the making of a Disqualifying Disposition (as defined
in paragraph 20), the Company, in accordance with Section 3402(a) of the Code,
may require the optionee to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition the exercise of an ISO on the
grantee's payment of such additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirement do
not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
Plan and the instrument evidencing ISOs shall be governed by the Laws of the
State of New Jersey, without regard to the conflict of laws provisions thereof.
In construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
8
<PAGE> 1
DENDRITE INTERNATIONAL, INC.
1997 STOCK INCENTIVE PLAN
(AS AMENDED THROUGH MARCH 24, 2000(1))
1. Purpose. The purpose of the Dendrite International, Inc.
1997 Stock Incentive Plan (the "Plan") is to enhance the ability of Dendrite
International, Inc. (the "Company") and its subsidiaries to attract and retain
employees, directors and consultants of outstanding ability and to provide
employees, directors and consultants with an interest in the Company parallel to
that of the Company's shareholders.
2. Definitions.
(a) "Award" shall mean an award determined in
accordance with the terms of the Plan.
(b) "Board" shall mean the Board of Directors of
the Company.
(c) "Change in Control" shall mean the occurrence
of any one of the following events:
(i) any "person" (as such term
is defined in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing
33-1/3% or more of the combined voting power of the Company's then
outstanding securities eligible to vote for the election of the Board
(the "Company Voting Securities"); provided, however, that the event
described in this paragraph (i) shall not be deemed to be a Change in
Control by virtue of any of the following acquisitions: (A) by the
Company or any subsidiary, (B) by any employee benefit plan sponsored
or maintained by the Company or any subsidiary, (C) by any
underwriter temporarily holding securities pursuant to an offering of
such securities, (D) pursuant to a Non-Control Transaction (as
defined in paragraph (iii)), or (E) a transaction (other than one
described in (iii) below) in which Company Voting Securities are
acquired from the Company, if a majority of the Incumbent Board (as
defined below) approves a resolution providing expressly that the
acquisition pursuant to this clause (E) does not constitute a Change
in Control under this paragraph (i);
(ii) individuals who, on the
Effective Date, constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the Effective Date,
whose election or nomination for election was approved by a vote of
at least two-thirds of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be considered a member of
the Incumbent Board; provided, however, that no individual initially
elected or nominated as a director of the Company as a result of an
actual or threatened election contest with
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(1) The Plan has been amended to reflect the three-for-two forward stock split
(the "Stock Split") of the Company's Common Stock which became effective on
October 8, 1999, and all share amounts and per share prices provided herein have
been adjusted to reflect such Stock Split.
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<PAGE> 2
respect to directors or any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other than the
Board shall be deemed to be a member of the Incumbent Board;
(iii) the shareholders of the
Company approve a merger, consolidation, share exchange or similar
form of corporate reorganization of the Company or any such type of
transaction involving the Company or any of its subsidiaries (whether
for such transaction or the issuance of securities in the transaction
or otherwise) (a "Business Combination"), unless immediately
following such Business Combination: (A) more than 50% of the total
voting power of the publicly traded corporation resulting from such
Business Combination (including, without limitation, any corporation
which directly or indirectly has beneficial ownership of 100% of the
Company Voting Securities or all or substantially all of the assets
of the Company and its subsidiaries) eligible to elect directors of
such corporation would be represented by shares that were Company
Voting Securities immediately prior to such Business Combination
(either by remaining outstanding or being converted), and such voting
power would be in substantially the same proportion as the voting
power of such Company Voting Securities immediately prior to the
Business Combination, (B) no person (other than any publicly traded
holding company resulting from such Business Combination, any
employee benefit plan sponsored or maintained by the Company (or the
corporation resulting from such Business Combination), or any person
which beneficially owned, immediately prior to such Business
Combination, directly or indirectly, 33-1/3% or more of the Company
Voting Securities (a "Company 33-1/3% Stockholder")) would become the
beneficial owner, directly or indirectly, of 33-1/3% or more of the
total voting power of the outstanding voting securities eligible to
elect directors of the corporation resulting from such Business
Combination and no Company 33-1/3% Stockholder would increase its
percentage of such total voting power, and (C) at least a majority of
the members of the board of directors of the corporation resulting
from such Business Combination would be members of the Incumbent
Board at the time of the Board's approval of the execution of the
initial agreement providing for such Business Combination (a
"Non-Control Transaction"); or
(iv) the shareholders of the
Company approve a plan of complete liquidation or dissolution of the
Company or the sale or disposition of all or substantially all of the
Company's assets.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 33-1/3% of the Company Voting Securities as a result of
the acquisition of Company Voting Securities by the Company which, by reducing
the number of Company Voting Securities outstanding, increases the percentage of
shares beneficially owned by such person; provided, that if a Change in Control
of the Company would occur as a result of such an acquisition by the Company (if
not for the operation of this sentence), and after the Company's acquisition
such person becomes the beneficial owner of additional Company Voting Securities
that increases the percentage of outstanding Company Voting Securities
beneficially owned by such person, then a Change in Control of the Company shall
occur.
(d) "Code" shall mean the Internal Revenue
Code of 1986, as amended.
(e) "Committee" shall mean a committee of
at least two members of the Board appointed by the Board to administer the Plan
and to perform the functions set forth herein and
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<PAGE> 3
who are "non-employee directors" within the meaning of Rule 16b-3 as promulgated
under Section 16 of the Exchange Act and who are also "outside directors" within
the meaning of Section 162(m) of the Code.
(f) "Common Stock" shall mean the common
stock, no par value per share, of the Company.
(g) "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
(h) "Fair Market Value" per share as of a
particular date shall mean the last reported sale price (on the day immediately
preceding such date) of the Common Stock on the Nasdaq National Market List.
(i) "Immediate Family Member" shall mean,
except as otherwise determined by the Committee, a Participant's children,
stepchildren, grandchildren, parents, stepparents, grandparents, spouse,
siblings, in-laws and persons related by reason of legal adoption.
(j) "Incentive Stock Option" shall mean a
stock option which is intended to meet the requirements of Section 422 of the
Code.
(k) "Non-Employee Director" shall mean a
member of the Board who is not an employee of the Company or any Subsidiary.
(l) "Nonqualified Stock Option" shall mean
a stock option which is not intended to be an Incentive Stock Option.
(m) "Option" shall mean either an
Incentive Stock Option or a Nonqualified Stock Option.
(n) "Participant" shall mean an employee,
director or consultant of the Company or its Subsidiaries who is selected to
participate in the Plan in accordance with Section 5.
(o) "Subsidiary" shall mean any subsidiary
of the Company that is a corporation and which at the time qualifies as a
"subsidiary corporation" within the meaning of Section 424(f) of the Code.
3. Shares Subject to the Plan. Subject to adjustment in
accordance with Section 16, the total of the number of shares of Common Stock
which shall be available for issuance pursuant to the grant of Awards under the
Plan shall not exceed 6,000,000 shares, on a post-split adjusted basis;
provided, that for purposes of this limitation, any Option which is canceled or
expires without exercise shall again become available for Awards under the Plan.
Upon forfeiture of Awards in accordance with the provisions of the Plan, and the
terms and conditions of the Award, such shares shall no longer be counted in any
determination of the number of shares available under the Plan and shall be
available for subsequent Awards. To the extent that the exercise price of any
Option granted under the Plan is satisfied by tendering shares of Common Stock
to the Company (either by actual delivery or by attestation), then subject to
the requirements of Section 422 of the Code in connection with any
stock-for-stock exercise of Incentive Stock Options, only the number of shares
of Common Stock issued, net of the shares tendered, shall be deemed delivered
for purposes of determining the total number of shares of Common Stock available
for issuance under the Plan. Subject to adjustment in accordance with Section
16, no employee shall be granted in any calendar year Options to purchase more
than 1,500,000 shares of Common Stock.
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<PAGE> 4
Shares of Common Stock available for issue or distribution under the Plan shall
be authorized and unissued shares or shares reacquired by the Company in any
manner.
4. Administration. (a) The Plan shall be
administered by the Committee.
(b) The Committee shall (i) approve the
selection of Participants, (ii) determine the type of Awards to be made to
Participants, (iii) determine the number of shares of Common Stock subject to
Awards, (iv) determine the terms and conditions of any Award granted hereunder
(including, but not limited to, any restriction and forfeiture conditions on
such Award) and (v) have the authority to interpret the Plan, to establish,
amend, and rescind any rules and regulations relating to the Plan, to determine
the terms and provisions of any agreements entered into hereunder, and to make
all other determinations necessary or advisable for the administration of the
Plan. The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Award in the manner and to the extent it
shall deem desirable to carry it into effect.
(c) Any action of the Committee shall be
final, conclusive and binding on all persons, including the Company and its
Subsidiaries and shareholders, Participants and persons claiming rights from or
through a Participant.
(d) The Committee may delegate to officers
or employees of the Company or any Subsidiary, and to service providers, the
authority, subject to such terms as the Committee shall determine, to perform
administrative functions with respect to the Plan and Award agreements.
(e) Members of the Committee and any
officer or employee of the Company or any Subsidiary acting at the direction of,
or on behalf of, the Committee shall not be personally liable for any action or
determination taken or made in good faith with respect to the Plan, and shall,
to the extent permitted by law, be fully indemnified by the Company with respect
to any such action or determination.
5. Eligibility. Individuals eligible to receive
Awards under the Plan shall be the directors, officers, other key employees and
selected consultants of the Company and its Subsidiaries selected by the
Committee. In addition, all Non-Employee Directors shall be eligible to receive
Options as provided in Section 9 hereof.
6. Awards. Awards under the Plan may consist of
Options, stock awards or other awards based on the value of the Common Stock.
Awards shall be subject to the terms and conditions of the Plan and shall be
evidenced by an agreement containing such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall deem
desirable.
7. Options. Options may be granted under the Plan
in such form as the Committee may from time to time approve pursuant to terms
set forth in an Option agreement. The Committee may alter or waive, at any time,
any term or condition of an Option that is not mandatory under the Plan.
(a) Types of Options. Each Option
agreement shall state whether or not the Option will be treated as an Incentive
Stock Option or Nonqualified Stock Option. Incentive Stock Options shall only be
granted to employees of the Company and its Subsidiaries.
(b) Option Price. The purchase price per
share of the Common Stock purchasable under an Option shall be determined by the
Committee, but in the case of Incentive Stock Options, the Option price will be
not less than 100% of the Fair Market Value of the Common Stock on the date of
the grant of the Option and in the case of Incentive Stock Options granted to an
employee
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<PAGE> 5
owning stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company and its Subsidiaries (a "10% Shareholder") the
price per share specified in the agreement relating to such Option shall not be
less than 110% of the Fair Market Value per share of the Common Stock on the
date of grant.
(c) Option Period. The term of each
Option shall be fixed by the Committee, but no Option shall be exercisable after
the expiration of 10 years from the date the Option is granted, provided,
however, that in the case of Incentive Stock Options granted to 10%
Shareholders, the term of such Option shall not exceed 5 years from the date of
grant.
(d) Exercisability. Each Option shall vest
and become exercisable at a rate determined by the Committee at or subsequent to
grant.
(e) Method of Exercise. Options may be
exercised, in whole or in part, by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be purchased. Such
notice shall be accompanied by the payment in full of the Option purchase price.
Such payment shall be made: (a) in cash, or (b) to the extent authorized by the
Committee, by surrender of shares of Common Stock owned by the holder of the
Option, or (c) through simultaneous sale through a broker of shares acquired on
exercise, as permitted under Regulation T of the Federal Reserve Board, or (d)
through additional methods prescribed by the Committee, or (e) by a combination
of any such methods.
8. Stock Awards. Subject to such performance and
employment conditions as the Committee may determine, awards of Common Stock or
awards based on the value of the Common Stock may be granted either alone or in
addition to Options granted under the Plan. Any Awards under this Section 8 and
any Common Stock covered by any such Award may be forfeited to the extent so
provided in the Award agreement, as determined by the Committee.
9. Non-Employee Director Stock Options.
(a) Initial Grant. Nonqualified Stock
Options to purchase 30,000 shares of Common Stock shall be granted automatically
to each Non-Employee Director who is a Non-Employee Director on the day the
Board approves the adoption of the Plan. With respect to each person who becomes
a Non-Employee Director after such date, Nonqualified Stock Options shall be
granted to each such Non-Employee Director on the day he or she first becomes a
Non-Employee Director. The number of shares of Common Stock to be subject to
such Options granted under this Section 9(a), the exercise price, and all other
terms (not inconsistent with the Plan) of such Options, shall be determined by
the Committee or the Board in their discretion.
(b) Subsequent Options. In addition to
the Nonqualified Stock Options granted to Non-Employee Directors under Section
9(a), Nonqualified Stock Options may be granted from time to time to each
Non-Employee Director. The number of shares of Common Stock to be subject to
such Options granted under this Section 9(b), the exercise price, and all other
terms (not inconsistent with the Plan) of such Options, shall be determined by
the Committee or the Board in their discretion.
(c) Option Price. The purchase price for
each Option granted under this Section 9 to a Non-Employee Director shall be the
Fair Market Value of the Common Stock on the date of grant of the Option.
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<PAGE> 6
(d) Exercisability. Each Initial Option
and Subsequent Option granted under this Section 9 shall become exercisable and
vest on the first anniversary of the date of grant of such Option.
(e) Method of Exercise. Each Option
granted under this Section 9 may be exercised in the same manner as provided in
Section 7(e).
(f) Option Period. Each Option granted
under this Section 9 shall terminate 10 years from the date of grant unless
sooner terminated by reason of termination of service as a director of the
Company and its Subsidiaries.
(g) Termination of Director Status.
(i) In the event of termination
of service as a director of the Company and its Subsidiaries for any
reason other than cause, death or permanent disability (as determined
by the Committee), an Option granted under this Section 9 (to the
extent exercisable as of the date of termination) shall be
exercisable for the remaining term of the Option and shall thereafter
terminate.
(ii) In the event of the death of
a Non-Employee Director while a director of the Company or any
Subsidiaries, the Option (to the extent exercisable as of the date of
death), shall be exercisable by any prior transferee or by the
Non-Employee Director's designated beneficiary, or if none, the
person(s) to whom such Non-Employee Director's rights under the
Option are transferred by will or the laws of descent and
distribution for 180 days following the date of death (but in no
event beyond the term of the Option), and shall thereafter terminate.
(iii) In the event of the
termination of service as a director of the Company and its
Subsidiaries due to permanent disability (as determined by the
Committee), the Option (to the extent exercisable as of the date of
termination), shall be exercisable for 180 days following such
termination of service (but in no event beyond the term of the
Option), and shall thereafter terminate.
(iv) In the event of the
termination of service as a director of the Company and its
Subsidiaries for cause (as determined by the Committee in its sole
discretion), the Option shall terminate upon such termination of
status as director, regardless of whether the Option was then
exercisable.
(h) Except as expressly provided in this
Section 9, any Option granted to a Non-Employee Director hereunder shall be
subject to the terms and conditions of the Plan.
10. Change in Control. Upon the occurrence of a
Change in Control, all Options shall automatically become vested and exercisable
in full and all restrictions or conditions, if any, on any stock awards granted
hereunder shall automatically lapse. The Committee may, in its discretion,
include such further provisions and limitations in any agreement documenting
such Options as it may deem equitable and in the best interests of the Company.
11. Forfeiture. Notwithstanding anything in the Plan
to the contrary, the Committee may provide in any Award agreement that in the
event of a serious breach of conduct by the person granted such Award
(including, without limitation, any conduct prejudicial to or in conflict with
the Company or its Subsidiaries), or any activity of any such person in
competition with any of the businesses
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<PAGE> 7
of the Company or any Subsidiary, (a) cancel any outstanding Award granted to
such person, in whole or in part, whether or not vested, and/or (b) if such
conduct or activity occurs within 1 year following the exercise or payment of an
Award, require such person to repay to the Company any gain realized or payment
received upon the exercise or payment of such Award (with such gain or payment
valued as of the date of exercise or payment). Such cancellation or repayment
obligation shall be effective as of the date specified by the Committee. Any
repayment obligation may be satisfied in Common Stock or cash or a combination
thereof (based upon the Fair Market Value of Common Stock on the day prior to
the date of payment), and the Committee may provide for an offset to any future
payments owed by the Company or any Subsidiary to such person if necessary to
satisfy the repayment obligation. The determination of whether any such person
has engaged in a serious breach of conduct or any activity in competition with
any of the businesses of the Company or any Subsidiary shall be determined by
the Committee in good faith and in its sole discretion. This Section 11 shall
have no application following a Change in Control.
12. Withholding. The Company shall have the right to
deduct from any payment to be made pursuant to the Plan the amount of any taxes
required by law to be withheld therefrom, or to require a Participant to pay to
the Company in cash such amount required to be withheld prior to the issuance or
delivery of any shares of Common Stock or the payment of cash under the Plan.
Such taxes may be paid by (a) delivering previously owned shares of Common Stock
or (b) having the Company retain shares of Common Stock which would otherwise be
delivered upon exercise or payment of Awards or (c) any combination of a cash
payment or the methods set forth in (a) and (b) above. For purposes of (a) and
(b) above, shares of Common Stock shall be valued at Fair Market Value
determined as of the day immediately prior to exercise or payment. If and to the
extent authorized by the Committee, the Company may, upon election by a
Participant, withhold from any distribution of Common Stock hereunder shares of
Common Stock with a Fair Market Value in excess of the Participant's required
withholding obligation.
13. Nontransferability, Beneficiaries. Unless
otherwise determined by the Committee with respect to the transferability of
Nonqualified Stock Options by a Participant to his Immediate Family Members (or
to trusts or partnerships or limited liability companies established for such
family members), no Award shall be assignable or transferable by the
Participant, otherwise than by will or the laws of descent and distribution or
pursuant to a beneficiary designation, and Options shall be exercisable, during
the Participant's lifetime, only by the Participant (or by the Participant's
legal representatives in the event of the Participant's incapacity). Each
Participant may designate a beneficiary to exercise any Option held by the
Participant at the time of the Participant's death or to be assigned any other
Award outstanding at the time of the Participant's death. If no beneficiary has
been named by a deceased Participant, any Award held by the Participant at the
time of death shall be transferred as provided in his will or by the laws of
descent and distribution. Except in the case of the holder's incapacity, an
Option may only be exercised by the holder thereof.
14. No Right to Employment. Nothing contained in the
Plan or in any Award under the Plan shall confer upon any employee any right
with respect to the continuation of employment with the Company or any of its
Subsidiaries, or interfere in any way with the right of the Company to terminate
his or her employment at any time. Nothing contained in the Plan shall confer
upon any employee or other person any claim or right to any Award under the
Plan.
15. Governmental Compliance. Each Award under the
Plan shall be subject to the requirement that if at any time the Committee shall
determine that the listing, registration or qualification of any shares issuable
or deliverable thereunder upon any securities exchange or under any Federal or
state law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition thereof, or in connection therewith, no
such grant or award may be exercised or shares issued or
-7-
<PAGE> 8
delivered unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
16. Adjustments. In the event of any change in the
outstanding shares of Common Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spinoff, combination or exchange of
shares or other corporate change, or any distribution to holders of Common Stock
other than regular cash dividends, the number or kind of shares available for
Options and Awards under the Plan may be adjusted by the Committee as it shall
in its sole discretion deem equitable and the number and kind of shares subject
to any outstanding Awards granted under the Plan and the purchase price thereof
may be adjusted by the Committee as it shall in its sole discretion deem
equitable to preserve the value of such Awards.
17. Award Agreement. Each Award under the Plan shall
be evidenced by an agreement setting forth the terms and conditions, as
determined by the Committee, which shall apply to such Award, in addition to the
terms and conditions specified in the Plan.
18. Amendment. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that (a) except
as provided in Section 16, no amendment shall be made that would adversely
affect the rights of a Participant under an Award theretofore granted, without
such Participant's written consent and (b) if and when the Plan is approved by
the shareholders of the Company, no amendment made after such approval shall be
made without shareholder approval if such approval is necessary to comply with
any applicable law, regulation or stock exchange rule.
19. General Provisions.
(a) The Committee may require each
Participant purchasing or acquiring shares pursuant to an Award under the Plan
to represent to and agree with the Company in writing that such Participant is
acquiring the shares for investment and without a view to distribution thereof.
(b) All certificates for shares of Common
Stock delivered under the Plan pursuant to any Award shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable Federal or state securities law, and the Committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions. If the Committee determines that the
issuance of shares of Common Stock hereunder is not in compliance with, or
subject to an exemption from, any applicable Federal or state securities laws,
such shares shall not be issued until such time as the Committee determines that
the issuance is permissible.
(c) It is the intent of the Company that
the Plan satisfy, and be interpreted in a manner that satisfies, the applicable
requirements of Rule 16b-3 as promulgated under Section 16 of the Exchange Act
so that Participants will be entitled to the benefit of Rule 16b-3, or any other
rule promulgated under Section 16 of the Exchange Act, and will not be subject
to short-swing liability under Section 16. Accordingly, if the operation of any
provision of the Plan would conflict with the intent expressed in this Section
19(c), such provision to the extent possible shall be interpreted and/or deemed
amended so as to avoid such conflict.
(d) Except as otherwise provided by the
Committee in the applicable grant or Award agreement, a Participant shall have
no rights as a shareholder with respect to any shares of Common Stock subject to
Options until a certificate or certificates evidencing shares of Common Stock
shall have been issued to the Participant and, subject to Section 16, no
adjustment shall be made for
-8-
<PAGE> 9
dividends or distributions or other rights in respect of any share for which the
record date is prior to the date on which Participant shall become the holder of
record thereof.
(e) The law of the State of New Jersey
shall apply to all Awards and interpretations under the Plan regardless of the
effect of such state's conflict of laws principles.
(f) Where the context requires, words in
any gender shall include any other gender.
20. Term of Plan. Subject to earlier termination
pursuant to Section 18, the Plan shall have a term of 10 years from its
Effective Date.
21. Effective Date. The Plan is effective as of July
24, 1997.
-9-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
1. AAC-NJ Holding Company, Inc.
2. Analytika, Inc.
3. DEN-AL Holding Company, Inc.
4. Dendrite Andes
5. Dendrite Belgium S.A.
6. Dendrite Brasil LTDA
7. Dendrite Canada Company
8. Dendrite Corporate Services
9. Dendrite Deutschland GMBH
10. Dendrite France S.A.
11. Dendrite Hungary Software Services, Inc.
12. Dendrite International, Inc.
13. Dendrite International Subsidiaries Holding Company
14. Dendrite Italia, S.R.I.
15. Dendrite Japan K.K.
16. Dendrite Mexico
17. Dendrite Netherlands, B.V.
18. Dendrite New Zealand Ltd.
19. Dendrite Portugal
20. Dendrite Pty. Ltd.
21. Dendrite Software Ventures, Ltd.
22. Dendrite U.K. Ltd.
23. Fremantle Financial Services, Inc.
24. Sydney Software, Inc.
25. Tasmania Resource, Inc.
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 333-14363, 333-19141, 333-24329, 333-35701,
333-81783,333-91449 and 333-92711.
/s/ Arthur Andersen
- --------------------
Philadelphia, Pa.
March 28, 2000
<PAGE> 1
The Board of Directors
Dendrite International, Inc.
We consent to the incorporation by reference in the registration statement
(Nos. 333-14363, 333-19141, 333-24329, 333-35701,333-81783 and 333-92711) on
Form S-8 and (No. 333-91449) on Form S-3 of Dendrite International, Inc. of our
report dated February 16, 1999, with respect to the balance sheets of CorNet
International, Ltd. as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1998, which report appears
in Form 10-K of Dendrite International, Inc.
/s/ KPMG LLP
- ------------
Allentown, Pennsylvania
March 28, 2000
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