-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+LOWMX/GTY39tbpNhrfpsQpNIVwZx1St2eRR2+cnzGwG4+zAawVb+j0gcwR/4cL 8OZ3Z+veIrNklPACLYONcA== 0000950109-97-002699.txt : 19970401 0000950109-97-002699.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950109-97-002699 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DENDRITE INTERNATIONAL INC CENTRAL INDEX KEY: 0000880321 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 222786386 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-92434 FILM NUMBER: 97571818 BUSINESS ADDRESS: STREET 1: 1200 MOUNT KEMBLE AVE CITY: MORRISTOWN STATE: NJ ZIP: 07960 BUSINESS PHONE: 2014251200 MAIL ADDRESS: STREET 1: 1200 MOUNT KEMBLE AVE CITY: MORRISTOWN STATE: NJ ZIP: 07960-6797 10-K 1 FORM 10-K ================================================================================ 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, 1996 --------------------- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________________ Commission File Number 0-26138 -------------- Dendrite International, Inc. ---------------------------- (Exact name of registrant as specified in its Charter) New Jersey 22-2786386 - ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ___________________________ 1200 Mt. Kemble Avenue Morristown, NJ 07960 201-425-1200 ___________________________ (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 $89,554,596 based upon the average bid and ask price of the Common Stock, which was $9.875 on March 14, 1997. The number of shares of Common Stock outstanding on that date was 11,261,131. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART - ------------------------------------------------------------------------------ ---------------- Pages 13 - 32 and the inside back cover of the Registrant's 1996 Annual Report I, II to Shareholders. Registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for the III 1997 fiscal year expected to be dated on or about April 18, 1997. - -------------------------------------------------------------------------------------------------
2 PART I ITEM 1. BUSINESS. GENERAL Dendrite International, Inc. ("Dendrite" or the "Company") succeeded in 1991 to a business co-founded in 1986 by the Company's President and Chief Executive Officer and others. That business was organized to provide comprehensive electronic territory management ("ETM") solutions to be used to manage, coordinate and control the activities of large sales forces in complex selling environments, primarily in the ethical pharmaceutical industry. Today, the Company's solutions combine advanced software products with a wide range of specialized support services including implementation services, technical and hardware support services and sales force support services. The Company develops, implements and services advanced ETM systems in the United States, Canada, Western Europe, Japan, Australia, New Zealand, Hong Kong, and Brazil through its own sales, support and technical personnel located in twelve offices worldwide. PRODUCTS AND SERVICES The Company's ETM systems utilize proprietary software products coupled with extensive system support services to provide its customers with the means for more efficient management of their sales forces, sales and marketing decision support tools, and operation and maintenance of the customers' sales databases. As software products become more complex and as the sources and size of data available increase, there is a parallel need for specialized services and skills to support these products. PHARMACEUTICAL INDUSTRY PRODUCTS The Company currently offers to its pharmaceutical customers one core software product, Series 6(TM), which can be configured to support four functional areas: sales representative, account manager (for institutional and managed care sales forces), area manager and home office sales manager. The software is designed to be modular, thereby allowing the customer to select a set of functions most appropriate to its business requirements. Set forth below is a summary description of the principal functions for the Series 6 product: PRINCIPAL FUNCTIONS DESCRIPTION -------------------------------- ------------------------------ Bids & Contracts/Development & Enables pharmaceutical companies to Tracking administer and disseminate contract information relating to managed care organizations and other institutional entities Call Reporting & Sampling/Customer Provides sales representatives with Records reporting tools and helps enable pharmaceutical companies control costs of complying with applicable governmental regulations associated with product sample distribution Diary/Planner/Attendance Report Helps optimize sales representatives' time management and coordinates sales force activities among dispersed sales personnel Electronic Documents/Mail/ Enables communication between Admin/Reports/Host Communications geographically dispersed business units and facilitates coordination of and communication with widely dispersed sales personnel Strategic Selling for Institutional Enables pharmaceutical companies' sales Sales Teams/Pullthrough teams to plan and coordinate institutional sales efforts and to deploy appropriate resources Sales & Activity Analysis/Target Addresses the individual representative Analysis and manager requirements for review of local market potential to construct and execute optimal sales plans 3 The Series 6 product can be configured to enable the customer to choose appropriate functions to address its specific business requirements. New functions which integrate fully with the existing configuration can be added over time, therefore allowing the customer to acquire a system which evolves as its 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 Company also has a significant installed base of Series 3(TM), Series 4(TM) and Series 5(TM) software products. The Series 3 and Series 4 products are DOS-based products. Customers using Series 4, and a remaining Series 3 customer, accounted for approximately 37% of the sales representatives licensed to use the Company's systems at December 31, 1996. These products provide automated information concerning physician customers, sales call records and distribution of samples, but do not have the capability to model third-party territory-based prescription and sales data. An upgrade of a customer's system requires extensive investment in hardware and software and must be planned well in advance in order to minimize disruption of sales and marketing activities. Currently many of Dendrite's customers have not made the transition to the Company's more advanced Microsoft(R) Windows(R) based Series 5 and Series 6 systems. Therefore, the Company continues to support users of its older Series systems. Customers with Series 3 or Series 4 systems may elect to upgrade to Series 6. The primary considerations for customers determining whether to upgrade include the enhanced ability of Series 6 to address the customers' evolving business needs, the significant cost of making the transition, and, to a lesser extent, the desirability of moving to a Windows(TM) graphical user interface. Although customers determining whether to make the upgrade may also consider competitors' systems, in the Company's experience, the substantial additional costs to be incurred in switching to a competitor's system, together with the Company's existing relationship with a customer, tend to give the Company a competitive advantage in such situations. Customers using Series 5 and Series 6 systems accounted for approximately 63% of the sales representatives licensed to use the Company's pharmaceutical ETM systems at December 31, 1996. These systems offer an enhanced user-friendly graphical user interface through a Microsoft (R) Windows for Workgroups(TM) or Windows95(R) environment. Series 5 and Series 6 exploit object oriented programming technology to enhance the modular properties of these systems. Series 5 and Series 6 software utilize territory-based (i.e. ZIP-code or other local area) prescription sales data in providing performance analysis reports. Series 5 software can be modified to allow presentation of physician-level prescription sales data. Series 6 includes modules capable of analyzing both territory-based and prescriber-level prescription sales data to permit priority targeting of physicians and others who influence the pharmaceutical prescription process. Traditionally, the Company priced its pharmaceutical ETM systems solely on a per-user basis. The Company has in the past offered, as an alternative to one- time license fees, an arrangement known as a "capitation" agreement, which is a long-term agreement (currently up to ten years), under which the customer licenses Dendrite software and upgrades for an increasing preset annual charge. One customer has executed a capitation agreement to date. OTHER PRODUCTS In May 1996, Dendrite acquired SRCI S.A. ("SRCI"), France's largest provider of custom-designed ETM systems for the over-the-counter pharmaceutical ("OTC") and consumer packaged goods ("CPG") markets. 4 SRCI's core product, NOMAD'S(TM), has been translated into the English language and the Company has commenced marketing it in the United States and United Kingdom markets under the name ForceOne(TM). ForceOne contains some of the same basic functionality as the Series 6 product as well as functionality specifically created for the OTC and CPG industries. The Company presently anticipates that the structure of its license and implementation fees for its OTC and CPG customers will be similar to those for its ethical pharmaceutical customers. SERVICES For the year ended December 31, 1996, service revenues represented 87% of total Company revenues. The Company seeks to develop long-term strategic relationships with its customers by providing value-added support in the operation of installed software systems and assistance to the customer's management in using the resulting information. To support this objective, the Company offers a wide variety of specialized services from which customers can choose, including implementation services, technical and hardware support services and sales force support services. Most customers enter into agreements covering technical support, software customization and support services and also elect to have their databases operated and maintained on a central server located at a local Dendrite data center facility. Virtually all customers sign an extended maintenance agreement which covers, among other things, software defect resolution. The complexity and size of the sales data and market research databases being integrated and manipulated by the Company's systems requires highly specialized information systems skills. The creation of a customer's database requires loading third party data onto a central server 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 the Company's systems. Dendrite performs these services initially for its customers to install the system, then usually continues to provide the services to manage these tasks over time. Many companies choose not to employ the information systems staff needed to manage these large, complex databases and consider the option of outsourcing these tasks to Dendrite as both economically and operationally advantageous. Set forth below is a summary description of the principal services offered by Dendrite: PRINCIPAL SERVICES DESCRIPTION - ------------------ ----------- Implementation Services Project Management--planning the design and implementation of the Dendrite system Data Modeling--creation of the customer's specific version of the Company's data model, which becomes the Customer Requirements Definition Customization--customization of software to meet the Customer Requirements Definition for the software components of the Dendrite system Database Design--creation of the customer's integrated database, including: --loading and linking third party prescription sales data, market research and other materials --identifying geographic and/or functional (e.g. formulary) segments --allocating third party data by territory or other functional segment Mail Design--definition of e-mail structure to meet the needs of the customer's organization Laptop Preparation--loading data onto laptop computers for training, testing and use Training--training on use and capabilities of the Dendrite system 5 Technical and Hardware Support Services Project Management--designing, structuring and managing technical support for the Dendrite system Customization--as required following implementation to meet customer's needs Maintenance of Database--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 Maintenance of Code--maintenance and updating of customized code on customer computers Hardware Support--maintenance of servers and laptops including recapture of data on defective equipment and replacement of defective equipment Sales Force Support Services Project Management--designing, organizing and managing support for customer sales forces Retraining--ongoing training on use and capabilities of the system Territory Realignment--assisting the customer in planning and executing realignments of sales territories or functional (e.g. formulary-based) segments to allow more effective resource allocation Support Services--providing all first line services up to seven days a week for as many hours as requested and in the language required When a customer licenses Dendrite software, the Company typically establishes a separate service group composed of both customer support and technical support personnel who are generally dedicated to servicing only one or two customers. The dedicated service group will usually be located at Dendrite's facility in the country where a significant portion of the customer's sales force is located. This allows the service group to provide assistance locally using a common language with customer personnel. The Company provides services under contract, typically a multi-year contract. In North America, the service agreement is between the customer and Dendrite directly. Outside North America, contracts are entered into between the local customer and the Company through its local wholly-owned subsidiary or branch. Depending upon the size of the customer and the scope of services to be performed, a Dendrite dedicated service group may comprise between five and fifty persons. The relationships with its pharmaceutical customers, which result from providing services to them, have led to a growth in the range and scope of services provided to the customers and in recent years have accounted for much of the increase in the Company's service- related revenues. As of December 31, 1996, substantially all of the Company's services agreements were with its ethical pharmaceutical customers. SYSTEM CONFIGURATION Dendrite's ETM pharmaceutical system is configured to allow information access and communication across geographically dispersed sales and marketing personnel and regional and home offices. The core of the system configuration is a central file server which stores the customer database and integrates and controls all data flow from external points, including the remote databases of the sales force and their management. Most of the servers used by Dendrite customers are manufactured by IBM, Digital Equipment Corporation or Sun Microsystems and run on UNIX(TM) or Windows NT(R) operating systems. Servers are purchased or leased by Dendrite's customers 6 or leased for them by Dendrite. Some smaller customers lease space on one of seven Dendrite-owned servers located in various Dendrite offices worldwide. Remote databases are stored on laptop computers used by sales representatives in the field and updated periodically over telephone lines via modem. Regional sales managers using personal computers may access the server via wide area networks. Dendrite customers are responsible for selecting computer equipment and for deciding when to upgrade or replace it. Most laptop computers and all of the desktop personal computers which access Dendrite's pharmaceutical ETM system support a DOS operating system, with the Microsoft(R) Windows(TM) for Workgroups interface on the Company's newer products. Data is managed in Series 4 using an Informix database server and a flat-file Btrieve structure on the laptops. For laptops in Series 5 and Series 6 with Microsoft(R) Windows(TM) for Workgroups or Windows95, the Company has currently chosen a PowerBuilder(TM) graphical user interface and a Sybase SQL Anywhere(TM) relational database management system. Series 5 and Series 6 currently use an Oracle(TM) database server. Dendrite's pharmaceutical ETM-system permits a pharmaceutical company's sales representative to send the applicable customer's server information concerning calls made and to receive information concerning upcoming calls and other sales efforts to be made later by other sales personnel of that company who share common or related customers. The server, in most cases located at one of Dendrite's facilities, contains the customer's own database of sensitive sales related information, which is maintained and operated for the customer by Dendrite. Dendrite's system is designed to provide information to those involved in sales and sales management and also to a range of other functional areas within each customer, 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. Dendrite's OTC and CPG ETM system is generally configured in a manner similar to Dendrite's pharmaceutical ETM system. However, OTC and CPG sales representatives may use computer hardware other than laptop and desktop personal computers to access such ETM system, such as handheld or palmtop computing devices. ADDITIONAL INFORMATION Certain additional information regarding the Company's business is found on pages 10 - 11 of the Company's 1996 Annual Report to Shareholders. Such pages are incorporated herein by reference. MARKETING CUSTOMERS The following is a list of some of the Company's current pharmaceutical customers (who either directly or through subsidiaries may be customers in one or more countries served by the Company, not necessarily including the United States): Boehringer Ingelheim Pharmaceutical, Inc. Allergan Boehringer Mannheim Corporation Bayer A.G. Laboratorios Almirall, S.A. 7 Bristol-Myers Squibb Company Pfizer Animal Health Ciba-Geigy New Zealand, Ltd. Rhone-Poulenc Rorer Inc. Glaxo Wellcome Sankyo/Parke Davis Hoechst Marion Roussell Johnson & Johnson 3M Eli Lilly and Company Leo Laboratories Servier S.A. Merck Sharp & Dohme Novartis S.A. Parke Davis Pfizer Inc. Solvay Pharmaceuticals, Inc. Zeneca Yakuhin, Inc. Revenues from Pfizer Inc., Eli Lilly and Company and Johnson & Johnson, in the aggregate, accounted for approximately 54% of the Company's revenues in the year ended December 31, 1994. Revenues from Pfizer Inc., Eli Lilly and Company and Rhone-Poulenc Rorer Inc. in the aggregate accounted for 56% and 58% of the Company's revenues for the years ended December 31, 1995 and December 31, 1996, respectively. Although the Company has separately licensed software to several affiliates of these companies and provides services to them under separately negotiated and executed contracts with local Dendrite subsidiaries and branches, the loss of all or a significant part of the business of any of these customers would have a material adverse affect on the Company. In addition, since the Company acquired SRCI in May 1996, the Company's consumer business division has entered into customer contracts in France with the following companies: Kriter Brut de Brut, Lindt, Martini- Bacardi, Moet & Chandon, Panzani, Segafredo, Urgo, Vania and Varta. SALES AND MARKETING The Company actively markets its ETM systems and services to major ethical pharmaceutical, healthcare, OTC and CPG companies in the United States, Western Europe and the Pacific Rim using regional and local sales and marketing personnel operating out of Dendrite's offices. Sales presentations are typically made to customer personnel in its management information services department and in either its sales management or sales administration department. Selection of an ETM system entails an extended decision-making process for the customer because of the substantial costs and strategic implications associated with acquiring the system. Senior levels of management are often involved in this process, given the importance of the decision as well as the risks faced by the customer should a system fail or not perform as expected. Depending upon the size of the system and the associated computer hardware and software costs, senior corporate management or even the board of directors of a client may make the final decision to license a Dendrite system. Therefore, decisions to acquire a Dendrite ETM system involve long selling cycles, typically 12 to 18 months for larger customers, although sometimes as long as 24 months, and usually require lengthy periods of evaluation prior to full installation and roll-out. The Company uses a business process analysis to facilitate the marketing process after obtaining information from a potential customer relating to its market, its sales organization, its business plan and the identification of significant costs and problems. Dendrite works with the potential customer to identify needed product functionality, drawing upon the Company's available modules and its experience with the applicable vertical market. If solutions are not immediately available, Dendrite may offer a co-development partnership to the potential customer in order to design product functionality to meet the potential customer's needs. In this situation, Dendrite may not retain sole ownership of the completed software solution. The response of sales representative users of Dendrite systems is an important aspect of the Company's on-going relationships with its customers and may sometimes influence the decisions of those customers to license additional modules and/or to contract for expanded support services. Dendrite endeavors to address the concerns of sales personnel during the training portion of its Implementation Services. In addition, the experience of customer 8 additional modules and/or to contract for expanded support services. Dendrite endeavors to address the concerns of sales personnel during the training portion of its Implementation Services. In addition, the experience of customer sales personnel with a Dendrite ETM system in actual use, together with interactions with those personnel as part of the ongoing Sales Force Support Services, provide positive reinforcement as to the ease of use and efficacy of Dendrite ETM systems. Independent consultants, including the consulting arms of a number of the "Big 6" accounting firms and international consulting firms, are occasionally retained to advise pharmaceutical and healthcare companies on their selection of an ETM system. Dendrite believes that in a number of these situations consultants have recommended Dendrite ETM systems to their clients, who subsequently became customers of the Company. Dendrite does not reimburse expenses or pay any commissions to such firms in such cases. The Company believes that an important marketing opportunity is presented by its relations with existing customers. Dendrite believes that its network of American, European and Pacific Rim offices gives it the potential for expansion of license and service revenues from existing customers in countries other than the ones in which such customers currently have a Dendrite licensed ETM system. In addition, many of Dendrite's ethical pharmaceutical customers also have OTC operations which Dendrite believes gives it a competitive advantage when, marketing its ETM system to such OTC operations. Finally, the Company has entered into several joint marketing arrangements whereby the Company and the applicable business partner have agreed to interface with each other's products and/or services. Examples of these partners and their respective products include: Proscape Technologies, Inc. (multimedia detailing software); Presidio Inc. (clinical trial software); Epsilon Data Management, Inc. (data warehousing and decision support software, analytical and data scrubbing services and direct marketing programs). COMPETITION Globally, the current market for sales and marketing information management systems is highly competitive. Many companies offer sales force automation and ETM systems in the ethical pharmaceutical, OTC and CPG industries, although few focus on the pharmaceutical industry. In addition to itself, the Company believes that there are approximately ten companies which supply products automating sales, marketing and customer service functions and specifically target the pharmaceutical industry. Three of these companies are actively selling in more than one country. The Company believes that most of its competitors offer a variety of less customizable software products, which are typically available more rapidly than Dendrite systems and often at a substantially lower price. Sales force automation products differ greatly in terms of functionality, flexibility and the type of hardware platform supported. The Company estimates that in 1996 its ETM systems were licensed by approximately 15% of sales representatives from the top 50 pharmaceutical companies in the United States, Canada, Western Europe and the Pacific Rim. Dendrite believes that potential competitors must incur significant expense and product development time and must acquire a skilled technical staff in order to develop an integrated, customizable solution for the problems presented by complex multi-national selling environments. The Company's products and services compete with others principally on the basis of product flexibility and customization, platform configuration, name recognition, global competence, service standards, breadth of customer base and technical support and service. Management believes the Company's systems compete favorably with respect to these factors, and that the Company is positioned to maintain its market leadership position through innovative new product and application developments and continued focus on support services. Some of the Company's 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 the Company. Additionally, three of the Company's competitors in the ethical pharmaceutical industry, 9 own and control, either directly or through affiliated entities, some of the proprietary data collection systems in some countries (including the United States) that provide the prescription/sales data sold to the pharmaceutical companies and which Dendrite's more recent ETM systems and related services are designed to process. It may be possible for one or more of these competitors to gain a competitive advantage in the pricing of its ETM systems for customers who are interested in purchasing the data it or its affiliates collect. The Company believes that competition will increase as new competitors enter the market to supply ETM systems to the pharmaceutical industry and as existing competitors expand their product lines. Dendrite also expects it 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 the Company. The Company also faces potential competition from its customers and potential customers, which might elect to design and install or to operate their own sales force management systems. RESEARCH AND DEVELOPMENT The Company's Product Development Group is responsible for the conceptualization, development and implementation of new products internationally. This group is also responsible for enhancements for existing products, and the design of technical training and technical procedures including quality control for core systems and maintenance operations for existing customer ETM systems. The Company expended $2.8, $3.8 and $8.7 million on research and development in the years ended December 31, 1994, 1995 and 1996, respectively. The significant increase in research and development spending in 1996, particularly in the fourth quarter, was attributable to, among other things, the completion of certain new products by year end, including completing ForceOne and adapting certain new software for the German market, as well as integrating the Company's product and service support with the products of its newest strategic partners. See "Sales and Marketing." Dendrite regularly issues updated releases for its software modules and maintains a schedule of anticipated releases. The Company has capitalized certain costs related to the development of new software products and the enhancement of existing software products consistent with Statement of Financial Accounting Standards No. 86, ''Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed''. Capitalized software development costs net of accumulated amortization were $2.0 and $2.6 million at December 31, 1995 and 1996, respectively. PROPRIETARY RIGHTS The Company relies on a combination of trade secret, copyright and trademark laws; license agreements with customers containing confidentiality and other contractual protections; confidentiality agreements with vendors and suppliers; and agreements with each of its executive officers and technical employees worldwide containing confidentiality and non-disclosure provisions to protect proprietary intellectual property rights in the Dendrite software systems and services. Existing United States copyright laws provide only limited protection and even less protection may be available under foreign laws. EMPLOYEES As of December 31, 1996, Dendrite employed 668 employees, 329 in the United States, 296 in Europe, 35 in the Pacific Rim and 8 in Latin America. The Company believes that relations with its employees are good. The Company believes that its future growth and success will depend upon its ability to attract and retain skilled and motivated personnel. CERTAIN CONSIDERATIONS This Form 10-K and other documents of the Company and statements made by members of management of the Company from time to time may contain forward- looking statements that may be viewed as predicting future events or outcomes with respect to the Company and its business. The predictions embodied in 10 these statements will involve risks and uncertainties and, accordingly, the Company's actual results may differ significantly from the results discussed or implied in such forward-looking statements. Some important factors (but not the only factors) that might cause such a difference include the following: IMPACT ON COMPANY OF CHANGES IN ETHICAL DRUG MARKET A majority of the Company's ETM systems are currently used in connection with the marketing and sale of prescription-only drugs (''ethical pharmaceutical products'' or ''ethical drugs''). The market currently serviced by the Company is undergoing a number of significant changes, including (i) consolidations and mergers which may reduce the number of existing and potential customers of the Company and (ii) the increasing prescription of generic drugs, in substitution for branded drugs, produced by manufacturers which have not acquired a Dendrite ETM system. Both of these trends may reduce the demand for the Company's pharmaceutical ETM products and services. The trend toward the reclassification of formerly prescription-only drugs to permit their over-the-counter sale, to the extent it adversely affects pharmaceutical companies, may also have a negative impact on the Company and its continued ability to increase revenues and profitability. The increasing emphasis in the United States on the delivery of healthcare through managed care organizations such as health maintenance organizations and preferred provider organizations may also adversely affect the demand for the Company's products and services, as may the current consolidation of the managed care industry in the United States and other changes in healthcare delivery systems occurring in other countries. The Company may also be materially affected by legislative enactments which alter the structure of, or increase regulations governing, the healthcare systems in any of the countries where Dendrite customers and potential customers are located. There can be no assurance that the Company can respond positively to all of these and other changes in the marketplace and maintain profitability. POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY; LENGTHY SALES AND IMPLEMENTATION CYCLE The Company's quarterly revenues, expenses and operating results have varied considerably in the past and are likely to vary from quarter to quarter in the future. Fluctuations in the Company's revenues depend on a number of factors, some of which are beyond the Company's control. These factors include, among others, the timing of contracts, delays in customer acceptance of the Company's software, the length of sales cycles, customer budget changes and changes in pricing policy by the Company or its competitors. For example, the Company incurred a net loss of $3.3 million in the fourth quarter of 1996, which loss was attributable to, among other things, the delay of certain new license purchases by an existing customer, the delay of an existing client's upgrade decision, and the postponement of certain post- production implementations for an existing client in seven country sites. The Company establishes its expenditure levels for product development and other operating expenses based in large part on its expected future revenues. As a result, should revenues fall below expectations, operating results are likely to be adversely and disproportionately affected because only a small portion of the Company's expenses vary with its revenues. In addition, the Company's quarterly license fees and service revenues may vary due to seasonal and cyclical factors. The Company typically expects to realize a greater percentage of its license fees and service revenues for the year in the second half of the year than it does in the first half. Moreover, selection of an ETM system often entails an extended decision-making process for the customer because of the substantial costs and strategic implications associated with acquiring the system. Senior levels of management are often involved in this process, given the importance of the decision as well as the risks faced by the customer should a system fail or not perform as expected. Depending upon the size of the system and the associated computer hardware and software costs, senior corporate management or even the board of directors of a customer may make the final decision to license a Dendrite system. Therefore, decisions to acquire a Dendrite system involve long selling cycles, typically 12 to 18 months for larger customers, although sometimes as long as 24 months, and usually require lengthy periods of evaluation prior to full installation and roll-out. NEW PRODUCTS AND TECHNOLOGICAL CHANGE 11 The market for ETM systems is characterized by rapid change and improvements in computer hardware and software technology. The Company's future success will depend in part on its ability to enhance its current products, to introduce new products that keep pace with technological and market developments and to address the increasingly sophisticated needs of its customers. There can be no assurance that the Company will be successful in developing and marketing in a timely manner product enhancements or new products that respond to the technological advances by others, or that its products will adequately and competitively address the needs of the changing marketplace. The Company released its first Microsoft /(R)/ Windows /TM/ based solution, Series 5, in late 1993, its second version, Series 6, in late 1994, and is preparing subsequent versions to meet anticipated operating system upgrades. Competition with respect to software products has been characterized by shortening product cycles, and there can be no assurance that the Company will not be adversely affected by this trend. If the product cycles for the Company's systems prove to be shorter than management anticipates, the Company's operating results could be adversely affected. In addition, in order to remain competitive, the Company may be required to expend a greater percentage of its revenues on product innovation and development than historically has been the case. For example, the significant increase in research and development spending in 1996, particularly in the fourth quarter was attributable to, among other things, the completion of certain new products by year end, including adapting certain new software for the German market, as well as integrating the Company's product and service support with the products of its newest strategic partners. In either case, the Company's gross profit margins and results of operations could be materially and adversely affected. In addition, products as complex as those offered by the Company may contain undetected errors or failures when first introduced or as new versions are released. Such errors have occurred in the past and there can be no assurance that, despite testing by the Company, errors will not be found in new products resulting in losses or delays which could have a material adverse effect on the Company's business, operating results and financial condition. The Company currently offers software products designed for markets other than the ethical pharmaceutical market, including the consumer packaged goods vertical market. The selling environment in each market has characteristics that are unique to it. There can be no assurance that the Company will be able to achieve in other markets the success it has attained in the ethical pharmaceutical market. DEPENDENCE ON MAJOR CUSTOMERS The Company has approximately 26 pharmaceutical customers (considering all members of an affiliated group to be a single customer). The Company derived approximately 54%, 56% and 58% of its revenues in the aggregate in the years ended December 31, 1994, 1995 and 1996, respectively, from the three largest pharmaceutical customers, two of which had been among the three largest customers of the Company in terms of revenues in each of those periods. The Company believes that the costs to its major customers of switching to an ETM system offered by a competitor, or taking significant system management functions in-house, would be substantial. There can be no assurance, however, that such a change will not be undertaken by one or more customers with respect to a Dendrite system or to all or some of the services offered by the Company. If such change is made by one or more of the Company's major customers, the Company's business, operating results and financial condition could be materially and adversely affected. RISKS FROM COMPETITION Globally, the current market for sales and marketing information management systems is highly competitive. Many companies offer sales force automation and ETM systems, although few focus on the pharmaceutical industry. In addition to Dendrite, the Company believes that there are approximately ten companies which supply products automating sales, marketing and customer service functions and specifically target the pharmaceutical industry. The Company believes at least three of these companies are actively selling in more than one country. In addition, the other vertical markets in which the Company markets its products possess numerous vendors who market and sell sales force automation and ETM systems. The Company believes that most of its competitors offer a variety of less customizable software products, which are typically available more rapidly than Dendrite systems and often at a substantially lower price. 12 In addition, competition will increase as new competitors enter the market to supply ETM systems to the pharmaceutical industry and other vertical markets and as existing competitors expand their product lines. The Company expects it may encounter additional competition in the future from firms offering outsourcing of information technology services, from purveyors of software products providing specialized applications not offered by the Company and from the development and/or operation of in-house system by pharmaceutical companies. Many of the Company's competitors have longer operating histories and significantly greater financial, technical, sales, marketing and other resources than those of the Company. Some of the Company's competitors are part of large corporate groups with significantly greater resources and broader technology bases than those of the Company. For example, Sales Technologies, Inc. is owned by Cognizant Corporation. There can be no assurance that the Company will be able to compete successfully or that competition will not have a material adverse effect on the Company's business, operating results or financial condition. RELIANCE ON COMPETITORS FOR MARKET DATA Current market data on the sales of ethical pharmaceutical products is an important element for the operation of Dendrite ETM systems, which the Company's customers use to guide and organize their sales forces and marketing efforts. There are currently few sources of such data in the United States, Europe and the Pacific Rim. Three of the leading purveyors of such market information in the United States or elsewhere compete with the Company either directly or through affiliates in the market for ETM systems. Were these purveyors of market information to require that pharmaceutical companies also utilize their information management services (or those of their affiliates) instead of the Company's, the Company's business, operating results and financial condition would be materially and adversely affected. INTERNATIONAL OPERATIONS Currently, the Company's products are marketed in over 16 countries. The United States, the United Kingdom and France are the Company's main markets. Approximately 44%, 48% and 52% of the Company's total revenues were generated outside the United States during the years ended December 31, 1994, 1995 and 1996, respectively. Services provided by Dendrite's foreign branches and subsidiaries are billed in local currency. License fees for Dendrite products are billed in U.S. dollars regardless of where they originate. The Company expects the export segment of its business to grow and to continue to account for a material part of its revenues. Licensing software in may foreign countries is subject to risks inherent in international business activities. Risks include general economic conditions in each such country, the effect of applicable foreign tax structures, tariff and trade regulations, difficulties in obtaining local license, the difficulty of managing an organization spread over various jurisdictions, unexpected changes in regulatory environments, complying with a variety of foreign laws and regulations and any adverse changes in the political environments in any such countries. In addition, laws in foreign countries may not always provide protection for the Company's proprietary rights in its software products. Providing specialized system support services outside the United States paid for in local currencies carries the additional risk of currency fluctuation and may also affect the net income, if any, reported by the Company. Operating results generated in local currencies are translated into U.S. dollars at the average currency exchange rate in effect for each financial reporting period. DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH The success of the Company depends to a significant extent upon the contributions of its executive officers, particularly its President and Chief Executive Officer, John E. Bailye, and key sales, technical and customer service personnel. The Company maintains a $3 million key man insurance policy on Mr.Bailye, the proceeds of which are payable to the Company. The Company's future success also depends on its continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel is intense. The Company has at times experienced difficulty in recruiting qualified personnel and there can be no assurance that the Company will not experience such difficulties in the future. Any such difficulties could adversely affect the Company's business, operating results and financial condition. 13 All of the Company's executive officers and technical employees and a significant number of sales employees have entered into non-competition agreements with the Company. The laws governing such non-competition agreements vary in different jurisdictions and are evolving. The enforceability of such agreements in any case will depend upon all of the facts and circumstances, including the jurisdiction in which enforcement is sought. In some cases these agreements might be unenforceable, a result that could have a material adverse effect on the Company. To manage growth effectively, the Company must continue to strengthen its operational, financial and management information systems, and expand, train and manage its work force. There can be no assurance that the Company will be able to do so on a timely basis. Failure to do so effectively and on a timely basis could have a material adverse effect upon the Company's business, operating results and financial condition. DEPENDENCE ON PROPRIETARY TECHNOLOGY The Company relies on a combination of trade secret, copyright and trademark laws, non-disclosure and other contractual agreements, and technical measures to protect its proprietary rights in its products. There can be no assurance that the steps taken by the Company will prevent misappropriation of this technology. Further, there can be no assurance that such protective steps will preclude competitors from developing products with features similar to the Company's products. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. The Company believes that its products and trademarks do not infringe upon the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future or that any such claims will not require the Company to enter into royalty arrangements or result in costly litigation involving the imposition of damages or injunctive relief against the Company, any of which could materially and adversely affect the Company's business, operating results and financial condition. CONCENTRATION OF STOCK OWNERSHIP The Company's present directors, executive officers and principal stockholders beneficially own a significant portion of the Common Stock. As a result, such persons are likely to have the practical ability to elect the Board of Directors and to control voting on all matters requiring the approval of the Company's stockholders. Accordingly, such persons will be able to control the management of the Company and its affairs and business. Such concentration of ownership may also have the effect of delaying, deferring or preventing a change in control of the Company. ITEM 2. PROPERTIES. Dendrite leases a 101,500 square foot headquarters building in Morristown, New Jersey and a 3,600 square foot warehouse in Morris Plains, New Jersey. The Company also leases a total of 47,800 square feet in eleven (excluding) Morris Plains locations in Australia, Belgium, Brazil, France, Germany, Italy, Japan, New Zealand, Portugal, Spain and the United Kingdom for its full service sales offices, customer support and data centers. The Company believes that existing facilities are adequate for its current needs and that adequate space will be available as needed. File servers located at Dendrite facilities are maintained in a secured area and are subject to regular audit and inspection by the customers. Except for the Dendrite file servers on which customers rent space, most clients requires that its file server be kept entirely separate from the file servers of all other customers. All customers require that their databases be kept strictly separate from the databases of all other customers. ITEM 3. LEGAL PROCEEDINGS. The Company is occasionally involved in litigation relating to personnel and other claims arising in the ordinary course of business. Dendrite is not currently engaged in any legal proceedings which are expected, individually or in the aggregate, to have a materially adverse effect on the Company. 14 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. Information regarding the market prices of the Company's common stock and the market for that stock may be found on page 28 of the Company's 1996 Annual Report to Shareholders, which page is incorporated herein by reference. Additional information concerning dividends may be found on page 14 of the Company's 1996 Annual Report to Shareholders, which page is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for the Company is set forth on page 9 of the Company's 1996 Annual Report to Shareholders, which page is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. A discussion of the Company's financial condition, changes in financial condition and results of operations is found on pages 10 - 14 of the Company's 1996 Annual Report to Shareholders. Such pages are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company, together with the report thereon of the independent public accountants, and the unaudited "Selected Quarterly Operating Results" are set forth on pages 15 - 28 of the Company's 1996 Annual Report to Shareholders, which pages are incorporated herein by reference. 15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. With the exception of the information incorporated by reference in Parts I and II of this Form 10-K, the Company's 1996 Annual Report to Shareholders is not to be deemed filed as part of this report. 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 dated on or about April 18, 1997 (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. 16 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:
PAGE IN ANNUAL REPORT TO SHAREHOLDERS -------------- Report of Independent Public Accountants...................... 27 Consolidated Balance Sheets................................... 15 Consolidated Statements of Operations......................... 16 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholder' Equity (Deficit)............. 17 Consolidated Statements of Cash Flows......................... 18 Notes to Consolidated Financial Statements.................... 19 - 26
2. Financial Statement Schedules: None. 17 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 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 Master License Agreement with Eli Lilly and Company dated December 18, 1991 (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.2 Software Maintenance Agreement with Eli Lilly and Company dated December 18, 1991 (incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.3 Source Material Escrow Agreement with Eli Lilly and Company dated December 18, 1991 (incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.4 Master Service Agreement with Eli Lilly and Company dated December 18, 1991 (incorporated herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.5 Addenda to Master License Agreement with Eli Lilly and Company dated June 1, 1993, June 17, 1993 and October 25, 1993, respectively (incorporated herein by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.6 Master Service Agreement with Eli Lilly and Company Limited (New Zealand) dated February 15, 1995 (incorporated herein by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.7 Host Computer Agreement with Eli Lilly and Company Limited (New Zealand) dated February 15, 1995 (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.8 Master Service Agreement with Eli Lilly Italia, S.p.A. dated January 17, 1994 (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 18 10.9 Software Maintenance Agreement with Eli Lilly Italia, S.p.A. dated January 17, 1994 (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.10 Customer Agreement with Lilly Industries Limited dated September 24, 1990 (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.11 Software Maintenance Agreement with Eli Lilly UK Ltd. dated July 21, 1992 (incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.12 Source Material Escrow Agreement with Lilly Industries Ltd. (incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.13 Master Service Agreement with Lilly Industries Ltd. dated June 25, 1992 (incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.14 Master Software License Agreement with Lilly Deutschland GmbH and Beiersdorf Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.15 Master Software Maintenance Agreement with Lilly Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.16 Master Software Development Agreement with Lilly-Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.17 Host Computer Agreement with Lilly Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.18 Master Service Agreement with Lilly Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.19 Customer Agreement with Johnson & Johnson dated July 16, 1990 (incorporated herein by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.20 Master Host Computer Agreement with Johnson & Johnson dated September 22, 1992 (incorporated herein by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.21 Master License Agreement with Johnson & Johnson dated September 22, 1992 (incorporated herein by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.22 Master Software Maintenance Agreement with Johnson & Johnson dated September 22, 1992 (incorporated herein by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 19 10.23 Master Service Agreement with Johnson & Johnson (incorporated herein by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.24 Master Software Maintenance Agreement with Pfizer Inc. dated December 29, 1994 (incorporated herein by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.25 Master Software License Agreement with Pfizer Inc. dated December 29, 1994 (incorporated herein by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.26 Master Service Agreement with Pfizer Inc. dated December 29, 1994 (incorporated herein by reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.27 Source Material Escrow Agreement with Pfizer Inc. dated March 10, 1995 (incorporated herein by reference to Exhibit 10.27 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.28 Host Computer Agreement with Pfizer Inc. dated September 26, 1994 (incorporated herein by reference to Exhibit 10.28 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.29 Master License Agreement with Pfizer Inc. dated August 17, 1992 (incorporated herein by reference to Exhibit 10.29 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.30 Master Service Agreement with Pfizer Canada, Inc. dated April 22, 1994 (incorporated herein by reference to Exhibit 10.30 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.31 Master Service Agreement with Pfizer Chemical, K.K. (Japan) dated June 15, 1992 (incorporated herein by reference to Exhibit 10.31 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.32 Master License Agreement with Pfizer Pharmaceuticals, Inc. (Japan) dated November 17, 1992 (incorporated herein by reference to Exhibit 10.32 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.33 Services List with Pfizer Ltd. dated August 17, 1994 (incorporated herein by reference to Exhibit 10.33 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.34 Master Capitation Agreement with Rhone-Poulenc Rorer Inc. dated July 29, 1994 (incorporated herein by reference to Exhibit 10.34 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.35 Master Customer Support Service Agreement with Rhone-Poulenc Rorer Inc., dated July 29, 1994 (incorporated herein by reference to Exhibit 10.35 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.36 January 1992 Stock Plan (incorporated herein by reference to Exhibit 10.36 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 20 10.37 October 1992 Stock Option Plan for Senior Management (incorporated herein by reference to Exhibit 10.37 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.38 Indemnification Agreement of Paul A. Margolis dated as of January 1, 1992 (incorporated herein by reference to Exhibit 10.38 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.39 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) 10.40 Employment Agreement dated October 2, 1991 with John E. Bailye, as amended (the "Bailye Employment Agreement") (incorporated herein by reference to Exhibit 10.41 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.41 Credit Agreement with The Chase Manhattan Bank, N.A. dated as of May 5, 1995 (incorporated herein by reference to Exhibit 10.42 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.42 Master Software License Agreement with Pfizer Italiana SpA. dated December 1994 (incorporated by reference to Exhibit 10.43 to the Company's Registration Statement on Form S-1, filed with the Commission February 5, 1996) 10.43 Master Software License Agreement with Laboratorios Pfizer Ltda. dated September 29, 1995 (incorporated herein by reference to Exhibit 10.44 to the Company's Registration Statement on Form S-1, filed with the Commission February 5, 1996) 10.44 Master Service Agreement with Pfizer Ltd. dated December 1, 1992, as extended by letters dated August 12, 1994 and April 14, 1995 (incorporated herein by reference to Exhibit 10.45 to the Company's Registration Statement on Form S-1, filed with the Commission February 5, 1996) 10.45 Master Software Maintenance Agreement with Bristol-Myers Squibb Company dated December 20, 1995 (incorporated herein by reference to Exhibit 10.46 to the Company's Registration Statement on Form S-1, filed with the Commission February 5, 1996) 10.46 Master Software License Agreement with Bristol-Myers Squibb Company dated December 20, 1995 (incorporated herein by reference to Exhibit 10.47 to the Company's Registration Statement on Form S-1, filed with the Commission February 5, 1996) 10.47 Employment Agreement dated July 9, 1990 with John LaHaye (incorporated herein by reference to Exhibit 10.48 to the Company's Registration Statement on Form S-1, filed with the Commission February 5, 1996) 10.48 Employment Agreement dated December 15, 1988 with Bruce Savage (incorporated herein by reference to Exhibit 10.49 to the Company's Registration Statement on Form S-1, filed with the Commission February 5, 1996) 10.49 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) 21 10.50 Employment Agreement dated June 8, 1988 with Charles Warczakowski (incorporated herein by reference to Exhibit 10.51 to the Company's Registration Statement on Form S-1, filed with the Commission February 5, 1996) 10.51 Employment Agreement dated January 22, 1996 with Christopher J. French 10.52 Dendrite 401(k) Retirement Savings Plan ----- --------------------------------------- 13 The Company's 1996 Annual Report to Stockholders, certain portions of which have been incorporated herein by reference 21 Subsidiaries of the Registrant 23 Consent of Independent Public Accountants 27 Financial Data Schedule 99.5 Employment Agreement (b) Reports on Form 8-K. None. 22 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 31, 1997 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. Name Title Date - ----- ----- ---- /s/ John E. Bailye Chief Executive Officer, __________ - -------------------------------- John E. Bailye President and Director (Principal Executive Officer) /s/ Charles C. Warczakowski Vice President, Finance __________ - -------------------------------- Charles C. Warczakowski and Treasurer (Principal Financial Officer and Principal Accounting Officer) /s/ John H. Martinson Director __________ - -------------------------------- John H. Martinson /s/ Bernard M. Goldsmith Director __________ - -------------------------------- Bernard M. Goldsmith /s/ Paul A. Margolis Director __________ - -------------------- Paul A. Margolis 23 EXHIBIT INDEX Exhibit Exhibit No. 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 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) 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 Master License Agreement with Eli Lilly and Company dated December 18, 1991 (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.2 Software Maintenance Agreement with Eli Lilly and Company dated December 18, 1991 (incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.3 Source Material Escrow Agreement with Eli Lilly and Company dated December 18, 1991 (incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.4 Master Service Agreement with Eli Lilly and Company dated December 18, 1991 (incorporated herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.5 Addenda to Master License Agreement with Eli Lilly and Company dated June 1, 1993, June 17, 1993 and October 25, 1993, respectively (incorporated herein by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.6 Master Service Agreement with Eli Lilly and Company Limited (New Zealand) dated February 15, 1995 (incorporated herein by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.7 Host Computer Agreement with Eli Lilly and Company Limited (New Zealand) dated February 15, 1995 (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.8 Master Service Agreement with Eli Lilly Italia, S.p.A. dated January 17, 1994 (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.9 Software Maintenance Agreement with Eli Lilly Italia, S.p.A. dated January 17, 1994 (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 24 Exhibit No. Exhibit 10.10 Customer Agreement with Lilly Industries Limited dated September 24, 1990 (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.11 Software Maintenance Agreement with Eli Lilly UK Ltd. dated July 21, 1992 (incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.12 Source Material Escrow Agreement with Lilly Industries Ltd. (incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.13 Master Service Agreement with Lilly Industries Ltd. dated June 25, 1992 (incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.14 Master Software License Agreement with Lilly Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.15 Master Software Maintenance Agreement with Lilly Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein b reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.16 Master Software Development Agreement with Lilly-Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.17 Host Computer Agreement with Lilly Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.18 Master Service Agreement with Lilly Deutschland GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated herein by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.19 Customer Agreement with Johnson & Johnson dated July 16, 1990 (incorporated herein by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.20 Master Host Computer Agreement with Johnson & Johnson dated September 22, 1992 (incorporated herein by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.21 Master License Agreement with Johnson & Johnson dated September 22, 1992 (incorporated herein by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.22 Master Software Maintenance Agreement with Johnson & Johnson dated September 22, 1992 (incorporated herein by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.23 Master Service Agreement with Johnson & Johnson (incorporated herein by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 25 Exhibit No. Exhibit 10.24 Master Software Maintenance Agreement with Pfizer Inc. dated December 29, 1994 (incorporated herein by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.25 Master Software License Agreement with Pfizer Inc. dated December 29, 1994 (incorporated herein by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.26 Master Service Agreement with Pfizer Inc. dated December 29, 1994 (incorporated herein by reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.27 Source Material Escrow Agreement with Pfizer Inc. dated March 10, 1995 (incorporated herein by reference to Exhibit 10.27 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.28 Host Computer Agreement with Pfizer Inc. dated September 26, 1994 (incorporated herein by reference to Exhibit 10.28 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.29 Master License Agreement with Pfizer Inc. dated August 17, 1992 (incorporated herein by reference to Exhibit 10.29 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.30 Master Service Agreement with Pfizer Canada, Inc. dated April 22, 1994 (incorporated herein by reference to Exhibit 10.30 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.31 Master Service Agreement with Pfizer Chemical, K.K. (Japan) dated June 15, 1992 (incorporated herein by reference to Exhibit 10.31 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.32 Master License Agreement with Pfizer Pharmaceuticals, Inc. (Japan) dated November 17, 1992 (incorporated herein by reference to Exhibit 10.32 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.33 Services List with Pfizer Ltd. dated August 17, 1994 (incorporated herein by reference to Exhibit 10.33 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.34 Master Capitation Agreement with Rhone-Poulenc Rorer Inc. dated July 29, 1994 (incorporated herein by reference to Exhibit 10.34 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.35 Master Customer Support Service Agreement with Rhone-Poulenc Rorer Inc., dated July 29, 1994 (incorporated herein by reference to Exhibit 10.35 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.36 January 1992 Stock Plan (incorporated herein by reference to Exhibit 10.36 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.37 October 1992 Stock Option Plan for Senior Management (incorporated herein by reference to Exhibit 10.37 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 26 Exhibit No. Exhibit 10.38 Indemnification Agreement of Paul A. Margolis dated as of January 1, 1992 (incorporated herein by reference to Exhibit 10.38 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.39 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) 10.40 Employment Agreement dated October 2, 1991 with John E. Bailye, as amended (the ''Bailye Employment Agreement'') (incorporated herein by reference to Exhibit 10.41 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.41 Credit Agreement with The Chase Manhattan Bank, N.A. dated as of May 5, 1995 (incorporated by reference to Exhibit 10.42 to the Company's Registration Statement on Form S-1, filed with the Commission May 17, 1995) 10.42 Master Software License Agreement with Pfizer Italiana SpA. dated December 1994 (incorporated by reference to Exhibit 10.43 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 10.43 Master Software License Agreement with Laboratorios Pfizer Ltda. dated September 29, 1995 (incorporated by reference to Exhibit 10.44 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 10.44 Master Service Agreement with Pfizer Ltd. dated December 1, 1992, as extended by letters dated August 12, 1994 and April 14, 1995 (incorporated by reference to Exhibit 10.45 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 10.45 Master Software Maintenance Agreement with Bristol-Myers Squibb Company dated December 20, 1995 (incorporated by reference to Exhibit 10.46 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 10.46 Master Software License Agreement with Bristol-Myers Squibb Company dated December 20, 1995 (incorporated by reference to Exhibit 10.47 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 10.47 Employment Agreement dated July 9, 1990 with John LaHaye (incorporated herein by reference to Exhibit 10.48 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 10.48 Employment Agreement dated December 15, 1988 with Bruce Savage (incorporated by reference to Exhibit 10.49 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 10.49 Employment Agreement dated October 1, 1991 with Teresa F. Winslow (incorporated by reference to Exhibit 10.50 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 10.50 Employment Agreement dated June 8, 1988 with Charles Warczakowski (incorporated by reference to Exhibit 10.51 to the Company's Registration on Form S-1 filed with the Commission February 5, 1996) 27 Exhibit No. Exhibit 10.51 Employment Agreement dated January 22, 1996 with Christopher J. French 10.52 Dendrite 401(k) Retirement Savings Plan 13 The Company's 1995 Annual Report to Stockholders, certain portions of which have been incorporated herein by reference 21. Subsidiaries of the Registrant 23 Consent of Independent Public Accountants 27 Financial Data Schedule 99.5 Employment Agreement 28 EX-10.51 2 EMPLOYMENT AGREEMENT Exhibit 10.51 [DENDRITE INTERNATIONAL, INC. LETTERHEAD APPEARS HERE] EMPLOYMENT AGREEMENT -------------------- This agreement made by and between DENDRITE International, Inc., a New Jersey Corporation ("Dendrite") as of the 22nd day of January, 1996, having its principal place of business at 1200 Mt. Kemble Avenue, Morristown, New Jersey 07960, and Christopher J. French ("Employee"), located at 601 East 20th Street, Apt. 8E, New York, New York, 10010. WHEREAS, Dendrite, its affiliates, and subsidiaries is the developer and owner of what is referred to as Territory Management Systems and related hardware and equipment; WHEREAS, Employee is or desires to be employed by Dendrite and Dendrite desires to employ Employee as Vice President, General Counsel, of Dendrite upon the terms and conditions hereinafter set forth and Employee desires to accept such employment; and; WHEREAS, Dendrite is willing to provide certain confidential and proprietary information to Employee for the limited purpose of enabling Employee to carry out duties in connection with his/her employment by Dendrite. RECITAL: NOW, THEREFORE, it is agreed as follows: 1. TERM ---- The term of this Agreement and Employee's employment hereunder shall be one (1) year. At the completion of one (1) year of service, the next paragraph (2), Employment at Will will automatically become effective. 2. EMPLOYMENT AT WILL ------------------ Dendrite hereby employs the Employee as an at-will employee. This employment may be terminated at any time for any reason by Dendrite or by the Employee unless there is a separate written agreement setting forth a specific term. As a matter of courtesy and fair business dealings, the Employee, unless there is an emergency, will attempt to provide two (2) weeks notice to Dendrite before terminating his/her employment in order to permit Dendrite an opportunity to replace him/her. Dendrite will offer similar notice to the Employee in the event of his/her termination if the termination is without cause. If the termination is with cause as determined by Dendrite, Dendrite will not be required to give notice of termination. 3. TERMINATION ----------- Notwithstanding above, 1, either party shall have the right to terminate this Agreement and Employee's employment hereunder for any reason whatsoever, with or without Cause (as hereinafter defined), by providing the other party hereto with two (2) weeks advance written notice of such termination. In the event that Employee's employment hereunder is terminated by Dendrite without Cause during the first year of employment, Dendrite shall promptly pay to Employee (i) the pro-rata portion of his annual base salary for the remaining term of this Agreement, to the extent not previously paid, and (ii) an amount equal to the cash value of all vacation time accrued and unused through the date of termination. For purposes of this Agreement, the term "Cause" as used herein shall mean (i) any gross misconduct on the part of Employee with respect to his duties under this Agreement or (ii) final conviction of Employee by a court of competent jurisdiction of an indictable offense which relates to Employee's duties under this Agreement or which is likely to have a material adverse effect on the business of Dendrite. 4. DUTIES/EMPLOYMENT ----------------- Dendrite hereby employs Employee, and Employee hereby accepts such employment, as Vice President, General Counsel, of Dendrite during the term of this Agreement. The Employee shall perform those duties as may from time to time be assigned to him/her and shall carry out any assignments related to the company or its affiliate as directed. With the employee's agreement, this may involve rendering services at various locations throughout the world. The Employee shall devote his/her full time attention, energy, knowledge, skill and best efforts solely and exclusively to the duties assigned him/her which he/she shall faithfully and diligently perform. The Employee shall report to Dendrite as may be required and will fully account for all records, data, materials or other property belonging to Dendrite or its customers of which he/she is given custody. Dendrite may, from time to time, establish rules and regulations and the Employee shall from time to time, establish rules and regulations and the Employee shall faithfully observe these in the performance of his/her duties. Employee shall further comply with all policies and directives of Dendrite. 5. COMPENSATION ------------ Dendrite shall pay the Employee for his/her services an initial starting salary on a semi-monthly basis. For benefits calculation only, the annualized amount is $195,000. If Employee dies during the term of this Agreement, Dendrite shall pay to his estate all salary and vacation pay accrued and unpaid at the time of Employee's death. 6. BENEFITS -------- Dendrite shall provide the Employee: A. Three weeks annualized vacation, earned at the rate of one and one-half days for each month of service between February and November. B. Reimbursement for all reasonable travel, entertainment and other reasonable and necessary out-of-pocket expenses incurred by the Employee in connection with the performance of his/her duties. Reimbursement will be made upon the submission by the Employee of appropriate documentation and verification of the expenses; C. Other benefits to the same extent as may be provided to other employees generally. 7. INFORMATION AND BUSINESS OPPORTUNITY ------------------------------------ During the term of his/her employment by Dendrite, the Employee may acquire knowledge of (a) information that is relevant to the business of Dendrite or its affiliates or (b) knowledge of business opportunities pertaining to the business in which Dendrite or its affiliates are then presently engaged. The Employee shall promptly disclose to Dendrite that information or business opportunity but shall not disclose it to anyone else without Dendrite's written consent. 8. DENDRITE CONFIDENTIAL INFORMATION --------------------------------- It is anticipated that the Employee will, as a result of his/her employment with Dendrite, acquire information which is proprietary and confidential to Dendrite. This information includes, but is not limited to technical and commercial information, customer lists, financial arrangements, competitive status, pricing policies, knowledge of suppliers, technical capabilities, discoveries, algorithms, concepts, software in any stage of development, designs, drawings, specifications, techniques, models, data, technical manuals, research and development materials, processes procedures, know-how and other business affairs relating to Dendrite. Confidential information also includes any and all technical information involving Dendrite's work. The Employee will keep all such information confidential and will not reveal it at any time without the express written consent of Dendrite. This obligation is to continue in force after employment terminates for whatever reason. 9. CLIENT CONFIDENTIAL INFORMATION ------------------------------- Dendrite may, from time to time, be furnished information and data which is proprietary and confidential to its clients, customers or suppliers. The Employee will not, at any time for any reason, reveal any information provided by any of Dendrite's clients, customers or suppliers to anyone, unless provided with prior written consent by Dendrite or by the client, customer or supplier. This obligation is to continue in force after employment terminates for whatever reason. 10. RETURN OF DATA -------------- Upon termination of employment for any reason, the Employee shall return to Dendrite all confidential information and material including but not limited to all copies of any disks, notes, notebooks, blueprints, customer lists and any and all other papers or material in any tangible media or computer readable form belonging to Dendrite or to any of its customers, clients or suppliers. 11. INVENTIONS ---------- All work performed by Employee and all materials, products, deliverables, inventions, software, ideas, disclosures and improvements, whether patented or unpatented, and copyrighted material made or conceived by Employee, solely or jointly, in whole or in part, during the term of Employee's employment by Dendrite which (i) relate to methods, apparatus, designs, products, processes or devices sold, licensed, used or under development by Dendrite, (ii) otherwise relate to or pertain to the present, proposed or contemplated business, functions or operations of Dendrite, (iii) relate to Dendrite actual or anticipated research or development, (iv) involve the use of Dendrite's equipment, supplies or facilities, or (v) result from access to any Dendrite assets, information, inventions or the like are Confidential Information, are the property of Dendrite and shall be deemed to be a work made for hire. To the extent that title to any of the foregoing shall not, by operation of law, vest in Dendrite, all right, title and interest therein are hereby irrevocably assigned to Dendrite. Employee agrees to give Dendrite or any person or entity designated by Dendrite reasonable assistance required to perfect its rights therein. If the Employee conceives any idea, makes any discovery or invention within one (1) year after the termination of employment with Dendrite that relate to any matters pertaining to the business of Dendrite, it shall be deemed that it was conceived while in the employ of Dendrite. 12. RESTRICTION ON FUTURE EMPLOYMENT -------------------------------- The Employee agrees that in the event employment with Dendrite is terminated, for any reason, with or without cause, the Employee shall not for one (1) year after termination of employment: a) Perform services that compete with or render services to any organization or entity which competes with Dendrite in any area of the United States of America or elsewhere where Dendrite does business as listed in Addendum 1. This list may be updated periodically after consultation with employee; b) Solicit any customers or potential customers of Dendrite with whom the Employee had contact while employed by Dendrite or who was a customer of Dendrite at any time during the two (2) years immediately before terminations; c) Request that any of Dendrite's customers or suppliers discontinue doing business with it; d) Knowingly take any action which would disparage Dendrite or be to its disadvantage; e) Attempt to solicit any employee or contractor of Dendrite to terminate employment with Dendrite. 13. OUTSIDE CONTRACTING ------------------- Employee shall not enter into any agreement to provide programming or other services to any company, person or organization outside of his/her employment by Dendrite which without the prior written express consent from Dendrite, which is (i) with a competitor(s) of Dendrite at such time, or (ii) shall substantially hamper or prohibit Employee from satisfactorily carrying out all duties assigned to Employee by Dendrite. 14. AFTER-HOURS DEVELOPMENT ----------------------- In the event that Employee shall develop any software which, pursuant to Section 9 herein, is not the property of Dendrite, Dendrite shall have a right of first refusal to publish and/or purchase the rights to such software. Employee shall notify Dendrite of any such After-Hours Development as soon as reasonably possible before or during the development process including a description of the intended functions of the After-Hours Development and the estimated date of completion. 15. PRIOR EMPLOYMENT ---------------- Employee represents and warrants that Employee has not taken or otherwise misappropriated and does not have in Employee's possession or control any confidential and proprietary information belonging to any of Employee's prior employers or connected with or derived from Employee's services to prior employers. Employee represents and warrants that Employee has returned to all prior employers any and all such confidential and proprietary information. Employee further acknowledges, represents and warrants that Dendrite has informed Employee that Employee is not to use or cause the use of such confidential or proprietary information in any manner whatsoever in connection with Employee's employment by Dendrite. Employee agrees, represents and warrants that Employee will not use such information. Employee shall indemnify and hold harmless Dendrite from any and all claims arising from any breach of the representations and warranties in this Section. 16. REMEDIES -------- The parties agree that in the event the Employee breaches or threatens to breach this Agreement, money damages may be an inadequate remedy for Dendrite and that Dendrite will not have an adequate remedy at law. It is understood, therefore, that in the event of a breach of this Agreement by the Employee, Dendrite shall have the right to obtain from a court of competent jurisdiction restraints or injunctions prohibiting the Employee from breaching or threatening to breach this Agreement. In that event, the parties agree that Dendrite will not be required to post bond or other security. It is also agreed that any restraints or injunctions issued against the Employee shall be in addition to any other remedies which Dendrite may have available to it. 17. APPLICABLE LAW -------------- This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey 18. NOTICES ------- In the event any notice is required to be given under the terms of this Agreement, it shall be delivered in the English language, in writing, as follows: If to the Employee: Christopher J. French 601 East 20th Street, Apt. 8E New York, New York 10010 If to Dendrite: Dendrite International, Inc. 1200 Mt. Kemble Avenue Morristown, New Jersey 07960 With a copy to: Norris, McLaughlin and Marcus 721 Route 202-206, P.O. Box 1018 Somerville, New Jersey 08876-1018 Attention: Pat Collins 19. NON-ASSIGNABILITY ----------------- The Employee's rights or obligations under the terms of this Agreement or of any other agreement with Dendrite may not be assigned. Any attempted assignment will be void as to Dendrite. Dendrite may, however, assign its rights to any affiliated or successor entity. 20. BINDING AGREEMENT ----------------- This Agreement shall be binding upon and inure to the benefit of the Employee's heirs and personal representatives and to the successors and assigns of Dendrite. 21. INTEGRATION ----------- This Agreement, together with any other written agreements between the parties, represents the entire understanding of the parties. No representations, oral or otherwise, with respect to the subject matter of this Agreement have been made by either party. 22. WAIVER ------ This Agreement may not be modified or waived except by a writing signed by both parties. No waiver by either party of any breach by the other shall be considered a waiver of any subsequent breach of the Agreement. 23. JURISDICTION ------------ The State of New Jersey shall have exclusive jurisdiction to entertain any legal or equitable action with respect to this Agreement except that Dendrite may institute suit against the Employee in any jurisdiction in which the Employee may be at the time. In the event suit is instituted in New Jersey, it is agreed that service of summons or other appropriate legal process may be effected upon any party by delivering it to the address in this Agreement specified for that party in Section 13. IN WITNESS WHEREOF, the parties have signed this Agreement on this 22nd day of January, 1996. DENDRITE INTERNATIONAL, INC. /s/ Christopher J. French ---------------------------- Signature Christopher J. French /s/ A. A. Simonelli ---------------------------- A. A. Simonelli Vice President, Administration ADDENDUM 1 (See 12a of Employee Agreement) COMPETITORS ----------- NAME - ---- Walsh Sales Technologies CorNet TVF/Cegedim/ISS NEC Windsoft Epsilon Aurum IMS Pheonix EX-10.52 3 RETIREMENT SAVINGS PLAN Exhibit 10.52 DENDRITE 401(K) RETIREMENT SAVINGS PLAN TABLE OF CONTENTS
PAGE NO. ARTICLE 1 - DEFINITIONS 1.01 Account 1 1.02 Anniversary Date 2 1.03 Annuity Starting Date 2 1.04 Applicable Computation Period 2 1.05 Beneficiary 3 1.06 Board of Directors 3 1.07 Committee 3 1.08 Company 3 1.09 Compensation 3 1.10 Controlled or Affiliated Service Group 4 1.11 Disability 5 1.12 Effective Date/Supplemental Effective Date 5 1.13 Election Period 5 1.14 Employee/Eligible Employee/Leased Employee 5 1.15 Employer 6 1.16 Highly Compensated Employee/ Nonhighly Compensated Employee 6 1.17 Internal Revenue Code or Code 8 1.18 Participant 8 1.19 Plan 8 1.20 Plan Year 9 1.21 Protected Spouse 9 1.22 Qualified Annuity 9 1.23 Qualified Domestic Relations Order 9 1.24 Retirement 9 1.25 Retirement Dates 9 1.26 Service (Break-in-Service - Year of Service - Hour of Employment) 10 1.27 Trust Agreement 11 1.28 Trustee 11 1.29 Trust Fund 11 1.30 Valuation Date 11 ARTICLE 2 - ELIGIBILITY AND PARTICIPATION 2.01 Eligibility for Participation 12 2.02 Change in Employment Status 12
TABLE OF CONTENTS
PAGE NO. ARTICLE 3 - CONTRIBUTIONS 3.01 Elective Deferral Contributions 14 3.02 Reduction of Excess Elective Deferral Contributions 14 3.03 Matching and Regular Contributions 14 3.04 Voluntary Contributions 17 3.05 Contribution Changes 17 3.06 Discontinuance of Contributions 17 3.07 Rollover Contributions from Other Qualified Plans 18 3.08 Transfer of Assets from Other Qualified Plans 19 3.09 Deposit of Contributions 19 3.10 Payment of Expenses 19 ARTICLE 4 - CONTRIBUTIONS LIMITATIONS 4.01 $7,000 Limitation on Elective Deferral Contributions 20 4.02 Limitation on Elective Deferral, Matching and/or Voluntary Contributions 20 4.03 Limitation on Allocations 24 ARTICLE 5 - MAINTENANCE OF ACCOUNTS, INVESTMENT FUNDS AND VALUATION OF THE TRUST FUND 5.01 Maintenance of Accounts 29 5.02 Investment Election 29 5.03 Investment Funds 30 5.04 Valuation of Trust Fund 30 5.05 Allocation of Investment Earnings and Expenses 30 ARTICLE 6 - BENEFITS PAYABLE UPON TERMINATION OF EMPLOYMENT 6.01 Upon Retirement 31
TABLE OF CONTENTS PAGE NO. 6.02 Upon Disability 31 6.03 Upon Death 31 6.04 Upon Other Termination of Employment 33 6.05 Reemployment and Repayment of Benefits 35 ARTICLE 7 - DISTRIBUTION OF BENEFITS 7.01 Claim Procedure For Benefits 36 7.02 Commencement of Benefits 36 7.03 Method and Form of Payment of Benefits 40 7.04 Spousal Consent Requirements With Respect to Participant Elections 42 7.05 Disposition of Unclaimed Benefits 44 7.06 Non-Assignability 44 7.07 Substitute Payee 44 7.08 Satisfaction of Liability 44 7.09 Direct Rollover to Eligible Retirement Plans 44 7.10 Waiver of 30-Day Notice Requirement 45 ARTICLE 8 - ADMINISTRATION OF THE PLAN 8.01 Assignment of Administrative Authority 47 8.02 Organization and Operation of the Committee 47 8.03 Authority and Responsibility 48 8.04 Records and Reports 49 8.05 Required Information 49 8.06 Fiduciary Liability 49 8.07 Payment of Expenses 50 8.08 Indemnification 50 8.09 Qualified Domestic Relations Orders 50 ARTICLE 9 - AMENDMENT AND TERMINATION 9.01 Amendment 54 9.02 Termination 54 9.03 Vesting Upon Termination 55 9.04 Distribution of Benefits After Termination 55
TABLE OF CONTENTS PAGE NO. ARTICLE 10 - PARTICIPATING COMPANIES 10.01 Adoption by Other Entities 56 10.02 Alternative Provisions 56 10.03 Right to Withdraw (Plan Spinoff) 56 10.04 Procedure Upon Withdrawal 56 ARTICLE 11 - TOP-HEAVY PROVISIONS 11.01 Definition of Top-Heavy and Super Top-Heavy 58 11.02 Definition of Key Employee 59 11.03 Minimum Employer Contribution 60 11.04 Limitation of Allocations 61 ARTICLE 12 - WITHDRAWAL OF FUNDS DURING EMPLOYMENT 12.01 Withdrawals from Elective Deferral, Matching and Regular Contribution Accounts 62 12.02 Withdrawals from Rollover, Transfer and Voluntary Accounts 62 12.03 Withdrawals from Qualified Matching Contribution and Qualified Nonelective Contribution Accounts 62 12.04 Financial Hardship Rules 62 12.05 General Withdrawal Rules 63 ARTICLE 13 - LOANS 13.01 Amount of Loans and Terms of Repayment 65 ARTICLE 14 - GENERAL PROVISIONS 14.01 Exclusiveness of Benefits 68 14.02 Limitation of Rights 68
TABLE OF CONTENTS PAGE NO. 14.03 Limitation of Liability and Legal Actions 68 14.04 Construction of Agreement 68 14.05 Title to Assets 69 14.06 Severability 69 14.07 Titles and Headings 69 14.08 Counterparts as Original 69 14.09 Merger of Plans 69
DENDRITE 401(K) RETIREMENT SAVINGS PLAN STATEMENT OF PURPOSE Dendrite International, Inc. has had in effect since July 1, 1990 the Dendrite Inc. 401(k) Profit Sharing Plan, established under the Standardized regional Prototype Cash or Deferred Profit-Sharing Plan and Trust Sponsored by USF&G Business Services, Inc., to which it made contributions for the purpose of sharing its profits with its employees in order to provide for the accumulation of funds for the benefit of eligible employees and their beneficiaries in the manner and to the extent set forth in such plan. The Dendrite 401(k) Retirement Savings Plan, hereinafter set forth, and its related trust agreement, constitutes an amendment in its entirety to said plan which is continued effective as of October 1, 1996 with respect to employees and participants who had not yet retired, terminated employment or died as of such date. The rights of anyone covered under the plan prior to October 1, 1996, who retired, terminated employment or died before that date, shall be determined in accordance with the terms and provisions of the plan in effect on the date of such retirement, termination of employment or death, except as otherwise specifically provided herein. ARTICLE 1 DEFINITIONS For purposes of the Plan, the following words and phrases shall have the following meanings unless a different meaning is plainly required by the context. Wherever used, the masculine pronoun shall include the feminine pronoun and the feminine pronoun shall include the masculine and the singular shall include the plural and the plural shall include the singular. 1.01 "ACCOUNT" The interest of a Participant in the Trust Fund as represented by his accounts as designated below. (a) "ELECTIVE DEFERRAL CONTRIBUTION ACCOUNT" - Portion of Trust Fund attributable to a Participant's Elective Deferral Contributions in accordance with the provisions of Section 3.01 and the provisions of the Plan in effect prior to the Supplemental Effective Date. (b) "MATCHING CONTRIBUTION ACCOUNT" - Portion of Trust Fund attributable 1 to the Company's (i) Matching Contributions in accordance with the provisions of Subsection 3.03(a) and with the provisions of the Plan in effect prior to the Supplemental Effective Date; and (ii) Additional Matching Contributions in accordance with the provisions of Subsection 3.03(b). (c) "REGULAR CONTRIBUTION ACCOUNT" - Portion of Trust Fund attributable to the Company's Regular Contributions in accordance with the provisions of Subsection 3.03(c) and the provisions of the Plan in effect prior to the Supplemental Effective Date, and Top-Heavy Contributions in accordance with Article 11 . (d) "ROLLOVER ACCOUNT" - Portion of Trust Fund attributable to funds rolled over from another qualified plan in accordance with Section 3.07. (e) "TRANSFER ACCOUNT" - Portion of Trust Fund attributable to the Company's contributions during a Participant's participation under another qualified plan and transferred in accordance with the provisions of Section 3.08. (f) "VOLUNTARY CONTRIBUTION ACCOUNT" - Portion of Trust Fund attributable to a Participant's Voluntary Contributions in accordance with the provisions of Section 3.04 and the provisions of the Plan in effect prior to the Supplemental Effective Date. (g) "QUALIFIED MATCHING CONTRIBUTION ACCOUNT" - Portion of Trust Fund attributable to the Company's Qualified Matching Contributions in accordance with the provisions of Subsection 3.03(b). (h) "QUALIFIED NONELECTIVE CONTRIBUTION ACCOUNT" - Portion of Trust Fund attributable to the Company's Qualified Nonelective Contributions in accordance with the provisions of Subsection 3.03(d). 1.02 "ANNIVERSARY DATE" Each January commencing January 1, 1991. 2 1.03 "ANNUITY STARTING DATE" The first day of the first period for which an amount is payable as an annuity. If a benefit is not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to such benefit. 1.04 "APPLICABLE COMPUTATION PERIOD" An Eligible Employee's Applicable Computation Period shall be the 12- month period beginning as of the date a person first completed an Hour of Employment with an Employer and each anniversary thereof. 1.05 "BENEFICIARY" The person designated to receive benefits payable under the Plan in the event of death. In the event a Beneficiary is not designated, the Participant's surviving spouse shall be deemed his Beneficiary or in the absence of a surviving spouse, the benefits shall be paid to the Participant's estate. 1.06 "BOARD OF DIRECTORS" The Board of Directors of Dendrite International, Inc. 1.07 "COMMITTEE" The persons appointed in accordance with Section 8.01 to administer the Plan. In the absence of such designation, the Company shall serve as the Committee and in such case all references herein to the Committee shall be deemed a reference to the Company. 1.08 "COMPANY" (a) Dendrite International, Inc. and any successor which shall maintain this Plan; and (b) any other business entity which duly adopts the Plan with the approval of the Board of Directors. 3 1.09 "COMPENSATION" (a) Unless otherwise indicated, for purposes of Sections 3.01, 3.03 and 3.04, the amount described in Subsection (c), exclusive of any (i) amount which is paid by the Employer but not by the Company,(ii) amount paid by the Company for any period during which the Participant's employment status did not meet the requirements of Section 1.14; and (iii) amount paid before an Eligible Employee was eligible to become a Participant in accordance with Section 2.01. For purposes of Section 3.01, third party insurance payments shall be excluded. (b) For purposes of Section 4.03, the Participant's wages for the Plan Year paid by the Employer of the type reported in box 10 of Form W-2 (1991). Such wages shall include amounts within the meaning of Section 3401(a) of the Code plus any other amounts paid to the Participant by the Employer for which the Employer is required to furnish a written statement under Section 6041(d) and 6051(a)(3) of the Code, determined without regard to any rules that limit the amount required to be reported based on the nature or location of the employment or services performed, exclusive of (i) severance pay on a non payroll basis; (ii) non-qualified deferred compensation payments; (iii) any amounts paid or reimbursed by the Employer for moving expenses which the Employer reasonably believes at the time of such payment to be deductible by the Employee under Section 217 of the Code;and (iv) welfare benefits, fringe benefits (cash and non-cash), reimbursements of other expense allowances, moving expenses and deferred compensation. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to 4 any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for the determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. 1.10 "CONTROLLED OR AFFILIATED SERVICE GROUP" (a) "CONTROLLED GROUP" - Any group of business entities under common control, including but not limited to proprietorships and partnerships, or a controlled group of corporations within the meaning of Sections 414(b), (c) and (o) of the Code. For purposes of Section 4.03, the phrase "more than 50%" is substituted for the phrase "at least 80%" each place it appears in Section 1563(a)(1) of the Code. (b) "AFFILIATED SERVICE GROUP" - Any group of business entities within the meaning of Section 414(m) of the Code. 1.11 "DISABILITY" Any physical or mental condition which may reasonably be expected to be permanent and which renders the Participant incapable of continuing as an Eligible Employee for his customary Hours of Employment. 1.12 "EFFECTIVE DATE" July 1, 1990, the date as of which the Plan was established. "SUPPLEMENTAL EFFECTIVE DATE" 5 October 1, 1996, the last date as of which the Plan was amended in its entirety. 1.13 "ELECTION PERIOD" The period commencing 90 days before the Annuity Starting Date and ending on such Annuity Starting Date. 1.14 "EMPLOYEE" Any person in the employ of the Company. Leased Employees shall be included as Employees unless (i) such individual is covered by a money purchase pension plan providing (A) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Section 415(c)(3) of the Code, but including amounts contributed by the employer pursuant to a salary reduction agreement which are excludable from the Leased Employee's gross income under Section 125, 402(a)(8), 403(h) or 403(b) of the Code; (B) immediate participation; and (C) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20% of the Employer's Nonhighly Compensated Employee workforce. "ELIGIBLE EMPLOYEE" An Employee for whom the Company is required to contribute Federal Insurance Contributions Act taxes excluding persons who are Leased Employees. Notwithstanding the above, Leased Employees shall be included in the definition of Eligible Employee if the requirements of Section 414(n)(2) of the Code require such inclusion in order to meet the plan qualification requirements enumerated in Section 414(n) and then only if the coverage requirements of Section 410(b) of the Code would otherwise not be met. "LEASED EMPLOYEE" Any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by employees in the business field of the recipient employer. Contributions or benefits provided a 6 Leased Employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. 1.15 "EMPLOYER" The Company and any other business entity in a Controlled or Affiliated Service Group which includes the Company. 1.16 "HIGHLY COMPENSATED EMPLOYEE" (a) An Employee who is a Highly Compensated Active Employee or a Highly Compensated Former Employee. (b) A Highly Compensated Active Employee is any Employee who performs Service with the Employer during the Determination Year and is described in either the Look-back Year Group or the Determination Year Group or both such groups. (i) The Look-back Year Group includes any Employee who (A) was at any time during the Look-back Year a 5% owner, as defined in Section 416(i)(1) of the Code; (B) received Compensation from the Employer in excess of $75,000; (C) received Compensation from the Employer in excess of $50,000 and was in the Top-Paid Group, as defined in Section 414(q) of the Code, of Employees for such Look- back Year; or (D) was at any time an officer and received Compensation greater than 50% of the maximum dollar limitation under Section 415(b)(1)(A) of the Code. The 415(b)(1)(A) limitation and the $75,000 and $50,000 thresholds set forth above shall be adjusted annually for increases in the cost-of-living in accordance with Section 415(d) of the Code, effective as of January 1 of the calendar year such increase is promulgated and applicable to the Plan Year which begins with or within such calendar year. (ii) The Determination Year Group includes any Employee who (A) was at any time during the Determination Year a 5% owner, as defined in Section 416(i)(1) of the Code; or (B) is both (1) described in Subparagraphs (i)(B), (i)(C) or (i)(D) above substituting the Determination Year for the Look-back Year; and (2) a member of the group consisting of the 100 7 Employees paid the greatest Compensation during the Determination Year of reference. (c) A Highly Compensated Former Employee for a Determination Year is any former Employee who separated from Service prior to such Determination Year and was a Highly Compensated Active Employee for either the year in which such Employee separated from Service or any Determination Year ending on or after such Employee's 55th birthday. (d) For purposes of this definition, the following shall be applicable: (i) The Determination Year is the applicable Plan Year for which a determination is being made and the Look-back Year is the 12-month period immediately preceding such Plan Year. (ii) If there are no officers as described above in either the Determination Year or the Look-back Year, then the highest paid officer of the Employer in each such year shall be deemed a Highly Compensated Employee with respect to such year. (iii) The determination of Highly Compensated Employees, including the determinations of the number and identity of Employees in the Top-Paid Group, the top 100 Employees and the number of Employees treated as officers shall be governed by Section 414(q) of the Code and Treasury Regulation 1.414(q)-1T. (iv) The Compensation and contributions under the Plan of a Highly Compensated Employee who is a 5% owner or in the group consisting of the 10 Highly Compensated Employees paid the greatest Compensation during any Determination Year or Look-back Year shall be determined by aggregating such amounts with the Compensation and contributions of each other Employee who is the spouse, lineal ascendant or descendant or spouse of a lineal ascendant or descendant of such Highly Compensated Employee. (e) The Company may make the following elections as provided for in Treasury Regulation 1.414(q)-1T: (i) the special rule for determining Highly Compensated Former Employees who separated from Service before January 1, 1987 in accordance with Treasury Regulation 1.414(q)-1T, 8 Q&A 4(d). However, once such an election is made it may not be changed without the consent of the Commissioner; (ii) the calendar year election for the Look-back Year in accordance with Treasury Regulation 1.414(q)-lT, Q&A 14(b); (iii) the modification on a consistent and uniform basis of the permissible age and service exclusions in accordance with Treasury Regulation 1.414(q)-1T, Q&A 9(b)(2); (iv) the inclusion of employees covered under a collective bargaining agreement in accordance with Treasury Regulation 1.414(q)-1T, Q&A 9(b)(2); (v) the inclusion of leased employees in determining the highly compensated group in accordance with Treasury Regulation 1.414(q)-1T, Q&A 7(b)(4); and (vi) the transitional rule in accordance with Treasury Regulation 1.414(q)-IT, Q&A 15. "NONHIGHLY COMPENSATED EMPLOYEE" An Employee who is not deemed to be a Highly Compensated Employee. 1.17 "INTERNAL REVENUE CODE" OR "CODE" The Internal Revenue Code of 1986, and any amendments thereto. 1.18 "PARTICIPANT" (a) An Eligible Employee who participates under the Plan in accordance with Section 2.01. (b) Each other Eligible Employee or former Eligible Employee for whom an Account is maintained. 1.19 "PLAN" The plan of the Company, as herein set forth and as from time to time supplemented and amended, which Plan is intended to be a profit- sharing plan for purposes of Sections 401 (a), 402, 412 and 417 of the Code. 9 1.20 "PLAN YEAR" A period of 12 consecutive months commencing on the January 1, 1991 and each Anniversary Date thereof. However, "Plan Year" prior to January 1, 1991, shall be a period of six consecutive months commencing on the Effective Date and ending on December 31, 1990. 1.21 "PROTECTED SPOUSE" The spouse to whom the Participant had been legally married on the earlier of the date of the Participant's death or the Participant's Annuity Starting Date. 1.22 "QUALIFIED ANNUITY" (a) in the case of a married Participant, an immediate annuity payable for the life of the Participant with a survivorship benefit payable to the Participant's spouse (on the Annuity Starting Date) for life. Such survivorship benefit shall not be less than 50% or greater than 100% of the benefit payable to the Participant. In the absence of a specific election, 100% shall be applicable. (b) In the case of a Participant who is not married on his Annuity Starting Date, an immediate annuity payable for the life of the Participant. Upon the Participant's death, all benefits cease. 1.23 "QUALIFIED DOMESTIC RELATIONS ORDER" A domestic relations order as defined in Section 8.09 in accordance with Section 414(p) of the Code. 1.24 "RETIREMENT" The termination of employment of a Participant on his Early, Normal or Deferred Retirement Date. 1.25 "RETIREMENT DATES" (a) "NORMAL RETIREMENT DATE" - The date on which the Participant attains age 65. 10 (b) "EARLY RETIREMENT DATE" - The first day of any month coincident with or following the date on which the Participant attains age 55, provided he has completed five Years of Service as of such date. (c) "DEFERRED RETIREMENT DATE" - The first day of any month subsequent to the Participant's Normal Retirement Date. 1.26 "SERVICE" (a) All Hours of Employment with the Employer during an Applicable Computation Period. (b) "Break-in-Service" -An Applicable Computation Period during which an Employee fails to receive credit for 501 Hours of Employment. If an Employee is absent by reason of (i) the pregnancy of the Employee, (ii) the birth of a child of the Employee, (iii) the placement of a child with the Employee in connection with an adoption of such child by such Employee, or (iv) caring for such child immediately following such birth or placement, such Employee will be credited with the number of Hours of Employment which would normally have been credited but for such absence, or, in any case in which the Committee is unable to determine such hours normally credited, eight Hours of Employment per day. The Hours of Employment required to be credited for such absence shall not exceed 501. Hours of Employment shall be credited for the Plan Year in which the absence from work begins, only if credit is necessary to prevent the Employee from incurring a Break-in-Service, or, in any other case, in the immediately following Plan Year. (c) "YEAR OF SERVICE" - An Applicable Computation Period during which the Employee receives credit for at least 1,000 Hours of Employment. (d) "HOUR OF EMPLOYMENT" (i) Each hour during an Applicable Computation Period for which the person is directly or indirectly paid or entitled to payment for the performance of duties or for the period of time when no duties are performed, irrespective of whether the employment relationship has terminated, such as vacation, holiday, lay-off, jury duty or approved Leave of Absence. 11 As used herein and Section 3.03, Leave of Absence shall mean a leave granted for pregnancy, Disability, illness, death or any other family obligation or status; personal or family hardship or special business circumstances; educational purposes; and/or civic, charitable or governmental services, provided that all Employees under similar circumstances shall be treated in a similar manner. No more than 501 Hours of Employment are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period). (ii) A person shall receive an Hour of Employment for each hour for which back pay has been awarded or agreed to irrespective of mitigation of damages, provided that each such hour shall be credited to the Applicable Computation Period to which it pertains, rather than the Applicable Computation Period in which the award or agreement is made, and further provided that no such award or agreement shall have the effect of crediting an Hour of Employment for any hour for which the person previously received credit under (i) above. (iii) Notwithstanding the foregoing, Hours of Employment shall be computed and credited in accordance with Department of Labor Regulation 2530.200b-2, Subparagraphs (b) and (c). (iv) A person shall be credited with 95 Hours of Employment for each semi-monthly payroll period for which he would have been required to be credited with at least one Hour of Employment. (e) An Employee shall receive credit for the period of his employment with another business entity to which he had been transferred by the Company solely for purposes of determining his vested interest in accordance with Section 6.04. 1.27 "TRUST AGREEMENT" The instrument executed by the Company and the Trustee fixing the rights and liabilities of each with respect to holding and administering the Trust Fund, which instrument shall be incorporated by reference into this Plan. 12 1.28 "TRUSTEE" The Trustee or any successor Trustee, appointed by the Board of Directors, acting in accordance with the terms of the Trust Agreement. 1.29 "TRUST FUND" All assets held by the Trustee for the purposes of the Plan in accordance with the terms of the Trust Agreement. 1.30 "VALUATION DATE" The last day of each March, June, September and December or such other dates as the Committee may determine from time to time. 13 ARTICLE 2 ELIGIBILITY AND PARTICIPATION 2.01 ELIGIBILITY FOR PARTICIPATION (a) Each Eligible Employee on the Supplemental Effective Date who was a Participant of the Plan shall continue as a Participant as of the Supplemental Effective Date. (b) For purposes of Elective Deferral contributions in accordance with Section 3.01, each other Eligible Employee shall become a Participant as of the Supplemental Effective Date or the January, April, July or October 1 coincident with or next following the later of the date his employment commenced or attains age 21. (c) For all other purposes of the Plan, each other Eligible Employee shall become a Participant as of the Supplemental Effective Date or the January, April, July or October 1 coincident with or next following the later of the date he completes one Year of Service and he attains age 21. (d) If a former Participant is reemployed, he shall be eligible to resume his participation as of the date of his reemployment. Such Participant may elect to comply with the provisions of Section 3.01 as of the date of his reemployment or any subsequent January, April, July or October 1. 2.02 CHANGE IN EMPLOYMENT STATUS (a) In the event a Participant ceases to be an Eligible Employee as the result of becoming part of an excluded class, only Compensation up to the date he ceased to be an Eligible Employee shall be considered for purposes of contributions in accordance with Article 3. Such Employee shall remain a Participant but shall not be permitted to contribute in accordance with Article 3 or share in any Company contributions or forfeitures allocated in accordance with Article 3 for the period beyond the date he ceased to be an Eligible Employee. In the event such Participant returns to an eligible class and again becomes an Eligible Employee, he shall be permitted to share in Company contributions or forfeitures allocated in accordance with 14 Article 3 as of the date he again became an Eligible Employee and may elect to comply with the provisions of Section 3.01 as of such date or any subsequent January, April, July, or October 1. Only Compensation from the date he again became an Eligible Employee shall be considered for purposes of such contributions. (b) If a Person otherwise satisfied the eligibility requirements of Section 2.01 and subsequently becomes an Eligible Employee, he shall be eligible to become a Participant as of the date he became an Eligible Employee and may elect to comply with the provisions of Section 3.01 as of such date or any subsequent January, April, July or October 1. (c) In the event a collective bargaining agreement is entered into between the Company and a representative for any class of Employees in the employ of the Company subsequent to the Supplemental Effective Date, eligibility for participation in the Plan by such Employees who are not Participants shall not be extended beyond the effective date of the collective bargaining agreement unless the agreement extends participation in the Plan to such Employees. The provisions of Subsection (a) shall apply to those Employees who are currently Participants. 15 ARTICLE 3 CONTRIBUTIONS 3.01 ELECTIVE DEFERRAL CONTRIBUTIONS A Participant may, when first eligible or as of any subsequent January, April, July or October 1 elect to save, through pay reduction each payroll period, no less than 1 % nor more than 15%, in whole percentages, of that portion of his Compensation attributable to such payroll period, subject to the limitations on Elective Deferral Contributions under Sections 4.01 and 4.02 and the limitations on annual additions under Section 4.03. Such contributions shall take the form of before tax contributions (hereinafter known as "Elective Deferral Contributions") and shall be deemed to be Company contributions for purposes of Section 414(h) of the Code. (a) An initial written election must be made by an Eligible Employee and submitted to the Committee at least 30 days (or such other period as the Committee may fix from time to time) prior to the first date the Eligible Employee would be eligible to become a Participant of the Plan in accordance with Section 2.01. (b) An election, once made, shall remain in effect until subsequently changed by the Eligible Employee in accordance with the provisions of Section 3.05 or 3.06. 3.02 REDUCTION OF EXCESS ELECTIVE DEFERRAL CONTRIBUTIONS If Elective Deferral Contributions under Section 3.01 are projected to exceed the limitations of Sections 4.01 or 4.02 at any time during a Plan Year, the Committee, in a good faith effort to comply with such limitations, retains the right to reduce the rate of elective deferrals made by Highly Compensated Employees. Such reduction shall be made in the sole discretion of the Committee and for purposes of Section 4.02 shall be accomplished by progressively reducing the Elective Deferral Contributions of those Highly Compensated Employees with the highest deferral percentage until the limitations are met. Contributions made prior to the date of such reduction shall be deemed to be made pro rata throughout the Plan Year of reference for purposes of 16 entitlement to a Matching Contribution under Section 3.03. 3.03 MATCHING AND REGULAR CONTRIBUTIONS Subject to the limitations on annual additions under Section 4.03, the Company shall contribute the following amounts: (a) MATCHING CONTRIBUTIONS - 50% of that portion of the Participant's Elective Deferral Contributions each payroll period which does not exceed 6% of the Participant's Compensation for such payroll period. Only Elective Deferral Contributions which are not required to be restricted under Sections 3.02, 4.01 or 4.02 shall be matched. No Matching Contribution will be provided in excess of the limitations under Subsections 4.02(b) and (c). (b) ADDITIONAL MATCHING CONTRIBUTIONS - For any Plan Year, the Company may contribute such additional amounts as it shall determine. Such Additional Matching Contributions shall be allocated to Participants in the employ of the Company on the last business day of such Plan Year in the same proportion that the Elective Deferral Contributions of each such Participant for such Plan Year bears to the aggregate Elective Deferral Contributions of all Participants for such Plan Year, taking into consideration only that portion of each Participant's Elective Deferral Contributions which does not exceed 6% of such Participant's Compensation for each payroll period during such Plan Year. QUALIFIED MATCHING CONTRIBUTIONS - For any Plan Year, the Company may contribute such additional amounts as it shall determine. Such Qualified Matching Contributions shall be allocated to those Participants who are Nonhighly Compensated Employees in the employ of the Company on the last business day of such Plan Year in the same proportion that the Elective Deferral Contributions of each such Participant for such Plan Year bears to the aggregate Elective Deferral Contributions of all such Participants for such Plan Year, taking into consideration only that portion of each Participant's Elective Deferral Contributions which does not exceed 6% of such Participant's Compensation for each payroll period during such Plan Year. Such contributions shall be subject to Treasury Regulation 1.401(k)- 1(g)(13). 17 Notwithstanding the foregoing provision, a Participant otherwise eligible shall share in such Additional or Qualified Matching Contributions for the Plan Year of (i) his Retirement, Disability or death, (ii) the commencement of a Leave of Absence authorized by the Company or (iii) his transfer to another business entity to which such Participant had been transferred by the Company, even if the Participant is not in the employ of the Company on the last business day of such Plan Year. (c) REGULAR CONTRIBUTIONS - Such amount as the Company shall determine for each Plan Year, which, along with forfeitures, shall be allocated to each Participant in the same proportion that his Compensation bears to the aggregate Compensation of all Participants for such Plan Year, provided the Participant is in the employ of the Company on the last business day of such Plan Year, which amount shall be credited at the end of the Plan Year. Notwithstanding the foregoing provision, a Participant shall be entitled to a share of the Company's Regular Contributions plus forfeitures, if any, for the Plan Year of (i) his Retirement, Disability or death, (ii), the commencement or end of a Leave of Absence authorized by the Company or (iii) his transfer to another business entity to which such Participant had been transferred by the Company, even if the Participant is not in the employ of the Company on the last business day of such Plan Year. A Participant shall not share in the allocation of the Company's Regular Contributions or forfeitures for any Plan Year during which he terminated his employment for reasons other than specified in (i), (ii) or (iii). Notwithstanding the above, in the event the Plan fails to meet the requirements of Section 401(a)(26) or 410(b) of the Code, those Participants who are not in the employ of the Company on the last business day of the Plan Year shall share in the allocation of the Company's Regular Contribution to the extent necessary by progressively including those Participants with the greatest number of Months of Service to a minimum of four until the requirements are met. (d) QUALIFIED NONELECTIVE CONTRIBUTIONS - Such amount as the Company shall determine for any Plan Year, which shall be allocated to those Participants who are Nonhighly Compensated Employees in the same 18 proportion that his Compensation bears to the aggregate Compensation of all such Participants for such Plan Year, provided the Participant is in the employ of the Company on the last business day of such Plan Year, which amount shall be credited at the end of the Plan Year. Such contributions shall be subject to Treasury Regulation 1.401(k)-1(g)(13). Notwithstanding the foregoing provision, a Participant otherwise eligible shall be entitled to a share of the Company's Qualified Nonelective Contributions for the Plan Year of (i) his Retirement, Disability or death, (ii) the commencement or end of a Leave of Absence authorized by the Company or (iii) his transfer to another business entity to which such Participant had been transferred by the Company, even if the Participant is not in the employ of the Company on the last business day of such Plan Year. A Participant shall not share in the allocation of the Company's Qualified Nonelective Contributions for any Plan Year during which he terminated his employment for reasons other than specified in (i), (ii) or (iii). 3.04 VOLUNTARY CONTRIBUTIONS (a) The Committee, solely at its discretion, may elect to provide Participants with the option of making Voluntary aftertax contributions for each Plan Year any amount from 2% to 10%, in whole percentages, of Compensation. (b) The Committee may also, solely at its discretion, permit such Participants to contribute the difference between (i) 10% of such Participant's Compensation while a Participant of the Plan and (ii) the sum of all previous Voluntary Contributions actually made by the Participant. (c) All contributions under this Section shall be subject to the limitations on Voluntary Contributions under Section 4.02 and the limitations on annual additions under Section 4.03. (d) The Committee shall promulgate such specific rules and regulations as may be required with respect to the implementation and operation of these provisions . 19 3.05 CONTRIBUTION CHANGES A Participant may, subject to the minimum and maximum percentages as specified in Section 3.01, increase or reduce the percentage rate of his Elective Deferral Contributions and/or, if applicable, his Voluntary Contributions four times during a Plan Year, as of any January, April, July or October 1 (or as of such other dates as the Committee may fix from time to time), by written notification to the Committee at least 15 days (or such other period as the Committee may fix from time to time) prior to the effective date of such change. 3.06 DISCONTINUANCE OF CONTRIBUTIONS (a) A Participant may discontinue his Elective Deferral Contributions and/or, if applicable, his Voluntary Contributions at any time, but limited to four times during a Plan Year, by written notification to the Committee at least 15 days (or such other period as the Committee may fix from time to time) prior to the effective date of such discontinuance. (b) A Participant may resume his Elective Deferral Contributions and/or, if applicable, his Voluntary Contributions as of any subsequent January, April, July or October 1 (or such other dates as the Committee may fix from time to time) by written notification to the Committee at least 15 days (or such other period as the Committee may fix from time to time) prior to the effective date of such resumption. (c) The discontinuance of Elective Deferral Contributions will automatically include a discontinuance of the Matching Contributions. A discontinuance only of the Participant's Voluntary Contributions will not affect contributions to the Participant's other accounts. 3.07 ROLLOVER CONTRIBUTIONS FROM OTHER QUALIFIED PLANS (a) Any Eligible Employee upon commencement of employment may make a rollover contribution to the Trust Fund of all or any portion of the entire amount (including money or any other property acceptable to the Committee and Trustee) which is an eligible rollover distribution, as defined in Section 402(c)(4) of the Code and temporary Treasury Regulation 1.402(C)-2T, Q&A 3 and 4, provided such rollover contribution is either (i) a direct transfer from another qualified plan or (ii) received on or before the 60th day immediately 20 following the date the Employee received such distribution from a qualified plan or conduit Individual Retirement Account or Annuity. Such Eligible Employee must complete and sign the Plan's rollover request form and provide such evidence as is requested by the Committee, including evidence supporting the satisfaction of the remaining provisions of this Section. (b) The distribution intended to be rolled over must be an eligible rollover distribution from a (i) qualified trust, as verified by written evidence from the administrator of the distributing plan; (ii) conduit IRA, as verified in writing by the custodian or insurance company that the original distribution from the qualified trust was an eligible rollover distribution; or (iii) qualified trust as a direct rollover as provided for in Section 402(c) of the Code. (c) The Committee shall credit the fair market value of any rollover contribution and investment earnings attributable thereto to the Participant's Rollover Account. Such rollover contributions shall not be considered annual additions for purposes of Section 4.03. (d) An Eligible Employee who becomes a Participant by virtue of the acceptance of such rollover contribution, but who is not otherwise eligible for participation in accordance with Section 2.01, shall not be entitled to make contributions or share in any Company contribution allocated in accordance with this Article 3 or Article 11. (e) The Committee may promulgate specific rules and regulations governing all aspects of this Section. 3.08 TRANSFER OF ASSETS FROM OTHER QUALIFIED PLANS (a) The Committee may accept the direct transfer to the Trust Fund from another qualified trust fund of those assets (including money or any other property acceptable to the Committee and Trustee) attributable to a Participant's participation in any qualified plan to which such trust relates. Such transferred amounts shall not be considered annual additions for purposes of Section 4.03. 21 (b) The amount transferred shall be credited to the Participant's Accounts as determined by the Committee, taking into account the applicable vesting schedules, amounts subject to special tax treatment and withdrawal rules. Additional Transfer Accounts will be established, if required, to accommodate these objectives. (c) An Eligible Employee who becomes a Participant by virtue of a transfer of assets, but who is not otherwise eligible for participation in accordance with Section 2.01, shall not be entitled to make contributions or share in any Company contribution allocated in accordance with this Article 3 or Article 11. (d) The Committee may promulgate specific rules and regulations governing all aspects of this Section but until promulgated, all other provisions of the Plan shall be applicable based on the Account to which such assets were transferred. 3.09 DEPOSIT OF CONTRIBUTIONS The Company shall deposit the Elective Deferral Contributions and Voluntary Contributions with the Trustee as soon as practicable (in no event to exceed 90 days) following the date on which such amounts would otherwise have been paid to the Participant. In no event shall Voluntary Contributions be deposited later than 30 days after the end of the Plan Year. All other Company contributions must be deposited by the earlier of the end of the subsequent Plan Year or after the end of the period described in Code Section 404(a)(6) applicable to the tax year of the Company with or within which the Plan Year ends. 3.10 PAYMENT OF EXPENSES In addition to its contributions, the Company may elect to pay all the administrative expenses of the Plan and all fees and retainers of the Plan's Trustee, accountant, counsel, consultant, administrator or other specialist so long as the Plan or Trust Fund remains in effect. If the Company does not pay all or part of such expenses, the Trustee shall pay these expenses from the Trust Fund. All expenses relating directly to the investments of the Trust Fund, including taxes, brokerage commissions and registration charges, must be paid from the Trust Fund. 22 ARTICLE 4 CONTRIBUTION LIMITATIONS 4.01 $7,000 LIMITATION ON ELECTIVE DEFERRAL CONTRIBUTIONS Each Participant's Elective Deferral Contributions under Section 3.01, when added to any additional elective deferrals, as defined in Section 402(g) of the Code, under all other plans maintained by the Employer, shall be limited to $7,000 during any calendar year, adjusted annually for increases in the cost-of-living in accordance with Section 415(d) of the Code, or such other maximum permitted under Section 402(g) of the Code. To the extent a Participant's Elective Deferral Contributions exceed the above limitation the Employer will notify the Plan of such excess and such amount will be designated as an excess deferral. Such excess deferral will be distributed to such Participant with investment experience no later than April 15 following the close of the calendar year to which such excess relates. Such excess may be distributed prior to the close of the calendar year of reference provided the correcting distribution is made after the date on which the plan received the excess deferral and is specifically designated as an excess deferral. Investment experience will be determined in accordance with the fourth paragraph of Section 4.02(d) below. 4.02 LIMITATION ON ELECTIVE DEFERRAL, MATCHING AND/OR VOLUNTARY CONTRIBUTIONS (a) The Actual Deferral Percentage of Highly Compensated Employees in the Testing Group for any Plan Year shall be limited to the greater of (i) the Actual Deferral Percentage for the Nonhighly Compensated Employees in the Testing Group multiplied by 1.25; or (ii) the Actual Deferral Percentage for the Nonhighly Compensated Employees in the Testing Group multiplied by 2.00, provided, however, that the Actual Deferral Percentage for the Highly Compensated Employees in the Testing Group may not exceed the Actual Deferral Percentage for such Nonhighly Compensated Employees by more than two percentage points. (b) The Actual Contribution Percentage of Highly Compensated 23 Employees in the Testing Group for any Plan Year shall be limited to the greater of (i) the Actual Contribution Percentage for Nonhighly Compensated Employees in the Testing Group multiplied by 1.25; or (ii) the Actual Contribution Percentage for Nonhighly Compensated Employees in the Testing Group multiplied by 2.00, provided, however, that the Actual Contribution Percentage for the Highly Compensated Employees in the Testing Group may not exceed the Actual Contribution Percentage for such Nonhighly Compensated Employees by more than two percentage points. (c) If one or more Highly Compensated Employees are eligible for both Elective Deferral Contributions and to receive Matching Contributions or to make Voluntary Contributions, such contributions shall be limited to the greater of (i) or (ii) below. Notwithstanding the above, this Subsection (c) shall only be applicable if both the Actual Deferral Percentage and the Actual Contribution Percentage of the Highly Compensated Employees exceeds 1.25 multiplied by the respective Nonhighly Compensated Employee percentages. (i) The sum of (A) 1.25 times the greater of (1) the Actual Deferral Percentage for the Nonhighly Compensated Employees, or (2) the Actual Contribution Percentage for the Nonhighly Compensated Employees; and (B) two plus the lesser of Subparagraph (1) or (2) above, provided that such amount may not exceed 200% of the lesser of Subparagraph (1) or (2). (ii) The sum of (A) 1.25 times the lesser of (1) the Actual Deferral Percentage for the Nonhighly Compensated Employees, or 24 (2) the Actual Contribution Percentage for the Nonhighly Compensated Employees; and (B) two plus the greater of Subparagraph (1) or (2) above, provided that such amount may not exceed 200% of the greater of Subparagraph (1) or (2). (d) To the extent the otherwise applicable Elective Deferral, Voluntary and Matching Contributions for any Plan Year must be limited due to the restrictions described in Subsections (a), (b) and (c), such limitations shall be applied to the Highly Compensated Employees' Elective Deferral, Matching and/or Voluntary Contribution percentages, whichever applicable, beginning with the highest of such percentages until the limitations are met. [In satisfying the limited percentages applicable to any individual Highly Compensated Employee, reductions will first be made to Voluntary Contributions. Additional reductions to satisfy Subsection (c) shall be applied first to unmatched Elective Deferral Contributions, if any, and then to matched Elective Deferral Contributions and Matching Contributions proportionately. Excess Elective Deferral, Voluntary and Matching Contributions shall be allocated to Participants who are subject to the family aggregation rules of Section 414(q)(6) of the Code in proportion to their unadjusted deferrals and contributions. Any excess Elective Deferral or Voluntary Contributions that result from the above limitations shall be refunded to such Highly Compensated Employees with investment experience, no later than the last day of the Plan Year subsequent to the Plan Year to which the excess relates. The limitation on Matching Contributions is effected by limiting the otherwise applicable Matching Contributions in accordance with Subsection 3.03(a). Investment experience shall be the income or loss allocable to the Participant's Elective Deferral Contribution Account or Voluntary Contribution Account for the Plan Year multiplied by a fraction, the numerator of which is such Participant's excess Elective Deferral or Voluntary Contributions for the year and the denominator is the sum of (i) the Participant's Elective Deferral Contribution Account or Voluntary Contribution Account balance as of the beginning of the Plan Year and (ii) the Participant's Elective Deferral or Voluntary Contributions for the Plan Year. 25 (e) Definitions and Special Rules (i) The Actual Deferral Percentage for the Highly Compensated Employees and Nonhighly Compensated Employees for a Plan Year shall be the average of the ratios (calculated separately for each such Employee in the Testing Group) of (A) the amount of contributions credited to the Elective Deferral Contribution Account on behalf of each such Employee in the Testing Group during such Plan Year, to (B) the Compensation of each such Employee in the Testing Group for such Plan Year. For purposes of the above, Qualified Matching Contributions and Qualified Nonelective Contributions may be taken into account in determining the Actual Deferral Percentage for each Employee in the Testing Group for such Plan Year provided such amounts comply with the provisions of Treasury Regulation 1.401(k)-1(b). Qualified Matching Contributions, Qualified Nonelective Contributions and Elective Deferral Contributions included in the calculation of the Actual Contribution Percentages will not be included in the calculation of Actual Deferral Percentages. (ii) The Actual Contribution Percentage for the Highly Compensated and Nonhighly Compensated Employees in the Testing Group for a Plan Year shall be the average of the ratios (calculated separately for each such Employee in the Testing Group) of (A) the amount of Matching and Voluntary Contributions credited on behalf of each such Employee in the Testing Group during such Plan Year, to (B) the Compensation of each such Employee in the Testing Group for such Plan Year. For purposes of the above, Qualified Matching Contributions, Qualified Nonelective Contributions and Elective Deferral Contributions may be taken into account in determining the 26 Actual Contribution Percentage for each Employee in the Testing Group for such Plan Year provided such amounts comply with the provisions of Treasury Regulation 1.401 (m)-1(b). Qualified Matching Contributions, Qualified Nonelective Contributions and Elective Deferral Contributions included in the calculation of the Actual Deferral Percentages will not be included in the calculation of Actual Contribution Percentages. (iii) Testing Group shall mean the group of all Eligible Employees eligible for participation in accordance with Section 2.01. (iv) All Eligible Employees in the Testing Group will be included in determining the Actual Deferral Percentages and/or the Actual Contribution Percentages, whichever is applicable. The ratio averaged into the respective percentages will be zero for any Eligible Employee in the Testing Group if the otherwise applicable numerator is zero. (v) All such ratios and the average of such ratios shall be calculated to the nearest one-hundredth of one percent. (vi) The deferral percentage and/or contribution percentage for a Plan Year for any Highly Compensated Employee who is eligible to participate under two or more plans or arrangements described in Section 401(a) or 401(k) of the Code that are maintained by the Employer shall be determined as if all contributions were made under a single plan. (vii) In the event that this Plan satisfies the requirements of Section 401(k), 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Sections of the Code only if aggregated with this Plan, deferral and contribution percentages shall be determined as if all such plans were a single plan. Any other plan may be aggregated with this Plan at the discretion of the Company. Plans may be aggregated in order to satisfy Section 401(k) of the Code only if they have the same Plan Year. (viii) The ratio for any 5% owner, as defined in Section 416(i)(1) of the Code, and for any Highly Compensated Employee in the 27 group consisting of the 10 Highly Compensated Employees paid the greatest Compensation shall be determined by aggregating the Elective Deferral Contributions or Matching and Voluntary Contributions and Compensation of such individual with the respective amounts of each other Eligible Employee who is a family member of such Highly Compensated Employee. Once the ratio for the family group is determined, the individual ratios of the family members are not taken into account. For purposes of this paragraph, family member shall mean the spouse, lineal ascendant or descendant or spouse of a lineal ascendant or descendant of the Highly Compensated Employee. 4.03 LIMITATION ON ALLOCATIONS (a) The "annual addition" for any Participant shall not exceed the amount determined hereunder. Annual addition shall mean the sum of Employer contributions, Employee contributions and forfeitures allocated on behalf of a Participant for a Plan Year, which is defined to be the limitation year. Annual additions shall also include excess deferrals, excess contributions and excess aggregate contributions, other than excess deferrals distributed in accordance with Treasury Regulation 1.402(g)-1(e)(2) or (3). The determination of the annual addition will be made as if all defined contribution plans of the Employer were one plan and any Participant contributions to defined benefit plans will be treated as contributions to defined contribution plans. Annual additions will be applied to the applicable Plan Year in accordance with Section 1.415-6(b) of the Treasury Regulations. For purposes of Subsection (b)(i), annual addition shall also include amounts allocated, after March 31, 1984, to an individual medical account, as defined in Section 415(l) of the Code which is part of a defined benefit plan maintained by the Employer and amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee (as defined in Section 11.02) under a welfare benefit plan 28 (as defined in Section 419A(d) of the Code) maintained by the Employer. (b) The annual addition for any Participant shall not exceed the lesser of (i) or (ii) below: (i) $30,000, or if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1)(A) of the Code as in effect for the limitation year. In the event of a short Plan Year, the maximum dollar limitation shall be divided by 12 and multiplied by the number of months in the short Plan Year. (ii) 25% of the Participant's Compensation. (c) If a Participant also is or has been a participant in one or more defined benefit plans of the Employer, whether or not terminated, the projected annual benefit from such defined benefit plans shall be reduced so that a "combined benefit factor" in excess of 1.0 shall not result. The combined benefit factor is the sum of (i) the defined benefit factor and (ii) the defined contribution factor where (i) the defined benefit factor is a fraction (A) the numerator of which is the Participant's projected annual benefit under all defined benefit plans of the Employer at the end of the limitation year of the Plan, and (B) the denominator of which is the lesser of (1) 1.25 multiplied by the maximum allowable annual benefit under Sections 415(b)(1)(A) and 415(d) of the Code at the end of the limitation year of the Plan, or (2) 1.4 multiplied by the maximum allowable annual benefit under Section 415(b)(1)(B) of the Code at the end of the limitation year of the Plan, and (ii) the defined contribution factor is a fraction 29 (A) the numerator of which is the sum of the annual additions for such Participant under all defined contribution plans of the Employer, whether or not terminated, for all such years during which he was a participant in such plans, and (B) the denominator of which is the sum of the lesser of the amounts determined in (1) or (2) for the current year and each prior year during which the Participant was employed by the Employer, regardless of whether or not a plan was in existence during those years: (1) 1.25 multiplied by the maximum dollar limitation as defined in Subsection (b)(i), or (2) 1.4 multiplied by the compensation limitation as defined in Subsection (b)(ii). (d) A Participant shall not be permitted to defer Compensation or contribute amounts, nor shall he be entitled to an allocation of any Employer contributions or forfeitures under any qualified defined contribution plan which exceeds the limitations described herein. (e) The limitations on allocations to a Participant's Account will be applied by limiting otherwise allocable amounts starting with the latest allocations during the limitation year. To the extent more than one type of addition is allocated as of any date, the limitation will be applied in the following order: (i) forfeitures; (ii) Employer contributions under profit-sharing plans other than matching contributions; (iii) Employer contributions under money purchase plans other than matching contributions; (iv) Employer matching contributions under money purchase plans. (v) Employer matching contributions under profit-sharing plans; (vi) Employee contributions; and 30 (vii) elective deferrals. Amounts listed above which would have been added to a Participant's Account based on an allocation method specified in a Plan will be reallocated among the remaining Participants eligible to share under the Plan. Amounts listed above which would have been added to the Participant's Account based on an individually defined entitlement will reduce the Employer's contribution commitment. Employee contributions and elective deferrals will be limited at the time deposited and will not be permitted to the extent the limits of this Section would be violated. In the event annual additions on behalf of a Participant participating in more than one plan of the same type during a Plan Year are required to be limited under this Section, the limitation shall be ratably apportioned among all such plans. (f) Notwithstanding the above, if an excess allocation occurs as a result of (i) an allocation of forfeitures; (ii) a reasonable error in determining a Participant's Compensation; (iii) a reasonable error in determining the amount of elective deferrals that may be made under this Section; or (iv) any other reason acceptable to the Internal Revenue Service, the resulting additions to the Participant's Account will be reduced by first eliminating Employee contributions and elective deferrals to the extent otherwise required to be refunded under Sections 402(g), 401(k)(3) or 401(m)(2) of the Code. Any additional reductions permitted under this Subsection will be applied in the manner described in Subsection (e). However, any amounts paid to the Trust for the limitation year which are not allocated to other Participants will be held in a suspense account, without investment earnings, and allocated and reallocated in the following limitation year and, to the extent necessary, each 31 subsequent limitation year. Allocations from a suspense account in a money purchase plan will be viewed as an allocation of accrual requirement for the year in which the amount is ultimately allocated. In the event a plan is terminated, suspense accounts shall revert to the Employer to the extent such accounts may not then be allocated on behalf of any remaining eligible Participants. (g) Notwithstanding any provision of the Plan to the contrary, (i) the annual addition for any Plan Years beginning before January 1, 1987 shall not be recomputed to include all Employee contributions. (ii) if the Employee was a Participant as of the first day of the first limitation year beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of the defined benefit fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last limitation year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Section 415 of the Code for all limitation years beginning before January 1, 1987. (iii) if the Employee was a Participant as of the end of the first day of the first limitation year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of the defined contribution fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (A) the excess of the sum of the fractions over 1.0 times (B) the denominator of the defined contribution fraction, will be permanently subtracted from the numerator of the defined contribution fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last limitation year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the 32 Plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first limitation year beginning on or after January 1, 1987. (iv) transitional rules provided in conjunction with legislative changes and changes in the Plan's top-heavy status will be applied in accordance with Internal Revenue Service promulgations and legislative history. 33 ARTICLE 5 MAINTENANCE OF ACCOUNTS, INVESTMENT FUNDS AND VALUATION OF THE TRUST FUND 5.01 MAINTENANCE OF ACCOUNTS The Committee shall establish and maintain a separate accounting in the name of each Participant to which it shall credit all amounts contributed in accordance with Articles 3 and 11. 5.02 INVESTMENT ELECTION (a) INITIAL ELECTION - Each Participant shall designate one or more of the investment funds established in accordance with Section 5.03 for the investment of his Account. The percentage elected for investment in any one of the investment funds must be a multiple of 5%, and the same percentage shall be applied equally to each of the Participant's Accounts. Such initial election may only be made as of January, April, July or October 1. Contributions or transfers to the Participant's Account (i) prior to such date or (ii) if no initial election is made, shall automatically be invested in the Goldman Money Market Trust Fund until the next January, April, July or October 1. (b) SUBSEQUENT ELECTION - A Participant may, by written notice to the Committee at least 15 days prior to the January, April, July or October 1 as of which such election is to be effective, change his investment fund election with respect to subsequent contributions but, until changed, an investment fund election, once made, shall remain in effect for all subsequent Plan Years. (c) TRANSFER ELECTION - A Participant may by written notice to the Committee at least 15 days prior to the January, April, July or October 1 as of which such election is to be effective, elect a change in investment funds applicable to his then existing Accounts, provided such change (i) results in multiples of 5% in any one investment fund; (ii) is applied to the ending balance determined as of the applicable Valuation Date; and (iii) is applicable equally to each of the Participant's Accounts. Such change shall become effective within such period of time as may be administratively required for the orderly 34 liquidation of investments following the applicable Valuation Date. (d) The Committee may promulgate any additional rules and regulations it deems necessary or appropriate to govern all aspects of this Section. 5.03 INVESTMENT FUNDS The Trust Fund shall be divided into such investment funds as designated by the Committee and approved by the Trustee for the investment of all Accounts, which shall be administered as a unit. Until changed, the investment funds shall include, but not be limited to, the following: (a) Goldman Money Market Trust Fund (b) Goldman Balanced Fund (c) Goldman Growth & Income Fund (d) Goldman Capital Growth Fund (e) Goldman International Equity Fund (f) Dendrite International, Inc. Common Stock Fund 5.04 VALUATION OF TRUST FUND (a) The Trust Fund shall be valued by the Trustee as of each Valuation Date on the basis of its fair market value. (b) The Trust Fund may also be valued by the Trustee as of any other date as the Committee may authorize for any reason the Committee deems appropriate. 5.05 ALLOCATION OF INVESTMENT EARNINGS AND EXPENSES On the basis of the valuation as of a Valuation Date, subject to the provisions of Subsection 7.03(h), the Accounts of all Participants, shall be (a) proportionately adjusted to reflect expenses in accordance with Section 3.10 and investment earnings, other than those credited to a specific Account; and (b) directly adjusted to reflect all other applicable transactions during the Plan Year attributable to such Accounts including, but not limited to, any contributions or distributions. 35 ARTICLE 6 BENEFITS PAYABLE UPON TERMINATION OF EMPLOYMENT 6.01 UPON RETIREMENT A Participant shall be 100% vested in his Account at all times after first becoming eligible for Retirement. A Participant shall be eligible to retire on his Early, Normal or Deferred Retirement Date. In the event a Participant does not retire on his Early or Normal Retirement Date, he shall continue to be credited with contributions in accordance with Articles 3 and 11 until his actual retirement. 6.02 UPON DISABILITY (a) A Participant who incurs a Disability prior to termination of employment shall be 100% vested in his Account. (b) In determining the existence of a Participant's Disability, the Committee may select a physician to examine such Participant and render a medical opinion. The final determination shall be made by the Committee on the basis of the evidence requested and made available. (c) If such Participant returns to the employ of the Company, he shall resume his participation as of the date of his return. The Participant's vested interest in that portion of his Account attributable to Service from the date of his last reemployment shall be determined in accordance with the provisions of Article 6, without regard to his prior Disability. 6.03 UPON DEATH (a) A Participant who dies prior to termination of employment shall be 100% vested in his Account. (b) Upon the death of a Participant before his Annuity Starting Date, the Participant's Protected Spouse shall be entitled to 100% of such Participant's vested Account. If the Participant is not survived by a 36 Protected Spouse, the Participant's vested Account shall be payable to his Beneficiary. Such vested Account shall take into account any Participant loans made in accordance with Article 13. Notwithstanding the above, subject to Subsection (c), such Participant may waive the death benefit otherwise payable to the Protected Spouse in favor of a different Beneficiary. Such waiver must specify such other Beneficiary and include the written acknowledgment and irrevocable consent of the Participant's spouse and be witnessed by a Plan representative or a notary public. (c) Any waiver of death benefits to the Participant's Protected Spouse with respect to 50% of any Account which includes funds transferred without the required spousal consent, directly or indirectly, to the Plan from a plan subject to Section 412 of the Code, prior to termination of employment or the first day of the Plan Year during which the Participant attains age 35 will be null and void as of the earlier of such dates, but may be renewed by executing a new waiver which meets the requirement of Subsection (b). In the event of the Participant's death on or subsequent to the indicated dates and prior to the submission of a new waiver, the Protected Spouse shall be entitled to 50% of any such Account. The designation of a Beneficiary other than the Protected Spouse to receive the balance of benefits payable remains valid after the earlier of the dates described above. Any waiver prior to the first day of the Plan Year during which such Participant attains age 35 which is made by a Participant whose employment was terminated but who is subsequently reemployed is not revoked by this rule at any time but applies solely to benefits accrued before the date of termination. (d) The Committee shall provide to Participants within the Applicable Period notice of the availability of any election which results in a waiver of any death benefit payable to the Protected Spouse. Such notice shall be in such terms and such manner as would be comparable to the notice described in Subsection 7.04(e). For purposes of this Subsection, the term Applicable Period means, with respect to a Participant, whichever of the following periods ends last: 37 (i) The period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35. (ii) A reasonable period ending after the individual becomes a Participant. (iii) A reasonable period ending after this Section first applies to the Participant. (iv) A reasonable period ending after separation from service in the case of a Participant who separates before attaining age 35. A reasonable period ending after the events described in Paragraphs (ii), (iii) and (iv) is the end of the two-year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. In the case of a Participant who separates from service before the Plan Year in which age 35 is attained, notice shall be provided within the two-year period beginning one year prior to separation and ending one year after separation. If such Participant thereafter returns to employment with the Company, the Applicable Period for such Participant shall be redetermined. (e) Upon the death of a Participant after his Annuity Starting Date, his Beneficiary shall be entitled to receive the death benefit, if any, as determined by the provisions of the benefit elected in accordance with Section 7.03. (f) Each Participant, upon becoming eligible for participation in the Plan, may designate a primary Beneficiary to receive the benefits payable in the event of his death, or, absent the applicability of a survivor annuity, may designate a secondary Beneficiary to receive any benefits payable in the event of the death of the primary Beneficiary. If a Participant designates a primary Beneficiary but not a secondary Beneficiary or if any such secondary Beneficiary dies, the Beneficiary last in receipt of or entitled to any benefit shall have the right to designate a successor Beneficiary to receive any benefits payable in the event of his death. In the absence of any such designation, benefits payable upon the death of the last living Beneficiary 38 shall be paid in a lump sum to such Beneficiary's estate. A Participant may change his Beneficiary designation at any time. All Beneficiary designations and changes shall be made on an appropriate form and filed with the Committee. If the primary Beneficiary designated by the Participant is anyone other than the Participant's Protected Spouse, such designation must include the written acknowledgment and consent of such spouse and be witnessed by a Plan representative or a notary public, to the extent required by law and the Committee. Such consent will be limited to a specific alternate Beneficiary and any change in such alternate Beneficiary will require a new spousal consent. 6.04 UPON OTHER TERMINATION OF EMPLOYMENT (a) Upon a Participant's termination of employment for reasons other than Retirement, Disability or death, the following provisions shall be applicable: (i) Such Participant shall have a 100% vested interest in his Elective Deferral Contribution, Voluntary Contribution, Rollover, Transfer, Qualified Matching Contribution and Qualified Nonelective Contribution Accounts. (ii) Such Participant's vested interest in his Matching Contribution and Regular Contribution Accounts shall, subject to Subsection 6.05(a), be determined in accordance with the following schedule on the basis of such Participant's full Years of Service . NUMBER OF YEARS PERCENTAGE OF ACCOUNT Less than 1 full year 0% 1 full year 20% 2 full years 40% 3 full years 60% 4 full years 80% 39 5 or more full years 100% (b) The portion of a Participant's Account which is not vested shall be forfeited on the earlier of the date on which the Participant receives a distribution of his vested benefits or the date on which such Participant incurs five consecutive Breaks-in-Service, but in no event shall such forfeiture occur earlier than the Anniversary Date next following the date on which the Participant terminated employment. If a Participant does not have a vested interest in his Account, he shall be deemed to have received an immediate distribution as of the Anniversary Date next following the date on which such Participant terminated employment. That portion of the Participant's (i) Matching Contribution Account which is not vested shall be reallocated as an Additional Matching Contribution in accordance with Subsection 3.03(a). (ii) Regular Contribution Account which is not vested shall be reallocated as in accordance with Subsection 3.03(c) and Article 11. (c) If a withdrawal in accordance with Article 12 is made when a Participant has less than a 100% vested interest in his Matching or Regular Contribution Accounts, a separate Matching and/or Regular Contribution Account, whichever is applicable, will be established for the Participant as of the time of the withdrawal. At any relevant time the Participant's vested interest in such separate account will be equal to an amount ("X") determined by the formula: X = P [AB + (R x D)] - (R x D) For purposes of applying the formula, "P" is the vested percentage at the relevant time, "AB" is the applicable account balance at the relevant time, "D" is the amount of the withdrawal and "R" is the ratio of the account balance at the relevant time to the account balance after the withdrawal. 6.05 REEMPLOYMENT AND REPAYMENT OF BENEFITS 40 (a) If a Participant is reemployed by the Employer prior to incurring five consecutive Breaks-in-Service, the dollar amount which was subject to forfeiture in accordance with Subsection 6.04(b) will be restored to the Participant's Account if the Participant repays the amount distributed, if any, from Elective Deferral Contribution, Matching Contribution, Regular Contribution, Qualified Matching Contribution and Qualified Nonelective Contribution Accounts. Such amounts must be repaid to the Trust Fund in a lump sum within five years from the date such Participant resumes his employment with the Employer. If a Participant who is deemed to receive a distribution pursuant to Subsection 6.04(b) is reemployed by the Employer prior to incurring five consecutive Breaks-in-Service, the dollar amount which was subject to forfeiture in accordance with such Subsection will be restored to the Participant's Account. The funds required for the restoration of such Account may, as determined by the Committee, be paid from forfeitures, Company Regular Contributions, or investment gains of the Trust Fund attributable to the Regular Contribution Accounts of all Participants. Such repaid amounts shall be credited to the Participant's Accounts as determined by the Committee, taking into account the applicable vesting schedules, amounts subject to special tax treatment and withdrawal rules. Additional Accounts will be established, if required, to accommodate these objectives. Amounts repaid and restored in accordance with this Subsection will not be treated as annual additions for purposes of Section 4.03. (b) Notwithstanding the above, no restoration shall be made to a Participant's Account and no repayment will be permitted with respect to funds accumulated prior to reemployment in the case of (i) any Participant who was fully vested, or (ii) any Participant who is reemployed after incurring five consecutive Breaks-in-Service. 41 ARTICLE 7 DISTRIBUTION OF BENEFITS 7.01 CLAIM PROCEDURE FOR BENEFITS (a) Any request for specific information with respect to benefits under the Plan must be made to the Committee in writing by a Participant or his Beneficiary. Oral communications will not be recognized as a formal request or claim for benefits. (b) The Committee shall provide adequate notice in writing to any Participant or Beneficiary whose claim for benefits under the Plan has been denied, (i) setting forth the specific reasons for such denial; specific references to pertinent plan provisions; a description of any material and information which had been requested but not received by the Committee; and, (ii) advising such Participant or Beneficiary that any appeal of such adverse determination must be in writing to the Committee, within such period of time designated by the Committee but, until changed, not more than 60 days after receipt of such notification, and must include a full description of the pertinent issues and basis of claim. (c) If the Participant or Beneficiary fails to appeal such action to the Committee in writing within the prescribed period of time, the Committee's adverse determination shall be final. (d) If an appeal is filed with the Committee, the Participant or Beneficiary shall submit such issues he feels are pertinent and the Committee shall re-examine all facts, make a final determination as to whether the denial of benefits is justified under the circumstances, and advise the Participant or Beneficiary in writing of its decision and the specific reasons on which such decision was based, within 60 days of receipt of such written request, unless special circumstances require a reasonable extension of such 60-day period. 7.02 COMMENCEMENT OF BENEFITS The following provisions shall be applicable for determining when distribution of benefits shall be made. These provisions are intended to conform to the requirements of Section 401(a)(9) of the Code, including the minimum distribution incidental benefit proposed Treasury Regulation 1.401(a)(9)-2, 42 and shall be construed accordingly. (a) Unless otherwise provided in Subsection (c), in the event of termination of employment, benefits which total $3,500 or less will commence as soon as administratively feasible following such termination. (b) Unless otherwise provided in this Section, in the event of termination of employment, benefits which total more than $3,500 will commence as soon as administratively feasible following such termination, provided that, if the Participant has not attained his Normal Retirement Date, the Participant consents to such distribution within his Election Period. If a Participant had funds transferred without the required spousal consent, directly or indirectly, from a plan subject to Code Section 412, any distribution of benefits attributable to such transferred funds, if more than $3,500, to the Protected Spouse as Beneficiary prior to the date the Participant would have attained his Normal Retirement Date will require the written acknowledgment and irrevocable consent of such spouse within 90 days of the Annuity Starting Date. Notwithstanding the above, no consent to a distribution prior to the date the Participant attained or would have attained his Normal Retirement Date shall be valid until after written notification of the right to defer is received by the Participant or Protected Spouse, if applicable. The Committee shall provide such written notification of the right to defer any benefit payable no less than 30 days nor more than 90 days before the Annuity Starting Date. If a Participant does not consent to the distribution at the time specified above and fails to elect deferral in accordance with Subsection (d), benefits will commence as of the 60th day following the last day of the Plan Year during which the Participant's Normal Retirement Date occurs. If the Participant's Protected Spouse as Beneficiary does not consent to the distribution of a Participant's transferred funds at the time specified above, and if such funds exceed $3,500, benefits attributable to such transferred funds will commence as of the 60th day following the last day of the Plan Year during which the Participant's Normal Retirement Date would have occurred. (c) The amount of any benefit payable will be determined as of the 43 Valuation Date preceding the date such benefit is processed, adjusted to reflect intervening contributions and withdrawals but not investment experience. If the amount of any payment under this Section would adversely affect the Trust Fund by forcing the premature liquidation of assets, such payment may be delayed until the timely and orderly liquidation of investments can be accomplished, but in no event later than the 60th day following the last day of the Plan Year during which occurs the latest of (i) the date a Participant attains the earlier of his Normal Retirement Date or age 65; (ii) the tenth anniversary of the year during which the Participant commenced participation in the Plan; or (iii) the date the Participant terminates his employment. If the amount of any payment under this Section would adversely affect the Trust Fund by permitting former Participants to enter into direct competition with the Company, such payment will be delayed until the 60th day after the end of the Plan Year during which the Participant's Normal Retirement Date occurs. If the amount of any payment under this Section cannot be ascertained by the applicable commencement date, payment shall be made no later than 60 days after the earliest date on which the amount of such payment can be ascertained. (d) A Participant who terminates employment may elect that benefit payments commence at a date later than specified in Subsection (b) by submitting a signed, written statement describing the benefit and the date on which the payment of such benefit shall commence, provided such date is not later than the April 1 following the calendar year during which the Participant attains age 70-12 or such later date as may be promulgated by the internal Revenue Service. (d) Effective for Plan Years beginning [after December 31, 1984 but] before January 1, 1989, distribution of benefits to a 5% owner, within the meaning of Section 416(i)(1)(B)(i) of the Code, must commence not later than the April I following the calendar year in which the Participant attains age 70-1/2, or such later date as 44 promulgated by the Internal Revenue Service, whether or not the Participant terminates employment in that year and whether or not the Participant applies for benefit payment. Effective for Plan Years beginning after December 31, 1988, distribution of benefits must commence not later than the April 1 following the calendar year in which the Participant attains age 70-1/2, or such later date as promulgated by the Internal Revenue Service, whether or not the Participant terminates employment in that year and whether or not the Participant applies for benefit payment. (e) Distribution of benefits must commence not later than the April 1 following the calendar year in which the Participant attains age 70-1/2, or such later date as promulgated by the Internal Revenue Service, whether or not the Participant terminates employment in that year and whether or not the Participant applies for benefit payment. The foregoing shall not apply to a Participant (i) who attains age 70-1/2 before January 1, 1988 unless such Participant was or becomes a 5% owner, within the meaning of Section 416(i)(1)(B)(i) of the Code, at any time during the Plan Year ending with or within the calendar year in which he attains age 66-1/2 or any subsequent Plan Year, or (ii) who had made a valid election under Section 242(b) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) to commence his benefits at a later date. (f) If the designated Beneficiary is, (i) the Participant's spouse, such spouse may elect that benefit payments commence at a date later than specified in Subsection (b) by submitting a signed written statement describing the benefit and the date on which the payment of such benefit shall commence, provided such date is not later than the latest of (A) December 31 of the calendar year in which the Participant dies, (B) December 31 of the calendar year during which the Participant would have attained age 70-1/2, or (C) such later date as may be promulgated by the Internal Revenue Service. If such spouse dies prior to the commencement of benefits, and if the distribution of any death benefit payable to the spouse's Beneficiary is made in a form that may extend beyond the December 31 of the calendar year during which the fifth 45 anniversary of such spouse's death occurs, such distribution must commence no later than the December 31 of the calendar year immediately following the date of such spouse's death or such later date as may be promulgated by the Internal Revenue Service. (ii) other than the Participant's spouse, and the death benefit payable is made in a form that may extend beyond the December 31 of the calendar year during which the fifth anniversary of such Participant's death occurs, such distribution must commence no later than the December 31 of the calendar year immediately following the date of such Participant's death or such later date as may be promulgated by the Internal Revenue Service. (g) If a Participant is in receipt of benefits from the Company's insured long-term disability program, if applicable, payment of the Participant's Elective Deferral Contribution, Matching Contribution, Regular Contribution, Transfer, Qualified Matching Contribution and Qualified Nonelective Contribution Accounts shall be deferred to the first day of the month in which such Participant is no longer eligible to receive such benefits or, if earlier, the 60th day following the last day of the Plan Year during which the Participant's Normal Retirement Date occurs, provided the benefits payable under the long-term disability program would otherwise be reduced by the benefits payable under the Plan. 7.03 METHOD AND FORM OF PAYMENT OF BENEFITS The following provisions shall be applicable for determining the method and form of payment of all benefits. These provisions are intended to conform to the requirements of Section 401(a)(9) of the Code, including the minimum distribution incidental benefit proposed Treasury Regulation 1.401(a)(9)-2, and shall be construed accordingly. (a) Subject to Section 7.02, any benefit payable to a Participant who has terminated employment or Beneficiary which in total is $3,500 or less will be distributed in a lump sum. (b) Subject to Section 7.02, any benefit payable to a Participant who has terminated employment which is more than $3,500 will be distributed at the Participant's election as follows: 46 (i) All or any portion of such amount may be distributed in a lump sum, subject to the provisions below. (ii) The balance, if any, may be used to purchase an immediate or deferred annuity in accordance with the provisions of Subsections (e), (f) and (g). Unless otherwise provided in Subsection (g), in the absence of an election by the Participant, benefits will be distributed in a lump sum. If such benefits are deferred in accordance with Section 7.02, the provisions of Subsection (h) will be applicable. (c) Subject to Section 7.02, if a Participant's benefits are required to commence in accordance with Subsection 7.02(d) or (e), such Participant shall make an irrevocable election as to the optional form of payment. Such benefit shall reflect the Participant's elections regarding Beneficiary and recalculation of life expectancies in accordance with regulations under Code Section 401(a)(9). A Participant whose Account includes funds transferred without the required spousal consent, directly or indirectly, from a plan subject to Code Section 412, must elect to recalculate life expectancies unless his spouse consents to waive the Qualified Annuity. The options available will include the options available under Subsection (f), with lifetime option benefits determined using the rules provided by regulations under Code Section 401(a)(9) and will be payable through the purchase of an annuity contract. Upon subsequent termination of employment, the optional form previously elected will remain in effect. In lieu of the options available under Subsection (f), the Participant may elect to have the value of his Account each year payable in a lump sum or to have the minimum amount required to be distributed each year under Code Section 401(a)(9) payable directly from the Trust Fund with the remaining balance payable in a lump sum upon termination of employment. In the absence of an election by the Participant, the form of payment shall irrevocably be the minimum amount required to be distributed each year under Code Section 401(a)(9) payable directly from the Trust Fund with the remaining balance payable in a lump sum upon such Participant's termination of employment and life expectancies shall not be recalculated. If the Participant's Account includes funds transferred without the required spousal consent, directly or indirectly, from a plan subject to Code Section 412, the form of payment shall irrevocably be a Qualified Annuity and life expectancies shall be 47 recalculated. (d) Subject to Section 7.02 and before the Participant's Annuity Starting Date, any benefit payable to a Participant's Beneficiary other than the Participant's Protected Spouse which is more than $3,500 may be distributed in a lump sum or used to purchase an immediate annuity in accordance with the provisions of Subsections (e) and (f), as elected by the Participant while in the employ of the Company. In the absence of such an election by the Participant, or if the Participant's Protected Spouse is the Beneficiary, such Beneficiary may make the election. In the absence of an election by the Beneficiary, benefits will be payable in a lump sum unless the Protected Spouse is the Beneficiary and the Participant had funds transferred without the required spousal consent, directly or indirectly, to the Plan from a plan subject to Section 412 of the Code, in which case, benefits will be payable to the Protected Spouse in the form of a life annuity. (e) Any benefit payable as an annuity will be distributed (i) by the purchase of a nontransferable single premium annuity contract, including an annuity purchased under a group annuity contract, on behalf of a Participant or Beneficiary from an insurance company, provided at least $3,500 is available for the purchase of the annuity, or (ii) directly from the Trust Fund. Any annuity contract purchased and distributed to a Participant or Beneficiary shall comply with the requirement of this Plan. In the absence of a requirement or an election indicating the type of annuity preferred, a deferred annuity will be provided upon the Participant's termination of employment unless the Participant had attained his Normal Retirement Date, in which event an immediate annuity shall be provided. If the payment of benefits to a Participant is deferred in accordance with Subsection 7.02(g), a deferred annuity will be provided on behalf of such Participant. (f) The annuity options available include the Life, Joint and 50% or 100% Survivor, 15 or 20 Year Certain and Continuous, and 10, 15 or 20 Year Certain Installments. The election of the annuity option under the above provisions shall be at the discretion of the Participant or his Beneficiary provided that no 48 method shall be permitted which would (i) result in the benefits being payable over a period extending beyond the life of such Participant or the lives of such Participant and his Beneficiary or life expectancy of such Participant or the life expectancy of such Participant and his Beneficiary; or (ii) distribute any remaining balance, in the event of a Participant's death after the commencement of his benefits, less rapidly than the method of distribution in effect prior to his death. In no event may the Participant or Beneficiary change any annuity option subsequent to the Annuity Starting Date. (g) Subject to Section 7.04, (i) if a Participant elects to receive his benefits in the form of a life annuity, such benefits shall be distributed under a Qualified Annuity unless the Participant elects to receive his retirement income under any other optional form of distribution as made available to such Participant. (ii) if a Participant has had funds transferred without the required spousal consent, directly or indirectly, from a plan subject to Code Section 412 and the portion of the Participant's Account attributable to such transferred funds is more than $3,500, such funds will be distributed in the form of a Qualified Annuity unless the Participant elects to receive his retirement income under any other optional form of distribution as made available to such Participant. (iii) the Participant shall have the right to elect, revoke or change any election under this Subsection at any time during his Election Period. (h) Any benefits payable under this Article may be paid in cash, securities, or such other assets of the Trust Fund as the Committee may direct. The distribution of a lump sum payment and/or annuity contract to the Participant or his Beneficiary will constitute the complete discharge of all obligations of the Plan. 49 7.04 SPOUSAL CONSENT REQUIREMENTS WITH RESPECT TO PARTICIPANT ELECTIONS (a) If a Participant is married and has elected to receive his benefits in the form of a life annuity, any election by such Participant to commence a benefit payment in a form other than a Qualified Annuity at any time will require the written acknowledgment and irrevocable consent of the Protected Spouse as witnessed by a Plan representative or a notary public during the Election Period. (b) If a Participant is married and has had funds transferred without the required spousal consent, directly or indirectly, to the Plan from a plan subject to Section 412 of the Code, any election by such Participant to commence a benefit payment in a form other than a Qualified Annuity at any time, will require the written acknowledgment and irrevocable consent of the Protected Spouse as witnessed by a Plan representative or a notary public during the Election Period. Notwithstanding the above, if such transferred funds are accounted for separately, the above consent requirement will only apply to payments attributable to such funds and then only if the value of such funds at the Annuity Starting Date exceeds $3,500. (c) Any spousal consent will be limited to a specific alternate Beneficiary and form of payment and any change in such Beneficiary or form will require a new spousal consent. (d) If it is established to the satisfaction of the Committee that there is no spouse because the spouse cannot be located or such other circumstances as may be promulgated by the Internal Revenue Service or established by law, such consent will not be required. Spousal consent may additionally be required at the Committee's request. (e) Notwithstanding the above, no consent to a distribution or election of an optional form shall be valid until written notification of the provisions of this Section and Subsection 7.03(g) is received by the Participant. The Committee shall provide such written notification no less than 30 days nor more than 90 days before the Annuity Starting Date. Such notice shall contain a written explanation of (i) the terms and conditions of a Qualified Annuity; 50 (ii) the Participant's right to make and the effect of an election to waive the Qualified Annuity form of benefit; (iii) the rights of the Protected Spouse; (iv) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Annuity; and (v) a description of the optional forms available under Subsection 7.03(f). 7.05 DISPOSITION OF UNCLAIMED BENEFITS In the event that any check or notice with respect to the payment of benefits under the Plan remains outstanding at the expiration of six months from the date of mailing of such check to the last known address of the payee, the Committee shall notify the Trustee to stop payment of all such outstanding checks and to suspend the issuance of any further checks, if any, to such payee. If, during the three-year period (or such other period as specified in the Trust Agreement) from the date of mailing of the first such check or of notice that a benefit is due under the Plan, the Committee cannot establish contact with the payee by taking such action as it deems appropriate and the payee does not make contact with the Committee, the remaining benefits shall be forfeited and used to reduce the Company's contributions in accordance with Section 3.03. In the event the payee is located subsequent to the date the benefits were forfeited, the dollar amount of such benefits shall be restored in accordance with the provisions of Article 6. 7.06 NON-ASSIGNABILITY No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any such action shall be void for all purposes of the Plan. No benefit shall in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person, nor shall it be subject to attachments or other legal process for or against any person, except with respect to a Qualified Domestic Relations Order and in such other instances and to such extent as may be required by law and except as provided in Article 13. 7.07 SUBSTITUTE PAYEE 51 If a Participant or Beneficiary entitled to receive any benefits hereunder is in his minority or is, in the judgment of the Committee, legally, physically, or mentally incapable of personally receiving and receipting any distribution, the Committee may instruct the Trustee to make distributions to his legally appointed guardian. 7.08 SATISFACTION OF LIABILITY After all benefits have been distributed in full to a Participant or to his Beneficiary, all liability to such Participant or to his Beneficiary shall cease. 7.09 DIRECT ROLLOVER TO ELIGIBLE RETIREMENT PLANS (a) Notwithstanding any provisions of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (B) DEFINITIONS (I) ELIGIBLE ROLLOVER DISTRIBUTION An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (A) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years of more; (B) any distribution to the extent such distribution is required under Section 401 (a)(9) of the Code; and (C) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities). (II) ELIGIBLE RETIREMENT PLAN An Eligible Retirement Plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an 52 annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401 (a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (III) DISTRIBUTEE A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a Qualified Domestic Relations Order, are Distributees with regard to the interest of the spouse or former spouse. (IV) DIRECT ROLLOVER A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 7.10 WAIVER OF 30 DAY NOTICE REQUIREMENT Notwithstanding any provisions of the Plan to the contrary, if a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Treasury Regulations is given, provided that: (a) the Committee clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Participant, after receiving the notice, affirmatively elects a distribution. 53 ARTICLE 8 ADMINISTRATION OF THE PLAN 8.01 ASSIGNMENT OF ADMINISTRATIVE AUTHORITY The Board of Directors shall appoint a Committee to administer the Plan. The Committee may consist of directors, officers, Employees, or any other individuals, who, upon acceptance of such appointment, shall serve at the pleasure of the Board of Directors. Any member may resign by delivering his written resignation to the Board of Directors and to the Committee. Vacancies in the Committee arising from resignation, death or removal shall be filled by the Board of Directors. The Board of Directors shall also appoint the Trustee and may appoint an investment manager. 8.02 ORGANIZATION AND OPERATION OF THE COMMITTEE (a) The Committee shall act, in carrying out its duties and responsibilities, in the interest of the Participants and Beneficiaries with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of like character and aims. (b) The Committee shall act by a majority of its members unless unanimous consent is required by the Plan or by unanimous approval of its members if there are two or less members in office at the time. In the event of a Committee deadlock, the Committee shall determine the method for resolving such deadlock. If there are two or more Committee members, no member shall act upon any question pertaining solely to himself, and the other member or members shall make any determination required by the Plan in respect thereof. (c) The Committee may authorize any one or more of its members to execute documents on behalf of the Committee and shall notify the Trustee in writing of such action and the name or names of the member or members so designated. (d) The Committee may, by unanimous consent, delegate specific authority and responsibilities to one or more of its members. The member or members so designated shall be solely liable, jointly and severally, for their acts or omissions with respect to such delegated authority and responsibilities. Members not so designated, except as provided under Subsection 8.06(b), shall be relieved from liability for any act or omission resulting from such delegation. (e) The Committee shall endeavor not to engage in any prohibited transactions, as specified in the Employee Retirement Income Security Act of 1974, or any successor act. However, any member of the Committee who is a Participant or Beneficiary shall not be precluded from receiving benefits payable under the Plan. 8.03 AUTHORITY AND RESPONSIBILITY The Committee and its delegates shall have full discretionary authority and responsibility for administration of the Plan. Such authority and responsibility shall include, but shall not be limited to, the following areas. (a) Appointment of qualified accountants, consultants, administrators, counsel or other persons it deems necessary or advisable, who shall serve the Committee as advisors only and shall not exercise any discretionary authority, responsibility or control with respect to the management or administration of the Plan. Any action of the Committee on the basis of advice, opinion, reports, etc. furnished by such qualified accountants, consultants, administrators and counsel shall be the sole responsibility of the Committee. Members of the Committee shall not be precluded from serving the Committee in any other capacity, provided any compensation paid for such services is reasonable. (b) Determination of eligibility to participate and all benefits, and resolution of all questions arising from the administration, interpretation and application of the Plan, including the determination of the validity of any Qualified Domestic Relations Order in accordance with Section 8.09. (c) Notification to the Trustee of all benefits payable under the Plan and the manner in which such benefits are to be paid. (d) Adoption of forms and regulations for the administration of the Plan. (e) Remedy of any inequity resulting from incorrect information received or communicated, or of administrative error. (f) Assurance that its members, the Trustee and other persons who handle funds or other property of the Trust Fund are bonded as required by law. (g) Settlement or compromise of any claims or debts arising from the operation of the Plan and the commencement of any legal actions or administrative proceeding. (h) Direction to the Trustee as to specific investments which, under the terms of the Trust Agreement, may be made only upon written direction of the Committee or which are made in accordance with specific provisions of the Plan, such as annuity or group investment contracts, loans to Participants, or earmarked investments selected by Participants. (i) Action as agent for the service of legal process. (j) Communication regarding the liquidity needs of the Plan so that investment discretion can be exercised to effect specific objectives. 8.04 RECORDS AND REPORTS (a) The Committee shall keep a record of its proceedings and acts and shall keep books of account, records and other data necessary for the proper administration of the Plan. (b) The Committee shall make its records available for examination by the Employer, or any Participant or Beneficiary during business hours at the principal place of business of the Company. However, a Participant or Beneficiary may examine only records pertaining exclusively to himself and such other records specified by law. (c) The Committee shall make available to any Participant or Beneficiary any material required by law without cost. The Committee may, upon written request by any Participant or Beneficiary, provide copies of such material as it deems appropriate and shall furnish copies of such material required by law. The Participant or Beneficiary may be required to pay the reasonable cost as determined by the Committee of preparing and furnishing such material or the cost as prescribed by law. 56 8.05 REQUIRED INFORMATION The Company and Participants or Beneficiaries entitled to benefits shall furnish forms, including but not limited to annuity applications, and any information or evidence, as requested by the Committee for the proper administration of the Plan. Failure on the part of any Participant or Beneficiary to comply with such request within a reasonable period of time shall be sufficient grounds for delay in the payment of benefits until the information or evidence requested is received. 8.06 FIDUCIARY LIABILITY (a) A member of the Committee who breaches the responsibilities, obligations, or duties imposed by law shall be liable to the Plan for any losses resulting from such breach. (b) A member of the Committee shall be liable for a breach of fiduciary responsibility by another Committee member or Trustee, with respect to the Plan or Trust Fund, under the following circumstances. (i) The member knowingly participates in or undertakes to conceal an act or omission of another member of the Committee or Trustee, with knowledge that the act or omission is such a breach. (ii) If the member's failure to comply with Subsection 8.02(a) has enabled another member or Trustee to commit such a breach. (iii) The member has knowledge of such a breach by another member or Trustee and does not make reasonable efforts under the circumstances to remedy the breach. 8.07 PAYMENT OF EXPENSES Those members of the Committee who are full-time paid employees of the Company shall serve without compensation. The expenses of the Committee, including reasonable compensation as may be agreed upon in writing between the Company and the Committee for members of the Committee who are not full-time employees of the Company, shall be deemed administrative expenses payable in accordance with Article 3. 57 8.08 INDEMNIFICATION The Company shall indemnify members of the Committee against personal financial loss resulting from liability incurred in the administration of the Plan, unless such liability and loss were caused by such individual's gross negligence or willful misconduct. 8.09 QUALIFIED DOMESTIC RELATIONS ORDERS (A) QUALIFIED DOMESTIC RELATIONS ORDER (i) A Qualified Domestic Relations Order (hereinafter referred to as "QDRO") is a Domestic Relations Order which creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the right to, receive all or a portion of the benefits payable with respect to a Participant under the Plan, and which the Committee has determined meets the requirements of Paragraphs (ii) and (iii). (ii) A Domestic Relations Order meets the requirements of a QDRO only if the order clearly specifies (A) the name and the last known mailing address (if any) of the Participant and the name and mailing address of each Alternate Payee covered by the order; (B) the amount or percentage of the Participant's benefits to be paid by the Plan to each such Alternate Payee, or the manner in which such amount or percentage is to be determined; (C) the number of payments or period to which such order applies; and (D) that the order applies to this Plan. (iii) A Domestic Relations Order meets the requirements of a QDRO only if the order (A) does not require the Plan to provide any type or form of benefits, or any option, not otherwise provided under the Plan; 58 (B) does not require the Plan to provide increased benefits (determined on the basis of actuarial value); and (C) does not require the payment of benefits to an Alternate Payee which are required to be paid to another Alternate Payee under another Domestic Relations Order previously determined to be a QDRO. (iv) In the case of any payment before a Participant has separated from service, a QDRO shall not be treated as failing to meet the requirements of Paragraph (iii)(A) above solely because the order requires the payment of benefits to an Alternate Payee (A) on or after the date on which the Participant attains (or would have attained) the Earliest Retirement Age; (B) as if the Participant had retired on the date such payment is to begin under such order; and (C) in any form in which such benefits may be paid under the Plan to the Participant (other than in the form of a joint and survivor annuity with respect to the Alternate Payee and his or her subsequent spouse). (v) For purposes of Paragraph (iv), Earliest Retirement Age means the earlier of (A) the date on which the Participant is entitled to a distribution under the Plan; or (B) the later of (1) the date the Participant attains age 50 or (2) the earliest date on which the Participant could begin receiving benefits under the Plan if such Participant separated from service. Notwithstanding any provisions of the Plan to the contrary, for purposes of Subparagraph (A) above, a distribution to an Alternate Payee may be made prior to the date on which the Participant is entitled to a distribution under Section 7.02 or Article 12 if requested by the Alternate Payee to the extent such distribution is permitted under the QDRO. Nothing in this provision shall permit the Participant to receive a distribution at a date otherwise not permitted under Section 7.02 or Article 59 12 nor shall it permit the Alternate Payee to receive a form of payment not permitted in Section 7.03. (B) PROCEDURES Upon receipt of a Domestic Relations Order, the Committee shall take, or cause to be taken, the following actions: (i) The Committee shall promptly notify the Participant, each Alternate Payee covered by the order and each representative for these parties of the receipt of the Domestic Relations Order. Such notice shall include a copy of the order and these QDRO Procedures for determining whether such order is a QDRO. (ii) Once a Domestic Relations Order has been received (A) the affected Participant will not be permitted to request a withdrawal or a loan from the Plan and (B) no distributions will be made from the Plan to the Participant upon a subsequent termination until after the payment to the Alternate Payee has been determined, unless the Committee determines the order not to be a QDRO. (iii) Within a reasonable period after receipt of a Domestic Relations Order, the Committee shall determine whether it is a QDRO and shall notify the parties indicated in Paragraph (i) of such determination. Such notice shall indicate whether the benefits payable to the Alternate Payee in accordance with the QDRO are subject to a previously existing QDRO. (iv) Pending the Committee's determination of whether a Domestic Relations Order is a QDRO, if payments are due to be paid to the Participant, the Committee shall withhold payment and separately account for the amounts otherwise payable to the Alternate Payee during such period if the order is subsequently determined to be a QDRO (hereinafter referred to as the "segregated amounts"). If, within the 18-month period beginning with the date the first payment would have been required to be made under the Domestic Relations Order, the Committee determines the order to be a QDRO, the Committee shall pay the segregated amounts, including any interest thereon, to the person or persons entitled thereto. If, within such 18-month period, the Committee determines an order is not a QDRO or the Committee fails to reach a decision, the 60 Committee shall pay the segregated amounts to the Participant. If, after the 18-month period, the Committee subsequently determines that the order is a QDRO, the Committee shall pay benefits subsequent to such determination in accordance with the order. If action is taken in accordance with this Subsection (b), the Plan's obligation to the Participant and each Alternate Payee shall be discharged to the extent of any payment made pursuant to the QDRO. (v) In determining the segregated amount in accordance with Paragraph (iv), the Participant's vested interest shall be prorated between the Participant and Alternate Payee and the entire amount of any nonvested interest or any outstanding Plan loans will be credited to the Participant and not taken into consideration in making such determination. Any future contributions or loan repayment will be credited to the Participant and not the Alternate Payee. (vi) Upon a determination by the Committee that a Domestic Relations Order is a QDRO, the Committee shall arrange for benefits to be paid to the Alternate Payee in accordance with such order and Sections 7.02 and 7.03 as if the Participant had terminated employment at such time. (vii) If benefits are not immediately distributable to the Alternate Payee, such amount shall be separately accounted for until such time as the distribution is made. Any amount subject to a QDRO will not be available to the Participant under the Plan withdrawal provisions nor will it be available as collateral for a Plan loan. (viii) The Alternate Payee shall be treated as a Beneficiary for all purposes of the Plan. The Alternate Payee will be eligible for the same investment election option in accordance with Article 5 as the Participant. The foregoing provisions are effective for QDROs entered into on or after January 1, 1 985, except that, in the case of a Domestic Relations Order entered into before January 1, 1985, the Committee (i) may treat such order as a QDRO even though such order fails to meet the requirements of Subsections (a)(ii) and (iii) above, and (ii) must treat such order as a QDRO if benefits were being paid pursuant to such order on January 1, 1 985. 61 ARTICLE 9 AMENDMENT AND TERMINATION 9.01 AMENDMENT (a) The Plan may be amended or otherwise modified by the Board of Directors, or the Committee to the extent authorized in accordance with Subsection (c). Copies of any such amendment or modification shall be sent to the governing body of each Company. It shall be deemed each Company consented to such amendment or modification unless its governing body delivers written notice to the contrary to the Board of Directors, the Committee and the Trustee within 30 days of its receipt of such amendment or modification. (b) No amendment or modification shall (i) permit any part of the Trust Fund, other than such part as is required to pay taxes, administrative expenses and expenses incurred in effectuating such changes, to be used for or diverted to purposes other than the exclusive benefit of the Participants or Beneficiaries and/or persons entitled to benefits under the Plan or permit any portion of the Trust Fund to revert to or become the property of the Company; (ii) have the effect of reducing the Account of any Participant as of the date of such amendment or deprive any Participant or Beneficiary of a benefit accrued and payable; or (iii) eliminate any option which constitutes a valuable right available to a Participant with respect to benefits previously accrued to the extent the Participant satisfied, either before or after the amendment, the conditions for the form of payment except as otherwise permitted by applicable law and regulations. (c) The Committee may amend or modify the Plan in order to bring the Plan into compliance with applicable law or regulations, provided said amendment or modification does not have a material effect on the estimated cost of maintaining the Plan and does not create a new class of benefits or entitlements. 62 9.02 TERMINATION While the Plan and Trust Fund are intended to be permanent, they may be terminated at the discretion of the Board of Directors. Written notification of such action shall be given to each Company, the Trustee and the Committee. Thereafter, no further contributions shall be made to the Trust Fund. 9.03 VESTING UPON TERMINATION Upon the complete discontinuance of Company contributions or the termination or partial termination of the Plan and Trust Fund, the Account of each affected Participant shall become fully vested and shall not be reduced except (a) for adjustments resulting from a valuation in accordance with Article 5, which valuation shall also reflect the expenses incurred for administration of the Plan and/or Trust Fund after such discontinuance or termination date, and all expenses incurred in effectuating the complete discontinuance of Company contributions or termination or partial termination of the Plan and Trust Fund, such as the fees and retainers of the Plan's Trustee, accountant, custodian, administrator, consultant, counsel and other specialists if such expenses are not paid by the Company; (b) for distributions of benefits by the Trustee to the Participant in accordance with the Plan and at the written direction of the Committee; and (c) as provided in Section 14.01. 9.04 DISTRIBUTION OF BENEFITS AFTER TERMINATION As soon as administratively feasible following the termination of the Plan and Trust Fund, the Trustee, as authorized and directed by the Committee, shall, provided there is no successor defined contribution plan within the meaning of Section 401(k)(10)(A)(i) of the Code, distribute each Account, after adjustment in accordance with Subsection 9.03(a), in a manner consistent with the provisions of Article 7. 63 ARTICLE 10 PARTICIPATING COMPANIES 10.01 ADOPTION BY OTHER ENTITIES Any corporation or other business entity may, by resolution of its own governing body, and with the approval of the Board of Directors, adopt the Plan and thereby become a Company. Notwithstanding the adoption of the Plan by other entities, the Plan will be administered as a single plan and all Plan assets will be available to pay benefits to all Participants under the Plan. 10.02 ALTERNATIVE PROVISIONS No Company may adopt alternative provisions as to itself or its Employees. Upon request of the governing body of a Company, the Board of Directors may amend the Plan with respect to the Employees of such Company provided that any change will only apply if any inequity resulting from such changed Plan provisions is not found to be discriminatory on behalf of Highly Compensated Employees. 10.03 RIGHT TO WITHDRAW (PLAN SPINOFF) Each Company having adopted the Plan shall have the right as of the last day of any month to withdraw from the Plan and/or Trust Agreement by delivering to the Board of Directors, the Committee and the Trustee written notification from its own governing body of such action and setting forth the date as of which the withdrawal shall be effective. The date specified in such written notice shall be deemed a Valuation Date. 10.04 PROCEDURE UPON WITHDRAWAL (a) If a Company withdraws from the Plan and Trust Agreement as the result of its adoption of a different plan, the Trustee shall segregate the portion of the Trust Fund attributable to the Accounts of Participants employed solely by such Company. As soon as administratively feasible, the Trustee shall transfer the segregated assets to the insurance carrier or fiduciary designated by the Company as the agency through which the benefits of such 64 successor plan are to be disbursed. (b) If a Company withdraws from the Plan and Trust Agreement as the result of its adoption of a resolution to terminate its participation in the Plan and to distribute assets to its Employees who are Participants, the Trustee shall segregate the portion of the Trust Fund attributable to the Accounts of the Participants who are employed solely by such Company, and the termination provisions of Section 9.03 and 9.04 shall apply with respect to such segregated assets. 65 ARTICLE 11 TOP-HEAVY PROVISIONS 11.01 DEFINITION OF TOP-HEAVY AND SUPER TOP-HEAVY (a) The Plan will be Top-Heavy for a Plan Year if, as of the final Valuation Date of the preceding Plan Year (or the final Valuation Date of the current Plan Year, if such year is the first Plan Year), hereinafter referred to as the Determination Date, (i) the aggregate value of the Accounts of all Participants who are Key Employees (as defined in Section 11.02) exceeds 60% of the aggregate value of such Accounts of all Participants and the Plan cannot be aggregated with any other plans which would result in the formation of a non-Top-Heavy aggregation group of plans; or (ii) the Plan is required to be part of an aggregation group of plans and the aggregation group is Top-Heavy. The group will be deemed Top-Heavy if the aggregate value of all defined contribution plan accounts and the value of all defined benefit plan accrued benefits attributable to Key Employees exceeds 60% of such values attributable to all participants of the aggregated plans. Such benefit values and accounts shall be aggregated using the Determination Dates of the individual plans which fall within the same calendar year. For purposes of this Section, aggregation group means all plans, including terminated plans, maintained by the Employer if maintained within the last five years ending on the Determination Date, in which a Key Employee is a participant or which enables any plan in which a Key Employee is a participant to meet the requirements of Section 401 (a)(4) or Section 410 of the Code, as well as all other plans maintained by the Employer, provided that inclusion of such other plans in the aggregation group would not prevent the group of plans from continuing to meet the requirements of such sections of the Code. (b) The Plan will be Super Top-Heavy for a Plan Year if the aggregate value of all defined contribution plan accounts and the value of all 66 defined benefit plan accrued benefits attributable to all Participants who are Key Employees exceeds 90% of such values attributable to all Participants in lieu of 60% as stated in Subsection (a). (c) For purposes of determining the aggregate value of the benefit values and accounts under this Section, distributions, other than rollovers or direct transfers to another qualified plan maintained by the Employer or rollovers or direct transfers not initiated by the Participant, made during the five-year period ending on the Determination Date of the plan from which such distributions were made, shall be included to the extent such distributions are not otherwise reflected in the value of any accrued benefit under a defined benefit plan as determined with respect to such plan's Determination Date. Such aggregate value shall not include any (i) assets rolled over or transferred at the initiation of the Participant directly from a qualified plan maintained by a business entity other than an Employer to the Plan, (ii) amounts attributable to former Key Employees, (iii) amounts attributable to Participants not employed during such five-year period, or (iv) amounts attributable to deductible employee contributions under former Section 219(e)(2) of the Code. A Participant's accounts under any defined contribution plan as of any Determination Date, other than the Determination Date which falls within the first Plan Year, shall not include any Employer contributions due and not yet paid as of the Determination Date, if the plan under which the account is maintained is not subject to Section 412 of the Code. Accrued benefit values under defined benefit plans aggregated with this Plan shall be determined, subject to the rules set forth in Section 416(g)(4)(F)(ii) of the Code, as of the dates of the most recent valuations preceding or coincident with such defined benefit plans' Determination Dates, in accordance with the interest and mortality rate assumptions specified in such defined benefit plans for this purpose or, if not specified, shall be determined using an interest rate of 5% and mortality rates in accordance with Group Annuity Mortality Table for 1951 (Projection "C" to 1970, set back five years for females). Such accrued benefit values shall be determined under the method of accrual used for all plans of the Employer or, if such method is not identical, as if such benefit accrued under the fractional rule as described in Section 41 1 (b)(1)(C) of the Code. 67 11.02 DEFINITION OF KEY EMPLOYEE An Employee or a former Employee will be considered to be a Key Employee for a Plan Year if, at any time during the Plan Year or the preceding four Plan Years, he is an officer of the Employer earning more than 50% of the maximum dollar limitation under Section 415(b)(1)(A) of the Code; one of the 10 employees owning the largest interests (minimum 1/2%) in the Employer earning more than the maximum dollar limitation under Section 415(c)(1)(A) of the Code; a 5% owner; or a 1% owner whose compensation exceeds $150,000. This definition of Key Employee shall be governed by Section 416 of the Code and Regulations thereunder. For purposes of this definition, but only to the extent required by law, a Key Employee's Beneficiary shall be treated as a Key Employee, and ownership percentages shall be determined without regard to aggregation of entities under common control within the meaning of Sections 414(b), (c) and (m) of the Code. In no event shall more than 50 employees (or, if less, the greater of three employees or 10 percent of the employees) be deemed officers for purposes of this definition. 11.03 MINIMUM EMPLOYER CONTRIBUTION (a) Unless otherwise provided in this Section, for any Plan Year in which the Plan is determined to be Top-Heavy, the sum of the Company contribution and forfeitures, if any, allocated to any non Key Employee Participant in the employ of the Company on the last business day of that Plan Year, shall not be less than an amount which, in combination with all other such amounts allocated to him under all other defined contribution plans maintained by the Employer, is equal to the lesser of (i) 3% of the Participant's Compensation or (ii) the highest percentage of Compensation (net of amounts contributed under a qualified salary reduction or similar arrangement) at which contributions (including Employer matching contributions and forfeitures) are allocated for the Plan Year under the Plan and under any other defined contribution plan required to be aggregated with the Plan on behalf of any Key Employee, times the Participant's Compensation. (b) Any contributions made solely to comply with the provisions of this Section shall be credited at the end of the Plan Year. 68 (c) If any Participant is also covered by a defined benefit plan or plans maintained by the Employer, then for each year the Plan is determined to be Top-Heavy, 5% will be substituted in lieu of the 3% minimum allocation under Paragraph (a)(i) for such Participant and Paragraph (a)(ii) shall not be applicable, unless the Participant receives the Top-Heavy defined benefit minimum under the defined benefit plan or plans in accordance with Section 416(c)(1) of the Code, notwithstanding any offset attributable to defined contribution account balances, in which event no minimum contribution will be required under the Plan. (d) For purposes of this Section, only benefits derived from Employer contributions under the Plan, or any other defined contribution plan or plans are to be taken into account to determine whether the minimum Employer contribution or benefit has been satisfied, excluding matching contributions and any contributions attributable to a salary reduction or similar arrangement, but including contributions as defined in Treasury Regulation 1.401(k)-l(g)(13). Such salary reduction contributions will be taken into account to determine the Employer contribution made on behalf of any Key Employee under Subsection 11.03(a)(ii), but not to determine whether the minimum Employer contribution or benefit has been satisfied. (e) An Eligible Employee who has not met the 1,000 Hours of Employment requirement for eligibility in accordance with Article 2, shall not be considered a Participant for purposes of this Section. (f) An employee of a business entity which has not adopted the Plan shall not be considered a Participant for purposes of this Section unless also employed by the Company. (g) An Eligible Employee who becomes a Participant by virtue of the acceptance of a rollover contribution in accordance with Section 3.07 or a transfer of assets in accordance with Section 3.08 but who is not otherwise eligible in accordance with Section 2.01, shall not be entitled to share in any Company contribution allocated in accordance with this Article. 11.04 LIMITATION OF ALLOCATIONS For any Plan Year in which the Plan is determined to be Top-Heavy or Super Top-Heavy, the reference to "1.25" in Item (1) of Paragraph (B) of 69 Subsection 4.03(c) will be changed to read "1.0". 70 ARTICLE 12 WITHDRAWAL OF FUNDS DURING EMPLOYMENT 12.01 WITHDRAWALS FROM ELECTIVE DEFERRAL, MATCHING AND REGULAR CONTRIBUTION ACCOUNTS Subject to the general withdrawal rules below, a Participant may withdraw up to 100% of the vested portion of his Elective Deferral, Matching and Regular Contribution Accounts (a) after attaining age 59-1/2 or (b) before attaining age 59-1/2, provided such withdrawal meets the Financial Hardship Rules below. 12.02 WITHDRAWALS FROM ROLLOVER, VOLUNTARY AND TRANSFER ACCOUNTS Subject to the general withdrawal rules below, a Participant may elect to withdraw up to 1 00% of his Rollover, Voluntary and Transfer Accounts. 12.03 WITHDRAWALS FROM QUALIFIED MATCHING CONTRIBUTION AND QUALIFIED NONELECTIVE CONTRIBUTION ACCOUNTS Subject to the general withdrawal rules below, a Participant who has attained age 59-1/2 may withdraw up to 100% of his Qualified Matching Contribution and Qualified Nonelective Contribution Accounts. 12.04 FINANCIAL HARDSHIP RULES (a) For purposes of this Article, a Financial Hardship withdrawal may be made only if it is on account of an immediate and heavy financial need of the Participant and is necessary to satisfy such financial need. (b) The following needs shall be recognized as immediate and heavy financial needs: (i) medical expenses, as described in Section 213(d) of the Code, previously incurred by the Participant, the Participant's spouse or the Participant's dependents, or funds necessary for these persons to obtain medical care described in Section 213(d) of the Code, (ii) purchase of a principal residence for the Participant, 71 (iii) tuition payments, related educational fees and room and board expenses for the next 12 months of post-secondary education for the Participant or the Participant's spouse, children or other dependents, (iv) the need to prevent eviction from or foreclosure on the mortgage of the Participant's principal residence, and (v) any other financial need as may be promulgated by the internal Revenue Service, and (c) The following requirements will be applicable: (i) The Participant must have obtained all other distributions and loans available under all plans maintained by the Employer. (ii) Elective Deferral Contributions and any other Employee contributions under all plans maintained by the Employer will be suspended for 12 months following the receipt of the Financial Hardship withdrawal. The Participant's Elective Deferral Contributions under Section 3.01 will automatically be resumed following the required period of suspension, unless the Participant elects otherwise. (iii) The limitation of Section 4.01 which is imposed on a Participant's Elective Deferral Contributions for the calendar year immediately following the calendar year of the Financial Hardship withdrawal will be reduced by the amount of such contributions and/or deferrals for the calendar year of such withdrawal. (e) The amount of such Financial Hardship withdrawal may not exceed the amount required to meet the specified need plus any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the withdrawal. In addition, the amount of such withdrawal from a Participant's Elective Deferral Contribution Account shall be limited to the sum of the Participant's Elective Deferral Contributions made. (f) A Financial Hardship withdrawal from a Participant's Elective Deferral Contribution Account will be available only after the total amount available from all other Accounts has been withdrawn. 72 12.05 GENERAL WITHDRAWAL RULES Any withdrawal shall be subject to the following requirements: (a) If a Participant elected to receive his benefits in the form of a life annuity in accordance with the provisions of Sections 7.03 and 7.04 at any time, any withdrawal will be distributed under a Qualified Annuity unless such Participant elects to receive such withdrawal in a lump sum. All withdrawals will be considered separate Annuity Starting Dates for purposes of Sections 7.02 and 7.04. Spousal consent may additionally be required at the Committee's request. (b) Only two non-hardship withdrawals will be permitted during any Plan Year. (c) A written request for a withdrawal must be submitted to the Committee at least 15 days prior to the withdrawal date. Withdrawals will be taken from the investment funds proportionately, exclusive of the Dendrite International, Inc. Common Stock Fund. (d) A withdrawal may be requested as of the first day of any month, or at such other dates as the Committee may fix from time to time, providing that if the Participant's Account includes any investment in a fund other than the Goldman Money Market Trust Fund, withdrawal of such portion of the Participant's Account will be permitted only if the market value of Trust Fund assets invested in such fund, adjusted for contributions and payment activity has not declined and there is no significant adverse economic effect on the Trust Fund. If requested as of any date other than the day after a Valuation Date, no investment earnings will be credited on the amount withdrawn for the period from the last Valuation Date to the date specified for the withdrawal. (e) The minimum amount that may be withdrawn is $500 or the balance in the Participant's Accounts from which a current withdrawal is permitted, if less. The minimum amount limitation shall not apply in the case of a hardship withdrawal. (f) If a loan is outstanding at the time a withdrawal is requested, such withdrawal shall be permitted only to the extent that the remaining vested Account balance under the Plan will be at least 100% of the outstanding loan balance as of the date of the withdrawal. 73 ARTICLE 13 LOANS 13.01 AMOUNT OF LOANS AND TERMS OF REPAYMENT The Committee shall promulgate any additional specific rules and regulations governing all aspects of this Article as it deems necessary. The following general rules shall serve as the basis for any specific rules and regulations: (a) Upon written application on forms provided by the Committee, the Committee may grant a loan to a Participant who has completed one year of Plan participation, except shareholder employees or owner employees as referred to in Section 4975(d) of the Code. (b) The minimum amount of any loan shall be $1,000. (c) In no event shall a loan exceed the lesser of (i) $50,000, reduced by the highest outstanding loan balance during the one-year period ending on the day before the date on which any new loan is to be granted, or (ii) 50% of the amount to which the Participant is vested under this Plan on the date the loan is granted. (d) Each loan granted to a Participant must be repaid in full before any subsequent loan is granted to such Participant. (e) All loans issued under this Article shall be considered investments of the Account of the Participant to whom the loan is granted and shall be charged to the investment funds proportionately, exclusive of the Dendrite International, Inc. Common Stock Fund. The Participant's Accounts shall be charged in the following order: Regular Contribution, Matching Contribution, Elective Deferral Contribution, Transfer, Voluntary and Rollover Accounts. If a loan is granted as of any date other than the day after a Valuation Date, no investment earnings will be credited on the amount of the loan for the period from the last Valuation Date to the date the loan is 74 granted. Interest shall be charged thereon at a rate equal to the prime rate reported in The Wall Street journal on the first day of the month during which the loan application was made. (f) Each loan shall be secured by the assignment of not more than 50% of the Participant's vested Account balance on the date the loan is granted, a promissory note executed by the Participant and such additional collateral as the Committee shall require to assure repayment of the loan and all interest payable thereon. (g) Each loan shall be repaid by the Participant either through payroll deductions or in such other manner as the Committee shall determine, provided such payment schedule does not permit payment less frequently than quarterly. All payment schedules shall be calculated to amortize principal and interest in level payments over the period of the loan as agreed to by the Committee and the Participant not to exceed five years from the date of such loan. Notwithstanding the foregoing in the event a loan is approved for the purchase of a principal residence, the repayment requirement may not exceed 10 years. Principal and interest payments shall be credited to the Account of the Participant to whom the loan is granted and shall be invested in accordance with the Participant's current investment election. (h) Except as provided in Subsection (k), upon a Participant's termination of employment for any reason, the entire unpaid balance of the loan shall be due and payable. (i) If a Participant should fail to make a payment when due, the entire unpaid balance of the loan shall be in default and the Committee shall take any one or more of the following steps, as it deems necessary, to secure repayment of such loan: (i) Deduct the amount of the outstanding indebtedness from the Participant's Account, to the extent permitted and available under law and in accordance with the terms of the Plan. Such deduction will not occur until a distributable event occurs under the terms of the Plan. (ii) Instruct the Trustee to sell any property held as collateral for 75 such loan. (iii) Take such other steps as may be required. (j) Each loan will require that within the 90-day period before the granting of the loan, the Participant and, if married, his spouse, consent to such loan in writing and acknowledge the reduction in the Participant's Account in the event the loan is in default. (k) Any Participant who is a "party in interest" as defined in ERISA Section 3(14) and who ceases to be an active Eligible Employee may be eligible to borrow from the Plan under terms and conditions reflecting valid differences between active Participants and other Participants which would be considered in a normal commercial setting such as the unavailability of payroll deductions for repayment. In addition, there will be an annual fee for the administration of each of such loans of $100. In no event will loans be unreasonably withheld from any eligible applicant. (l) No distribution from the Plan upon termination of employment for any reason shall be made to any Participant or Beneficiary unless and until all loans, including interest thereon, have been fully repaid. (m) A nonrefundable processing fee of $75 shall be charged for each loan processed. 76 ARTICLE 14 GENERAL PROVISIONS 14.01 EXCLUSIVENESS OF BENEFITS The Plan has been created for the exclusive benefit of the Participants and their Beneficiaries. No part of the Trust Fund shall ever revert to the Company nor shall such Trust Fund ever be used other than for the exclusive benefit of the Participants and their Beneficiaries, except as provided in Sections 3.10 and 9.03 and Subsection 4.03(d) provided, however, that contributions made by the Company by mistake of fact or which are not deductible under Section 404 of the Code, may be returned to the Company within one year of the mistaken payment of the contribution or the date of disallowance of the deduction, as the case may be. All contributions made by the Company shall be conditional upon their deductibility under Section 404 of the Code. No person shall have any interest in or right to any part of the Trust Fund, or any equitable right under the Trust Agreement, except to the extent expressly provided in the Plan or Trust Agreement. 14.02 LIMITATION OF RIGHTS Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the purchase of any policy, nor the payment of any benefits shall be construed as giving any Participant, Beneficiary, or any other person whomsoever, any legal or equitable right against the Company, the Committee, or the Trustee, unless such right shall be specifically provided for in the Plan or conferred by affirmative action of the Committee or the Company in accordance with the terms and provisions of the Plan; or as giving any Participant or any other employee of the Company the right to be retained in the service of the Company and all Participants and other employees shall remain subject to discharge to the same extent as if the Plan had never been adopted. 14.03 LIMITATION OF LIABILITY AND LEGAL ACTIONS In any action or proceeding involving the Trust Fund, or any part thereof, or the administration thereof, the Company, the Committee, and the Trustee shall be the only necessary parties. Any final judgment entered in any such action or proceeding which is not appealed or appealable, shall be binding and conclusive on the parties thereto, and all persons having or claiming to have an interest in the Trust Fund or under the Plan. 77 14.04 CONSTRUCTION OF AGREEMENT The Plan shall be construed according to the laws of the State in which the Company named under Article 1 has its principal place of business, and all provisions hereof shall be administered according to, and its validity shall be determined under, the laws of such State except where preempted by Federal law. 14.05 TITLE TO ASSETS No Participant, Beneficiary or any other person shall have any legal or equitable right or interest in the funds set aside by the Company, or otherwise received or held under the Plan, or in any assets of the Trust Fund, except as expressly provided in the Plan, and no Participant, Beneficiary or any other person shall be deemed to possess a right to any assets except as herein provided. 14.06 SEVERABILITY Should any provision of the Plan or any regulations adopted thereunder be deemed or held to be unlawful or invalid for any reason, such fact shall not adversely affect the other provisions or regulations unless such invalidity shall render impossible or impractical the functioning of the Plan and, in such case, the appropriate parties shall immediately adopt a new provision or regulation to take the place of the one held illegal or invalid. 14.07 TITLES AND HEADINGS The titles and headings of the Sections in this instrument are for convenience of reference only and, in the event of any conflict, the text rather than such titles or headings shall control. 14.08 COUNTERPARTS AS ORIGINAL The Plan has been prepared in counterparts, each of which so prepared shall be construed an original. 14.09 MERGER OF PLANS Upon the merger or consolidation of any other plan with this Plan or the transfer of assets or liabilities from this Plan to any other plan, all Participants of this Plan shall be entitled to a benefit immediately after the 78 merger, consolidation or transfer (if the merged, consolidated or transferee plan had then been terminated) at least equal to the benefit they would have been entitled to immediately prior to such merger, consolidation or transfer (if the Plan had then terminated). 79 EX-13 4 ANNUAL REPORT EXHIBIT 13 DENDRITE DENDRITE INTERNATIONAL, INC. 1996 ANNUAL REPORT [ARTWORK APPEARS HERE] [PICTURE APPEARS HERE] Dendrite Dendrite International, Inc. provides comprehensive, enterprise-wide customer management systems and supporting services which are used to manage, coordinate and control the activities of large sales organizations in complex selling environments. Each product series offers a suite of optional extended modules which allow our customers to acquire a system tailored to their specific requirements. Most customers pay a one-time software license fee and simultaneously buy a three-to-five year support agreement. As our customers add software modules, they typically also buy incremental supporting services. Given our historically high customer retention rate, we enjoy not only recurring revenues, but also tend to experience a compounding effect as our customer relationships expand. Headquartered in Morristown, New Jersey, Dendrite employs over 600 people in 12 offices around the world. In 1996, 52% of sales were outside the United States. The Company is organized into two divisions reflecting our specialized industry expertise.
Financial Highlights (In thousands, except per share data) Year Ended December 31, 1994 1995 1996 - ------------------------------------------------------------------------------ Revenues.......................................... $39,426 $54,122 $66,246 Operating income (loss)........................... 4,229 7,170 (2,044) Net income (loss)................................. 2,327 4,694 (1,912) Pro forma net income excluding non-recurring items 2,327 4,694 1,063 Net income (loss) per share....................... $ 0.24 $ .45 $ (.17) Pro forma net income per share excluding non-recurring items.............................. $ 0.24 $ .45 $ .09 Shares used in computing net income (loss) per share............................................ 9,530 10,381 11,056 As of December 31, 1994 1995 1996 - ------------------------------------------------------------------------------ Working capital................................... $ 5,008 $28,655 30,432 Total assets...................................... 20,480 45,267 49,215 Stockholders' equity.............................. 1,695 32,310 35,176
[PICTURE APPEARS HERE] Healthcare Division Since our founding in 1986, we have primarily focused on the healthcare sector, and today we are the largest provider of customer management systems to the global pharmaceutical industry. Our target markets are the top 50 pharmaceutical companies in the Americas, Europe, Australia and Japan. We believe our Healthcare Division's leading market share can be attributed to several factors that differentiate us from other vendors of sales force automation software. While many vendors describe their products using the popular technology buzzwords, at Dendrite we use our in-depth understanding of the ever-changing global pharmaceuticals industry to develop comprehensive solutions to important business problems. Many of our key personnel have previously held senior management positions in major healthcare companies. Unlike some of our largest competitors whose primary business is selling data, we are data independent and are experts in integrating multiple data sources. We invest heavily in research and development to continuously improve functionality, we partner and collaborate with other talented companies to develop leading-edge capabilities, and we provide unparalleled ongoing support and services to help our customers realize the maximum return on their technology investment. Consumer Business Division In keeping with our objective of migrating the Dendrite business model to other industries with similar characteristics, in 1996, we formed a Consumer Business Division to serve the over-the-counter drug and cosmetics (OTC) and consumer packaged goods (CPG) industries worldwide. As a result of working with the non- pharmaceutical divisions of our healthcare customers, we realized that CPG companies and OTC drug makers also must contend with extremely complex selling environments. To launch our full-scale move into this new vertical market, in May 1996, we acquired SRCI S.A., France's largest provider of sales force management systems for the OTC and CPG markets. Our strategy in this market is to create high value-added solutions based on an in-depth understanding of merchandising and other critical elements of the business and to provide tools that can be used by sales representatives to interact with all levels of the retail chains from the individual stores all the way to the national level. Also, we have the infrastructure in place to offer outstanding training and ongoing support, which plays an important role in our strategy for developing this vast market. [PICTURE APPEARS HERE] Enterprise-wide Customer Management Solutions Contract Management Call Reporting and Sampling Customer Management Time Management Dynamic Information on Exchange Decision Support Tools Team Selling Sales and Activity Analysis Sales Order Management Implementation Services Training Project Management Data Modeling Customization Database Design Sales Staff/Home Office E-Mail Integration Hardware Preparation Support Services Project Management Database Integration and Cleansing Hardware Support Territory Realignment Sales Force Support Services Information Assets Management Year In Review [GRAPH APPEARS HERE] In 1996, we trained more users than any other year in our history... Despite a disappointing fourth quarter, 1996 was a successful year in many respects. We reported an increase in sales of 22% to $66.2 million. The $1.9 million net loss we reported for the year includes several non-recurring items in the fourth quarter as well as a one-time charge related to the acquisition of SRCI in the second quarter. Excluding these charges, our net profit for the year would have been $1.1 million, or $0.09 per share, for the year. After achieving record results through the first nine months, we experienced several unanticipated events in the fourth quarter including the delay of new license purchases by an existing customer, the delay of another client's upgrade decision, and the postponement of certain implementations in seven different countries for a customer. We are pleased to report that, at this writing, six delayed implementation and support contracts have been secured and, while the upgrade and expansion programs are still pending, we have announced 14 other new contracts or letters of intent totaling more than $20 million over the next three years. The past several months have been among the strongest in our history in terms of new business and we believe we are back on track once again. We have also taken steps to avoid this sort of problem in the future by altering the terms of our contracts with customers and by making changes in our European organization. The successful aspects of 1996 included rolling out more users than any other year in the past, completing a worldwide implementation for one customer, and installing systems in the United Kingdom, France, Italy, Brazil and Belgium for several others. In addition, we made significant progress toward our strategic goals. Last year, we outlined several areas of focus and we'd like to present the following highlights of our progress: Migrating Our Business Model to New Markets In May, we moved into a new vertical market with the acquisition of SRCI S.A., the largest provider of sales force management systems in France for the over- the-counter drug and cosmetics (OTC) and consumer packaged goods (CPG) industries. Based on the knowledge acquired through the implementation of over 100 sales force automation projects since 1988, SRCI has developed a standard product called NOMAD's. It was introduced to the French market in the third quarter of 1996 and it has been very well received, attracting a number of large well-known companies to our client list. 2 ...and simultaneously boosted R&D spending in order to maintain our global leadership. [CHART APPEARS HERE] Research and Development Expenditures ($ in thousands) We are using the SRCI acquisition as a springboard for expanding into the OTC and CPG markets worldwide. Toward that end, we have established a new Consumer Business Division, headed by Howard Hirsch, an experienced consumer products executive. Mr. Hirsch's team is focusing initially on the U.S. and U.K. and, during the third quarter, the system developed by SRCI was translated into English and adapted for local market characteristics. This system, marketed under the name ForceOne(TM), is also getting an excellent reception from potential U.S. and U.K. customers. We consider our service and support capabilities a key competitive advantage in this market, but the proportion of service revenues to total revenues is unlikely to reach as high a ratio as in the pharmaceuticals area because of the inherent differences in the two business sectors. Expanding Existing Relationships New business success was particularly strong in Europe during 1996. We added representatives in new geographic areas for three of our existing clients. In addition, two customers expanded the number of representatives using our system in Australia and New Zealand and a U.S. pharmaceutical giant announced the addition of a new sales force that would bring the number of Dendrite users to more than 3,000 at that company alone. This is the largest single sales force serviced by Dendrite. Product Enhancements Series 6 version 2.0 was released in September, right on schedule. This new version of our core product includes enhancements to each component system. In particular, improvements to the Account Manager system enhance the customer's ability to deal with the evolving managed care environment. With the introduction of Series 6.2, we also added new automated database synchronization and network connectivity capabilities, which solves an important problem for field users by enabling them to tap into the same facilities that are available to the rest of the corporation and to harness the power of the Internet/intranet. These tools also provide automated on-line synchronization within a single communications session, eliminating the need for field users to enter and exit applications sequentially. Strategic Relationships To augment our own research and development efforts, we have entered into several business relationships with companies that are leaders in their respective fields. These collaborative efforts have resulted in major enhancements to our total product offering and opportunities to penetrate new segments of the market. 3 [PICTURE APPEARS HERE] We begin a new year with a feature-rich portfolio of software products and... In 1996, we entered into an agreement with ProScape Technologies, Inc., a leading provider of sales force effectiveness software, to integrate their sales presentation and computer-based detailing tools with our Series 6 applications. ProScape's software, called SalesPRO, is a powerful set of multimedia presentation tools for individual and group audiences that can be easily customized and tailored to physicians' particular interests, even while a sales call is in progress. This represents a significant advantage over "canned" multimedia presentations. By integrating SalesPRO with Series 6, we allow sales representatives to plan and measure their total selling effort, to use data from prior presentations to more accurately direct future content, and to measure and redirect selling time to reflect the interests of each doctor as recorded by the use of the multimedia tools previously. We are working with Presidio Systems, Inc., to provide comprehensive solutions and services for automating clinical trial reporting. Presidio provides an integrated suite of software products that significantly improves automation of clinical trial design, data acquisition, cleansing and review. Dendrite, in turn, enables a complete solution by offering hardware and software configuration, training of trialists, user help desk support and data center management services. Together, we recently began our first implementation of an integrated solution for a large multinational pharmaceutical company for a group of clinical researchers, doctors and other users in both Europe and the United States. In the fourth quarter, we announced the introduction of a palmtop Wireless Hospital Rep system, which we jointly developed with PenVision Information Systems, Inc., a technological leader in creating applications for palm-based systems for mobile workers. The hospital rep product runs on the Microsoft Windows CE operating system, a new platform for hand-held PCs. It is the first customer management system to be developed for the Windows CE platform. Hospital reps operate in especially complex selling environments that require interaction on a daily basis with many different decision-makers and decision-influencers, with a limited opportunity to plan and prepare in advance. These conditions require capabilities that transcend the typical laptop system which communicates with the host computer over standard phone lines. Using a wireless modem, the small, lightweight unit provides continuous remote access to the entire Dendrite information system and can download appropriate amounts of data from the host computer and store it on the palmtop device. The system also enables customer signature capture for sample distribution and receipt recording. 4 Early in 1997, we reached a teaming agreement with Epsilon, a subsidiary of American Express Corporation and a leading provider of database marketing services, to integrate Series 6 with Epsilon's high performance data warehousing, information asset management and campaign management capabilities. Some of the benefits our customers will realize include: better database integrity; more rapid update cycle and quicker access to vital information; powerful, yet easy-to-use analytical tools; and the ability to design, measure and refine highly-targeted direct marketing programs. More Flexibility In response to customer feedback, we are offering tools that provide more flexibility to instantly adapt systems to changes in the marketplace while maintaining all the benefits of a customized system with access to full support services. Using our new data management and system editor tools, the customer's home office can, if it chooses, match, merge, or validate data themselves and can use the system editor to make modifications to reflect changes such as product, sample size, and price without involving Dendrite. When designing Series 6 version 2.0, our team paid particular attention to ease of integration so that many of the new features can be made available to current Window-based customers without necessitating a full upgrade. Marketed as "Add- Ins", some of the functionality that we are making available separately include the Wireless Hospital Rep system, and the Exception Panel, a tool to help representatives focus on areas that require immediate attention. ...several alliances that enhance our total solution and create new opportunities. 5 [PICTURE APPEARS HERE] Our palmtop-based Hospital Rep system is at the forefront of a much broader move toward increased functionality coupled with better portability. Moving Forward Opportunities Our achievements in 1996 leave us well-positioned for the balance of the decade. We have a feature-rich portfolio of software products using the latest technology, and we have formed important strategic alliances that augment and enhance our own capabilities. Here's how we see our mission from here: CPG Market Development--We believe our entrance into this market is timely. Thus far, no software vendor has developed a strong global presence in this market, and we have the opportunity to occupy that position. While the individual field forces are smaller than in the pharmaceutical industry, the large number of consumer packaged goods companies makes this a very attractive market. As many of these companies are global organizations, we are well-positioned to provide multinational implementation and ongoing support by building on our existing infrastructure of offices and people around the world. New Pharmaceutical Customers--About 40% of our potential target market remains unautomated or is served by internally-developed customer management systems. We believe that the accelerating pace of change, growing complexity, and highly competitive nature of the global pharmaceuticals market will eventually force many of these companies to seek new solutions of the type that Dendrite products provide. Geographic Expansion--Our penetration of most of our current customers accounts remains relatively modest, both in terms of modules implemented and the number of countries served. We are excited about the prospects for certain developing markets such as those in Latin America. Upgrade Potential--Many of our customers are using DOS-based Dendrite systems and are candidates for upgrading to our Series 6 Windows-based system. The significant enhancements we've recently made to Series 6 are intended to spur upgrade decisions, particularly in the United States where dealing in a managed care environment is a growing challenge. However, we note that customer upgrade decisions seem to be taking more time to complete now than in prior years. More Modules and Add-Ins--Some of our customers who have recently cleared the initial hurdles of installation and training may purchase additional modules. With the availability of multiple Add-Ins, we also anticipate interest from customers with earlier versions of our Windows-based systems who are attracted by the opportunity to add one function at a time. 6 Leveraging Our Infrastructure Investment--With twelve offices around the globe, we have the infrastructure in place to serve customers in most major countries. We believe that this will be a significant competitive advantage as we pursue the global CPG market. Also, by pursuing strategic alliances, we have the opportunity to extend our service and support capabilities into areas of our existing markets where we would not otherwise have a presence. Challenges In order to realize our maximum potential for growth and profitability, we recognize that there are a host of challenges that we must meet. Some of them are typical of any rapidly growing organization and others are specific to our type of business. Some of the main areas of focus for the coming years include: Research and Development--We believe that the Dendrite Hospital Rep system is at the forefront of a much broader move toward increased functionality coupled with better portability that will characterize our business for years to come. We must continue to anticipate the future needs of our customers and devote the appropriate research and development resources to technology and process improvements ahead of demand in order to maintain our leadership position. Recruiting--In order to achieve the same degree of success in the CPG market that we have enjoyed in pharmaceuticals, we must recruit people who have an in- depth understanding of the business issues in that marketplace. Without this capability, we become just another software vendor instead of an organization that is geared toward solving major business problems related to the sales and marketing function in the CPG industry. Sales and Marketing--We are witnessing much greater awareness of the potential benefits of sales force automation in the world at large with a commensurate increase in the number of software vendors in the market. It is becoming more difficult for customers to sort out the various vendors claims, and it will continue to be our challenge to differentiate ourselves from the pack. At the very least, the proliferation of competitors will continue to support the customers' use of consultants to help in the software decision, which is one of the reasons we find the sales cycle lengthening. [PICTURE APPEARS HERE] We are extending our expertise in handling complex selling environments to the vast consumer packaged goods market. 7 Through strategic partnering we have added exciting new multimedia presentation tools to our products. [PICTURE APPEARS HERE] Training--With some companies considering massive deployments in several countries at the same time, we must have the ability to train large numbers of users efficiently and cost-effectively in order to shorten the implementation cycle. We must also continue our development of new tools to augment the classroom training and minimize the amount of time that representatives are out of the field. Customer Service--As we grow, our base of users represents an increasingly diverse group in terms of the systems they are using and the level of familiarity and sophistication they have achieved. We must take steps to ensure that we are supplying a uniformly high level of support and service to all users. To this end, we are continuing to refine and implement throughout the world the concept of service level agreements with each customer. This sets the mutually agreed standard for providing key service components and allows Dendrite to measure and report against an objective standard regularly. Strategic Partnering--It is important to recognize that we can't hope to be equally good at everything and we must continue to seek business alliances with appropriate organizations for our mutual benefit in an increasingly complex market. All of us at Dendrite look forward with great enthusiasm to the challenges we face and to the opportunities--the ones we've already created as well as the new ones we're working on now. 8 Selected Financial Data Dendrite International, Inc. and Subsidiaries
Year Ended December 31, - -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 ------------------------------------------------- (in thousands, except per share data) Statement of Operations Data: Revenues: License fees................ $ 8,234 $ 4,814 $ 6,917 $ 6,042 $ 8,774 Services.................... 15,066 22,578 32,509 48,080 57,472 ------------------------------------------------- 23,300 27,392 39,426 54,122 66,246 ------------------------------------------------- Cost of Revenues: Cost of license fees........ 599 1,296 1,450 712 832 Cost of services............ 8,149 9,930 14,509 21,144 29,631 ------------------------------------------------- 8,748 11,226 15,959 21,856 30,463 ------------------------------------------------- Gross margin.............. 14,552 16,166 23,467 32,266 35,783 ------------------------------------------------- Operating Expenses: Selling, general and administrative............. 10,649 12,035 16,392 21,252 26,440 Research and development.... 1,556 2,560 2,846 3,844 8,747 Write-off of in-process research and development... -- -- -- -- 2,640 ------------------------------------------------- 12,205 14,595 19,238 25,096 37,827 ------------------------------------------------- Operating income (loss)... 2,347 1,571 4,229 7,170 (2,044) Interest expense.............. 15 37 74 15 12 Other expense (income)........ (78) 65 250 (526) (788) ------------------------------------------------- Income (loss) before income taxes and extraordinary item....... 2,410 1,469 3,905 7,681 (1,268) Income taxes.................. 1,535 778 1,578 2,987 644 ------------------------------------------------- Income (loss) before extraordinary item....... 875 691 2,327 4,694 (1,912) Extraordinary Item-Tax benefit from utilization of net operating loss carryforward. 286 -- -- -- -- ------------------------------------------------- Net income (loss)............. $ 1,161 $ 691 $ 2,327 $ 4,694 $(1,912) ================================================= Net income (loss) per share(1)................. $ .24 $ .45 $ (.17) ============================= Shares used in computing net income (loss)per share(1).... 9,530 10,381 11,056 ============================
As of December 31, - -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 ------------------------------------------------- (in thousands) Balance Sheet Data: Working capital.................. $ 1,202 $ 2,861 $ 5,008 $28,655 $30,432 Total assets..................... 11,204 11,666 20,480 45,267 49,215 Capital lease obligations, less current portion................. 41 39 33 -- -- Redeemable Series A convertible preferred stock................. 6,914 6,945 6,976 -- -- Stockholders' equity (deficit)... (1,506) (711) 1,695 32,310 35,176 (1) Computed on the basis described in Note 1 of "Notes to Consolidated Financial Statements".
9 Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company succeeded in 1991 to a business co-founded in 1986 by the Company's current President and Chief Executive Officer to provide comprehensive Electronic Territory Management ("ETM") solutions to be used to manage, coordinate and control the activities of large sales forces in complex selling environments, primarily in the ethical pharmaceutical industry. Today, the Company's solutions combine advanced software products with a wide range of specialized support services including implementation services, technical and hardware support services and sales force support services. The Company develops, implements and services advanced ETM systems in the United States, Canada, Western Europe, Japan, Australia, New Zealand, Hong Kong, and Brazil through its own sales, support and technical personnel located in twelve offices worldwide. The Company generates revenues from two sources: fees from support services and license fees. Service revenues, which account for a substantial majority of the Company's revenues, consist of fees from a wide variety of contracted services which the Company makes available to its customers, generally under multi-year contracts. Implementation fees are generated from services provided to design and implement the ETM solution for the customer. Technical and hardware support fees are derived from services related to the operation of the customer's file server and from the provision of ongoing technical and customer service support including customization of the software following implementation. Sales force support fees are derived from organizing and managing support for the customer's sales force. License fees are charged by the Company for use of its proprietary computer software. Customers generally pay one-time perpetual license fees based upon the number of users, territory covered and the number of functions in the particular system licensed by the customer. The Company recognizes one-time license fees as revenue using the percentage of completion method over a period of time that commences on the date of delivery of the software to the licensee and ends on the date that initial customization, as defined in each contract, is complete. For license contracts that contain customer acceptance provisions, revenue is not recognized until such time as the acceptance provisions are satisfied. To date there have been no instances in which customer acceptance provisions have led to nonpayment of license fees. Additional license fees are payable when customers agree to license additional functions or enhancements, acquire an upgraded version of the Company's software and/or when the maximum number of users or initial geographic coverage is exceeded. The Company has, in the past, made available an alternative license fee arrangement known as a "capitation" agreement under which the customer licenses Dendrite software and upgrades for an increasing preset annual charge over a specified term (currently up to 10 years). The fee in these cases encompasses all users in all geographic regions, and covers all maintenance fees and upgrades. One customer has executed a capitation agreement to date. All license fees, domestic and export, are included under the heading "License Fees--United States" in Note 10 of "Notes to Consolidated Financial Statements". Currently, the Company's products are marketed in over 16 countries. The United States, the United Kingdom and France are the Company's main markets. Approximately 44%, 48% and 52% of the Company's total revenues were generated outside the United States during the years ended December 31, 1994, 1995, and 1996, respectively. Services provided by Dendrite's foreign branches and subsidiaries are billed in local currency. License fees for Dendrite products are billed in U.S. dollars regardless of where they originate. Foreign license fees are shown as United States export revenues in Note 10 of "Notes to Consolidated Financial Statements". The Company expects its foreign operations to grow and to continue to account for a material part of its revenues. Operating results generated in local currencies are translated into United States dollars at the average exchange rate in effect for the reporting period. 10 Dendrite International, Inc. and Subsidiaries The Company markets its products and services to customer personnel in their management information services department and in either their sales management or sales administration department. However, senior management or even the board of directors of a customer may be involved due to the costs involved. The Company believes that its customers and potential customers may make detailed financial analyses of these costs and the expected benefits to them of licensing a Dendrite ETM system, although the results of such analyses generally are not disclosed to the Company. The Company's operating profits by geographic segments are shown in Note 10 of "Notes to Consolidated Financial Statements". The geographic operating profits are primarily affected by the utilization of technical and support personnel to support service revenues, start-up costs associated with opening new operations and the ability to increase service revenues faster than the growth in selling, general and administrative expenses. In addition, operating profits in the United States are affected by the fluctuation in total license fees since all license fees are included in United States operating profits. Results of Operations The following table sets forth certain line items in the Company's consolidated statements of operations as a percentage of total revenues for the periods indicated:
Year Ended December 31, ----------------------- 1994 1995 1996 ----------------------- Revenues: License fees................................................................. 18% 11% 13% Services..................................................................... 82 89 87 --------------------- 100 100 100 --------------------- Costs of Revenues: Cost of license fees......................................................... 4 1 1 Cost of services............................................................. 37 39 45 --------------------- 41 40 46 --------------------- Gross margin............................................................... 59 60 54 --------------------- Operating Expenses: Selling, general and administrative.......................................... 41 40 40 Write-off in-process research and development................................ -- -- 4 Research and development..................................................... 7 7 13 --------------------- 48 47 57 --------------------- Operating income (loss).................................................... 11 13 (3) Other expense (income)......................................................... 1 (1) (1) --------------------- Income (loss) before income taxes.......................................... 10 14 (2) Income taxes................................................................... 4 5 1 --------------------- Net income (loss).............................................................. 6% 9% (3)% =====================
Years Ended December 31, 1995 and 1996 Revenues. Total revenues increased $12,124,000 or 22% from $54,122,000 in 1995 to $66,246,000 in 1996 as a result of an increase in the installed base of Dendrite systems, both from new and existing customers, for Dendrite's pharmaceutical customers and the acquisition of SRCI S.A. in May 1996. 11 License fee revenues increased from $6,042,000 in 1995 to $8,774,000 in 1996. This increase was primarily attributable to several large contracts completed during the year. Included in 1995 and 1996 revenues are license fees from a multi-year capitation agreement. Of 1995 and 1996 license fees, 74% and 80%, respectively, were derived from Series 5 and Series 6 products. Service revenues increased 20% from $48,080,000 in 1995 to $57,472,000 in 1996 as a result of an increase in the Company's installed base of Dendrite systems and implementation services provided to new and existing customers and, to a lesser extent, the increased marketing of services to SRCI S.A.'s customers into the consumer packaged goods market. Service revenues as a percentage of the Company's total revenues decreased from 89% in 1995 to 87% in 1996. This percentage decrease was primarily attributable to a deferral from 1996 to 1997 of a major customer implementation in seven countries and to higher license fees in 1996. Revenues from Pfizer Inc., Eli Lilly and Company and Rhone-Poulenc Rorer Inc. in the aggregate accounted for approximately 58% of the Company's revenues for the year ended December 31, 1996 and approximately 56% of the Company's revenues for the year ended December 31, 1995. Cost of Revenues. Cost of revenues increased 39% from $21,856,000 in 1995 to $30,463,000 in 1996 primarily due to an increase in the number of service representatives and technical staff and, to a lesser extent, an increase in associated support costs. This support cost increase was related to the increase in service revenues, incremental costs incurred related to the hiring of personnel for the seven customer delayed implementations and the higher costs associated with utilizing independent contractors. Cost of license fees increased slightly from $712,000 in 1995 to $832,000 in 1996. In 1996, the cost of license fees represents the amortization of capitalized costs of $739,000 and third party vendor license fees of $93,000. In 1995, cost of license fees include amortization of capitalized software costs of $410,000 and third party software vendor license fees of $302,000. Cost of services increased from $21,144,000 in 1995 to $29,631,000 in 1996. As a percentage of service revenues, cost of services increased from 44% of service revenues for the year ended December 31, 1995 to 52% of service revenues for the year ended December 31, 1996. This increase was attributable to hiring personnel for training, customer service and technical support for the seven customer delayed implementations discussed above, and to higher costs associated with retaining a significant number of independent contractors to complete client deliverables. Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased 24% from $21,252,000 in 1995 to $26,440,000 in 1996. As a percentage of revenues, SG&A expenses remained constant at 40% for the year ended December 31, 1996 in comparison to the year ended December 31, 1995. The increase in 1996 was primarily attributable to costs associated with restructuring the Company's European service delivery organization and the amortization of goodwill associated with the SRCI acquisition. Acquisition of SRCI. On May 1, 1996, the Company acquired 100% of the capital stock of SRCI S.A., a French company for 16,350,000 French Francs, equivalent to U.S. $3,198,000 and transaction costs of $302,000. The acquisition has been accounted for using the purchase method of accounting, whereby the purchase price is allocated to the assets and liabilities of SRCI based on their fair market values at the acquisition date. The excess of the purchase price over the fair value of the net assets acquired was assigned to identifiable intangibles. The Company assigned $2,640,000 to in- process research and development and such amount was written off in the accompanying statement of operations. The Company also recorded $860,000 as goodwill. SRCI's results of operations have been included in the Company's consolidated financial statements from the date of acquisition. Research and Development. Research and development expenses increased 128% from $3,844,000 in 1995 to $8,747,000 in 1996. As a percentage of revenues, research and development expenses increased from 7% for the year ended December 31, 1995 to 13% for the year ended December 31, 1996. The increase in research and development expenses in 1996 was attributable to creating country specific product for the German market, to provide new products for several joint ventures announced during the year and completion of the ForceOne product for Dendrite's consumer business division. 12 Dendrite International, Inc. and Subsidiaries Other Income Expense. Other income/expense increased from $526,000 of income in 1995 to $788,000 of income in 1996. This change was primarily due to interest income earned on investments from proceeds of the initial public offering. Provision for Income Taxes. The effective tax expense of 51% for the year ended December 31, 1996 was primarily the result of the writeoff of in- process research and development resulting from the acquisition of SRCI S.A. in May 1996. The effective tax rate for the year ended December 31, 1995 was 39%. Years Ended December 31, 1994 and 1995 Revenues. Total revenues increased $14,696,000 or 37% from $39,426,000 in 1994 to $54,122,000 in 1995 as a result of an increase in the installed base of Dendrite systems, both from new customers and existing customers. License fee revenues decreased from $6,917,000 in 1994 to $6,042,000 in 1995. This decrease was primarily attributable to timing of contracts, delays in customer acceptance of the Company's software and customer budget changes. Included in 1994 and 1995 revenues are license fees from multi-year capitation agreements, which the Company began to make available to customers in 1994. Under this type of agreement, the customer licenses software and upgrades for an increasing preset annual charge. Also included in 1995 license fees are revenues of $362,000 that relate to third party software included in the Company's Windows(TM)-based Series 5 and Series 6 installed product. Of 1994 and 1995 license fees, 54% and 74%, respectively, were derived from Series 5 and Series 6 products. Service revenues increased 48% from $32,509,000 in 1994 to $48,080,000 in 1995 as a result of an increase in the Company's installed base of Dendrite systems and implementation services for new and existing customers. Service revenues as a percentage of the Company's total revenues increased from 82% in 1994 to 89% in 1995. This percentage increase was primarily attributable to increases in the Company's installed base and implementation services and lower license fee revenues in 1995. Revenues from Pfizer Inc., Eli Lilly and Company and Johnson & Johnson in the aggregate accounted for approximately 54% for the year ended December 31, 1994, and from Pfizer Inc., Eli Lilly and Company and Rhone-Poulenc Rorer Inc. in the aggregate accounted for approximately 56% of the Company's revenues for the year ended December 31, 1995. Cost of Revenues. Cost of revenues increased 37% from $15,959,000 in 1994 to $21,856,000 in 1995 primarily due to an increase in the number of service representatives and technical staff and, to a lesser extent, an increase in associated support costs. This increase was directly related to the increase in service revenues. Cost of license fees decreased from $1,450,000 in 1994 to $712,000 in 1995. This decrease was primarily a result of the acquired application software costs becoming fully amortized by the end of 1994 partially offset by costs incurred in 1995 for third party software vendor license fees. In 1995, cost of license fees include amortization of capitalized software costs of $410,000 and third party software vendor license fees of $302,000. In 1994, cost of license fees include the amortization of capitalized software of $473,000 and amortization of acquired application software costs of $977,000. Cost of services increased from $14,509,000 in 1994 to $21,144,000 in 1995. As a percentage of service revenues, cost of services decreased from 45% of service revenues for the year ended December 31, 1994 to 44% of service revenues for the year ended December 31, 1995 due to improved efficiency of certain support teams in the United States partially offset by increases in support costs in three startup/developing overseas offices. Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased 30% from $16,392,000 in 1994 to $21,252,000 in 1995. The increase in 1995 was primarily attributable to increased staff and, to a lesser extent, an increase in facilities growth to support operations and sales. As a percentage of revenues, SG&A expenses decreased from 41% for the year ended December 31, 1994 to 40% for the year ended December 31, 1995. This decrease was primarily due to service revenues increasing faster than the growth in SG&A expense. Research and Development. Research and development expenses increased 35% from $2,846,000 in 1994 to $3,844,000 in 1995. As a percentage of revenues, research and development expenses remained constant at 7% for the year ended December 31, 1995, in comparison to the year ended December 31, 1994. The increase in research and development expenses in 1995 was attributable to increased staff and resources required to continue development 13 of updates and upgrades for the Company's Series 6 software product and for the development of prototypes for the next series of products, Other Income Expense. Other income/expense changed from $250,000 of expense in 1994 to $526,000 of income in 1995. This change was primarily due to interest income earned on investments from proceeds of the initial public offering. Provision for Income Taxes. The effective tax rate was 39% for the year ended December 31, 1995 which was relatively constant as compared to the effective tax rate of 40% for the year ended December 31, 1994. Variability of Quarterly Results Fluctuations in the Company's quarterly revenues depend on a number of factors, some of which are beyond the Company's control. These factors include, among others, the timing of contracts, delays in customer acceptance of the Company's software, the length of the sales cycle, customer budget changes and changes in the pricing policy by the Company or its competitors. The Company establishes its expenditure levels for product development and other operating expenses based in large part on its expected future revenues. As a result, should revenues fall below expectations, operating results are likely to be adversely and disproportionately affected because only a small portion of the Company's expenses vary with its revenues. In addition, the Company's quarterly revenues from software license fees and related income may vary due to seasonal and cyclical factors. The Company typically expects to realize a greater percentage of its license fees and service revenues in the second half of the year with a lower percentage in the first half. However, the interplay between this seasonal pattern and the long selling cycles for the Company's products means that actual results may vary from this expectation for a given year. In the future, to the extent the percentage of revenue from service revenues from existing customers of the Company continues to increase, seasonal and cyclical trends in the Company's revenues may be reduced. Liquidity and Capital Resources The Company has historically financed its operations primarily through cash generated by operations. Net cash utilized by operating activities was $2,764,000 for the year ended December 31, 1996 compared to cash provided of $2,015,000 during the year ended December 31, 1995. The decrease in cash provided by operating activities in 1996 compared to 1995 is due primarily to the decrease in income and decreases in taxes payable and deferred revenues, the increase in prepaid taxes partially offset by increases in accounts payable and accrued expenses. The Company utilized $2,499,000 from cash investing activities in 1996 compared to the utilization of $13,338,000 in cash from investing activities in 1995. In 1996, cash utilized in investing activities included $2,965,000 for the purchase of SRCI S.A. In 1995, the cash utilized was primarily attributable to the purchases of short-term investments from the net proceeds the Company received upon the closing of its initial public offering. The Company maintains a $5,000,000 revolving line of credit agreement with The Chase Manhattan Bank, N.A. The agreement provides for borrowings up to $1,000,000 in local currencies directly by the Company or certain of its overseas subsidiaries and is available to finance working capital needs and possible future acquisitions. The $5,000,000 line of credit is secured by substantially all of the Company's assets. The $5,000,000 line of credit agreement requires the Company to maintain a minimum consolidated net worth, among other covenants, measured quarterly, which is equal to the Company's net worth as of December 31, 1994 plus 50% of net income earned after December 31, 1994 and plus the net proceeds of any stock offering. This covenant has the effect of limiting the amount of cash dividends the Company may pay. At December 31, 1996, 1995 and 1994, there were no borrowings outstanding under the agreement. At December 31, 1996, the Company's working capital was approximately $30,432,000. The Company has no significant capital spending or purchasing commitments other than normal purchase commitments and commitments under facility and capital leases. The Company believes that available funds, anticipated cash flows from operations and its line of credit will satisfy the Company's projected working capital and capital expenditure requirements, exclusive of cash required for possible acquisitions of businesses, products and technologies, through at least the next two years. 14 Dendrite International, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except share data)
December 31, - -------------------------------------------------------------------------------- 1995 1996 ----------------- Assets Current Assets: Cash and cash equivalents................................ $11,530 $10,912 Short-term investments................................... 10,955 8,421 Accounts receivable...................................... 14,699 18,732 Prepaid expenses and other............................... 1,292 1,569 Prepaid taxes............................................ -- 1,397 Deferred tax asset....................................... 1,157 1,203 ----------------- Total current assets................................. 39,633 42,234 Property and equipment, net................................ 3,602 3,391 Deferred taxes............................................. -- 254 Goodwill, net.............................................. -- 747 Capitalized software development costs, net................ 2,032 2,589 ----------------- $45,267 $49,215 ================= Liabilities and Stockholders' Equity Current Liabilities: Accounts payable......................................... $ 1,002 $ 3,344 Income taxes payable..................................... 2,528 584 Accrued compensation and benefits........................ 2,174 2,446 Other accrued expenses................................... 2,102 3,329 Deferred revenues........................................ 3,172 2,099 ----------------- Total current liabilities............................ 10,978 11,802 ----------------- Deferred rent.............................................. 464 726 ----------------- Deferred taxes............................................. 1,515 1,511 ----------------- Commitments and contingencies (Note 8) Stockholders' Equity: Preferred stock, no par value, 10,000,000 shares authorized, none issued................................. -- -- Common stock, no par value, 50,000,000 shares authorized; 10,675,581 and 11,163,631 shares issued and outstanding................ 26,809 32,198 Retained earnings........................................ 6,570 4,658 Deferred compensation.................................... (502) (1,227) Unrealized gain on short-term investments................ 14 -- Cumulative translation adjustment........................ (581) (453) ----------------- Total stockholders' equity........................... 32,310 35,176 ----------------- $45,267 $49,215 =================
The accompanying notes are an integral part of these statements. 15 Dendrite International, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share data)
Year Ended December 31, - -------------------------------------------------------------------------------------------------------------- 1994 1995 1996 --------------------------- Revenues: License fees................................................................... $ 6,917 $ 6,042 $ 8,774 Services....................................................................... 32,509 48,080 57,472 --------------------------- 39,426 54,122 66,246 --------------------------- Costs of revenues: Cost of license fees........................................................... 1,450 712 832 Cost of services............................................................... 14,509 21,144 29,631 --------------------------- 15,959 21,856 30,463 --------------------------- Gross margin................................................................. 23,467 32,266 35,783 --------------------------- Operating expenses: Selling, general and administrative............................................ 16,392 21,252 26,440 Research and development....................................................... 2,846 3,844 8,747 Write-off of in-process research and development............................... -- -- 2,640 --------------------------- 19,238 25,096 37,827 --------------------------- Operating income (loss)...................................................... 4,229 7,170 (2,044) Interest expense................................................................. 74 15 12 Other expense (income)........................................................... 250 (526) (788) --------------------------- Income (loss) before income taxes............................................ 3,905 7,681 (1,268) Income taxes..................................................................... 1,578 2,987 644 --------------------------- Net income (loss)................................................................ $ 2,327 $ 4,694 $(1,912) =========================== Net income (loss) per share...................................................... $ .24 $ .45 $ (0.17) =========================== Shares used in computing net income (loss) per share............................. 9,530 10,381 11,056 ===========================
The accompanying notes are an integral part of these statements. 16 Dendrite International, Inc. and Subsidiaries Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (in thousands)
Stockholders' Equity (Deficit) ----------------------------------------------------------------------------------------- Redeemable Unrealized Series A Holding Total Convertible Common Stock Retained Gain on Cumulative Stockholders' Preferred ----------------- Earnings Deferred Short-Term Translation Equity Stock Shares Amount (Deficit) Compensation Investments Adjustment (Deficit) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1993..... $ 6,945 3,297 $ 56 $ (404) $ (49) $ -- $(314) $ (711) Issuance of common stock..... -- 147 376 -- (84) -- -- 292 Amortization of deferred compensation................ -- -- -- -- 9 -- -- 9 Currency translation adjustment.................. -- -- -- -- -- -- (191) (191) Accretion of redemption premium on preferred stock....................... 31 -- -- (31) -- -- -- (31) Net income................... -- -- -- 2,327 -- -- -- 2,327 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1994..... 6,976 3,444 432 1,892 (124) -- (505) 1,695 Issuance of common stock..... -- 151 747 -- (425) -- -- 322 Amortization of deferred compensation................ -- -- -- -- 47 -- -- 47 Purchase and retirement of common stock... ............ -- (26) (132) -- -- -- -- (132) Currency translation adjustment.................. -- -- -- -- -- -- (76) (76) Unrealized gain on short-term investments...... -- -- -- -- -- 14 -- 14 Accretion of redemption premium on preferred stock....................... 16 -- -- (16) -- -- -- (16) Mandatory conversion of Redeemable Series A Convertible Preferred Stock into common stock..... (6,992) 5,607 6,992 -- -- -- -- 6,992 Issuance of common stock from consummation of initial public offering, net of offering costs........... -- 1,500 18,770 -- -- -- -- 18,770 Net income................... -- -- -- 4,694 -- -- -- 4,694 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1995..... -- 10,676 26,809 6,570 (502) 14 (581) 32,310 Issuance of common stock..... -- 188 1,094 -- (838) -- -- 256 Amortization of deferred compensation................ -- -- -- -- 113 -- -- 113 Currency translation adjustment.................. -- -- -- -- -- -- 128 128 Realization of gain on short-term investments...... -- -- -- -- -- (14) -- (14) Issuance of common stock from consummation of initial public offering, net of offering costs........... -- 300 4,295 -- -- -- -- 4,295 Net loss..................... -- -- -- (1,912) -- -- -- (1,912) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1996..... $ -- 11,164 $32,198 $ 4,658 $(1,227) $ -- $(453) $35,176 ====================================================================================================================================
The accompanying notes are an integral part of these statements. 17 Dendrite International, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands)
Year Ended December 31, - --------------------------------------------------------------------------------------------------------------------- 1994 1995 1996 ------------------------------ Operating activities: Net income (loss).................................................................. $ 2,327 $ 4,694 $(1,912) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization................................................. 2,300 1,525 2,037 Deferred income taxes (benefit)............................................... 118 (277) (304) Write-off of in-process research and development.............................. -- -- 2,640 Changes in assets and liabilities, net of effect from acquisition: Increase in accounts receivable............................................. (3,242) (4,885) (3,193) (Increase) decrease in prepaid expenses and other........................... (904) 607 (253) Increase in prepaid income taxes............................................ -- -- (1,397) Increase (decrease) in accounts payable and accrued expenses................ 2,837 (1,219) 2,461 Increase in deferred rent................................................... 124 340 262 Increase (decrease) in income taxes payable................................. 638 1,445 (1,931) Increase (decrease) in deferred revenues.................................... 2,154 (215) (1,174) ------------------------------ Net cash provided by (used in) operating activities...................... 6,352 2,015 (2,764) ------------------------------ Investing activities: Purchases of short-term investments................................................ -- (15,148) (8,271) Sales of short-term investments.................................................... -- 4,193 10,805 Purchase of SRCI, net of cash acquired............................................. -- -- (2,965) Purchases of property and equipment................................................ (2,107) (1,534) (772) Additions to capitalized software development costs................................ (800) (849) (1,296) ------------------------------ Net cash used in investing activities.................................... (2,907) (13,338) (2,499) ------------------------------ Financing activities: Principal payments on short-term borrowings........................................ (209) -- -- Payments on capital lease obligations.............................................. (23) (80) -- Issuance of common stock from consummation of initial public offerings, net of offerings costs........................................................... -- 18,770 4,295 Issuance of common stock........................................................... 292 322 256 ------------------------------ Net cash provided by financing activities................................ 60 19,012 4,551 ------------------------------ Effect of foreign exchange rate changes on cash...................................... (298) (69) 94 ------------------------------ Net increase (decrease) in cash...................................................... 3,207 7,620 (618) Cash and cash equivalents, beginning of year......................................... 703 3,910 11,530 ------------------------------ Cash and cash equivalents, end of year............................................... $ 3,910 $ 11,530 $10,912 ==============================
The accompanying notes are an integral part of these statements. 18 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 Electronic Territory Management solutions used to manage, coordinate and control the activities of large sales forces in complex selling environments, primarily within the ethical pharmaceutical industry. The Company's solutions combine proprietary software products with extensive system support services. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Dendrite International, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," substantially all assets and liabilities of the Company's wholly owned 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 (income) 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 recognizes one-time license fees as revenue using the percentage-of-completion method over a period of time that commences on the date of delivery of the software to the licensee and ends on the date that initial customization, as defined in each contract, is completed. Recognition of one-time license fee revenue in contracts with customer acceptance provisions does not commence until such time as the acceptance provisions are satisfied. Revenues from initial customization are recognized using the percentage-of-completion method, regardless of whether the contract contains customer acceptance provisions since such services are stated separately, priced on a time-and-materials basis and are due to the Company regardless of whether the license contract is accepted. The Company's software licensing agreements provide for a warranty period (typically 90 days). The portion of the license fee associated with the warranty period is unbundled from the license fee and is recognized ratably over the warranty period. The Company recognizes license fees from capitation agreements ratably over the term of the agreements. Capitation agreements provide customers with unlimited use of the licensed software and entitle them to future upgrades and enhancements of the licensed software that may become available during the term of the agreement. The Company recognizes license fees from certain third-party software embedded into the product as the Company becomes obligated to pay them. The cost of third-party software is included in cost of license fees in the accompanying statements of operations. For the years ended December 31, 1995 and 1996, the Company recorded $362,000 and $112,000 respectively, of license fees and $302,000 and $93,000, respectively, of cost of license fees relating to third-party software. Revenues from services are recognized as the services are performed. Revenues from customer maintenance, support and data server rental agreements are recognized ratably over the agreements. Services are generally provided under multiyear contracts. The contracts specify the payment terms, which are generally over the term of the contract and generally provide for termination in the event of breach, as defined in the contract. 19 Deferred Revenues Deferred revenues represent amounts collected from or invoiced to customers in excess of revenues recognized. Such amounts are recognized as revenue when the related significant performance obligations have been satisfied. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Supplemental Cash Flow Information For the years ended December 31, 1994, and 1995, the Company paid interest of $33,000, and $10,000 respectively. For the years ended December 31, 1994, 1995 and 1996, the Company paid income taxes of $620,000, $1,432,000 and $4,346,000, respectively. The following table lists noncash assets that were acquired and liabilities that were assumed as a result of the acquisition discussed in Note 2: Noncash assets: Accounts receivable......................................... $ 823,000 Prepaid expenses............................................ 31,000 Property and equipment...................................... 91,000 Goodwill.................................................... 860,000 ---------- 1,805,000 Assumed liabilities: Accounts payable............................................ (488,000) Accrued compensation and benefits........................... (250,000) Other accrued expenses...................................... (613,000) Deferred revenues........................................... (129,000) ---------- Net noncash assets acquired............................... 325,000 Write-off of in-process research and development.............. 2,640,000 ---------- Cash paid, net of cash acquired........................... $2,965,000 ==========
Short-Term Investments Effective January 1, 1995, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. The Company invests in highly rated corporate bonds and municipal bonds. At December 31, 1995 and 1996, all marketable securities have been classified as available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Realized gains and losses, computed using specific identification, and declines in value determined to be permanent are recognized in the statement of operations. Property and Equipment Fixed assets are stated at cost. Depreciation and amortization are provided generally on the straight-line basis over the estimated useful lives of the respective assets, which range from 3 to 15 years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the lease terms, whichever are shorter. Maintenance, repairs and minor replacements are charged to expense as incurred. Capitalized Software Development Costs In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes certain costs related to the development of new software products or the enhancement of existing software products for sale or license. These costs are capitalized from the point in time that technological feasibility has been established, as evidenced by a working model or a detailed working program design, to the 20 Dendrite International, Inc. and Subsidiaries 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 life 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, 1996, management believes that no revisions to the remaining useful life or write-down of capitalized development costs is required. Capitalized software development costs are net of accumulated amortization of $1,202,000 and $1,941,000 at December 31, 1995 and 1996, respectively. The Company capitalized software development costs of $800,000, $849,000 and $1,296,000 for the years ended December 31, 1994, 1995 and 1996, respectively. Amortization expense for the years ended December 31, 1994, 1995 and 1996, was $473,000, $410,000 and $739,000, respectively, and is included in cost of license fees in the accompanying statement of operations. Intangible Assets Intangible assets (primarily acquired applications software) had been amortized on a straight-line basis. These assets were fully amortized at December 31, 1994. Amortization expense for the year ended December 31, 1994, was $977,000 and is included in cost of license fees in the accompanying statement of operations. Goodwill of $860,000 is being amortized on a straight-line basis over five years (see Note 2). Amortization expense for the year ended December 31, 1996, was $113,000. Impairment of Long-Lived Assets In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company reviews its long-lived assets, including property and equipment, and goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured at fair value. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates that are expected to be in effect when the differences reverse. At December 31, 1996, there were approximately $4,308,000 of accumulated undistributed earnings of subsidiaries outside the United States that are considered to be reinvested indefinitely. If such earnings were remitted to the Company, applicable U.S. federal income and foreign withholding taxes may be partially offset by foreign tax credits. Major Customers The Company derived revenues of approximately 28%, 14% and 12% from Pfizer, Inc., Eli Lilly and Company, and Johnson & Johnson, respectively, for the year ended December 31, 1994. The Company derived revenues of approximately 31%, 14% and 11% from Pfizer, Inc., Rhone-Poulenc Rorer, Inc. and Eli Lilly and Company, respectively, for the year ended December 31, 1995. The Company derived revenues of approximately 36%, 14% and 8% from Pfizer, Inc. Rhone- Poulenc Rorer, Inc. and Eli Lilly and Company, respectively, for the year ended December 31, 1996. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances and trade receivables. The Company invests its excess cash with large banks. The Company's customer base principally comprises companies within the ethical pharmaceutical industry. The Company does not require collateral from its customers. 21 Net Income (Loss) Per Share Net income (loss) per share was calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the respective periods adjusted for the diluted effect of common stock equivalents, which consists of stock options using the treasury stock method. For 1994 and 1995, the calculation of the shares used in computing net income per share also includes 5,607,000 shares of Series A Convertible Preferred Stock, which converted into 5,607,000 shares of Common Stock upon the consummation of the initial public offering, as if they were converted to Common Stock on their original date of issuance. 2. Acquisition: On May 1, 1996, the Company acquired 100% of the capital stock of SRCI, S.A. (SRCI) for approximately $3,198,000 and transaction costs of $302,000. The purchase was accounted for under the purchase method of accounting, whereby the purchase price is allocated to the assets acquired and liabilities assumed of SRCI based on their fair market values at the acquisition date. The excess of purchase price over the fair value of net assets acquired was assigned to identifiable intangibles. The Company assigned $2,640,000 to in- process research and development and such amount was written-off in the accompanying statement of operations. The Company also recorded $860,000 as goodwill. SRCI's results of operations have been included in the Company's consolidated financial statements from the date of acquisition. 3. Property and Equipment:
December 31, ---------------------------------------------------------------------------- 1995 1996 Computer hardware and other equipment............ $ 3,504,000 $ 4,039,000 Furniture and fixtures........................... 1,465,000 1,724,000 Leasehold improvements........................... 670,000 743,000 ------------------------- 5,639,000 6,506,000 Less--Accumulated depreciation and amortization.. (2,037,000) (3,115,000) ------------------------- $ 3,602,000 $ 3,391,000 =========================
4. Revolving Line of Credit: The Company has a $5,000,000 revolving line of credit agreement with a bank which provides for borrowings up to $1,000,000 in local currencies directly with the Company's overseas subsidiaries and is available to finance working capital needs and possible future acquisitions. The line of credit is secured by substantially all of the Company's assets and requires, among other covenants, that the Company maintain a minimum net worth, measured quarterly, which is equal to the Company's net worth as of December 31, 1994, plus 50% of the Company's net income earned after December 31, 1994, and plus 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, 1996, approximately $1,391,000 was available for the payment of dividends under this covenant. 5. Income Taxes:
Year Ended December 31, ---------------------------------------------------------------------------- 1994 1995 1996 ------------------------------------ Domestic............................ $1,908,000 $7,195,000 $(1,211,000) Foreign............................. 1,997,000 486,000 (57,000) ------------------------------------ $3,905,000 $7,681,000 $(1,268,000) ====================================
22 Dendrite International, Inc. and Subsidiaries The components of income before income taxes were as follows:
Year Ended December 31, - -------------------------------------------------------------------------------- 1994 1995 1996 ------------------------------------- Current Provision: Federal......................... $ 456,000 $2,191,000 $ 575,000 State........................... -- -- -- Foreign......................... 1,004,000 1,073,000 373,000 ------------------------------------- 1,460,000 3,264,000 948,000 ------------------------------------- Deferred Provision (Benefit): Federal......................... 144,000 44,000 (149,000) State........................... 158,000 542,000 102,000 Foreign......................... (184,000) (863,000) (257,000) ------------------------------------- 118,000 (277,000) (304,000) ------------------------------------- $1,578,000 $2,987,000 $ 644,000 =====================================
The reconciliation of the statutory Federal income tax rate to the Company's effective income tax rate is as follows:
Year Ended December 31, - -------------------------------------------------------------------------------- 1994 1995 1996 ------------------------------------- Federal statutory tax rate.............. 34.0% 34.0% (34.0)% Impact of foreign subsidiaries subject to higher tax rates............. 3.6 0.2 0.2 Impact of enacted change in German tax rates on deferred tax assets........ -- -- 4.6 State income taxes, net of federal tax benefit............................. 2.7 4.3 (5.0) Nondeductible expenses.................. 0.6 0.4 3.8 Write-off of in-process research and development............................. -- -- 81.1 Tax credits utilized.................... (0.5) -- -- ------------------------------------- 40.4% 38.9% 50.7% =====================================
The tax effect of temporary differences as established in accordance with SFAS No. 109 that give rise to deferred income taxes is as follows:
December 31, - -------------------------------------------------------------------------------- 1995 1996 ----------------------------- Gross deferred tax asset: Depreciation and amortization................... $ 225,000 $ 4,000 Foreign net operating loss...................... 1,069,000 1,549,000 Accruals and revenues not currently deductible.. 219,000 365,000 Other........................................... 115,000 242,000 ----------------------------- $ 1,628,000 $ 2,160,000 ----------------------------- Gross deferred tax liability: Capitalized software development costs.......... $ (791,000) $ (971,000) Other.......................... (1,195,000) (1,243,000) ----------------------------- $(1,986,000) $(2,214,000) =============================
The Company has recorded a deferred tax asset of $1,549,000 reflecting the benefit of approximately $3,893,000 in foreign loss carryforwards, which expire in varying amounts between 1999 and 2000. Realization is dependent on generating sufficient foreign taxable income prior to the expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 23 6. Equity Plans: The Company has two stock option plans that provide for the granting of options, the awarding of stock and the purchase of stock. As of December 31, 1996, 1,600,000 shares of Common Stock have been reserved for issuance under these plans, of which 541,673 shares were available for future grants. Stock Option Plans Options granted under the two stock option plans generally vest over a four- year period and are exercisable over a period not to exceed ten years both as determined by the Board of Directors. Incentive stock options are granted at fair value, as determined by the Board of Directors and prior to the initial public offering supported by an independent appraisal. Nonqualified options are granted at exercise prices determined by the Board of Directors. Subsequent to the initial public offering, incentive stock options and nonqualified options are granted at fair value, based upon the price of the stock as quoted by the Nasdaq National Market. Information with respect to the options under the two stock option plans is as follows:
Exercise Price Aggregate Shares Per Share Proceeds - -------------------------------------------------------------------------------- Outstanding December 31,1993 525,000 $ .625-$ 1.00 $ 401,250 Granted 274,500 $ 2.70 -$ 2.95 778,650 Exercised (52,500) $ .625-$ 1.00 (33,750) Canceled (107,500) $ .625-$ 2.70 (80,375) --------------------------------------- Outstanding December 31, 1994 639,500 $ .625-$ 2.95 1,065,775 Granted 64,000 $10.00 -$19.25 927,000 Exercised (88,750) $ 0.625-$ 2.70 (80,438) Canceled (30,000) $ 2.70 (81,000) --------------------------------------- Outstanding December 31, 1995 584,750 $ .625-$19.25 1,831,337 Granted 224,000 $16.312-$31.50 5,711,726 Exercised (184,250) $ .625-$10.00 (256,138) Canceled (58,750) $ 2.70-$31.50 (1,021,855) --------------------------------------- Outstanding December 31, 1996 565,750 $ .625-$31.50 $ 6,265,070 =======================================
At December 31, 1996, there were 209,625 options exercisable at $.625-$19.25 per share. The aggregate exercise price of these options was $391,938 as of December 31, 1996. 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 two option plans been determined consistent with SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been adjusted to the following pro forma amounts: Year Ended December 31, - --------------------------------------------------------------------------------
1995 1996 -------------------------- Net income (loss): As reported...... $4,694,000 $(1,912,000) Pro forma........ $4,597,000 $(2,404,000) Net income (loss) per share: As reported...... $ .45 $ (.17) Pro forma........ $ .44 $ (.22)
24 Dendrite International, Inc. and Subsidiaries 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 $9.81 and $17.33 for the years ended December 31, 1995 and 1996, respectively. Information with respect to the options outstanding under the two stock option plans at December 31, 1996 is as follows:
Weighted Weighted Average Exercise Price Average Remaining Period Issued Shares Per Share Exercise Price Contractual Life ---------------------------------------------------------------------------------------------------- Prior to January 1, 1995... 340,250 $ .625-$ 2.95 $ 2.03 7.2 During 1995................ 24,500 $10.00 -$19.25 $12.58 8.5 During 1996................ 201,000 $16.31 -$31.50 $26.17 9.5
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1995 and 1996: risk-free interest rates ranging from 5.4% to 6.9% based on the rate in effect on the date of grant; no expected dividend yield; expected lives of 6.0 years for the options; and expected volatility of 70%. Employee Stock Purchase Plan The Company maintained an Employee Stock Purchase Plan that allowed full- time employees with two years of service the opportunity to purchase shares of the Company's common stock at fair value on dates determined by the Board of Directors, up to a maximum of 10% of their eligible compensation or $20,000, whichever was less. This plan was terminated immediately prior to the consummation of the initial public offering. Anniversary Stock Plan The Company grants 200 shares of the Company's common stock to all employees in July following their fifth anniversary of employment. The cost of the anniversary stock plan is accrued over the employment period of the employees. 7. Savings Plans: The Company maintains Employee Savings Plans (the "Plans") that cover substantially all of its full-time U.S. and U.K. employees. All eligible employees may elect to contribute a portion of their wages to the Plans, subject to certain limitations. In addition, the Company contributes to the Plans at the rate of 50% of the employee's contributions up to a maximum of 3% of the employee's salary. The Company's contributions to the Plans were $138,000, $197,000 and $222,000 in the years ended December 31, 1994, 1995 and 1996, 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 $27,000, $40,000 and $56,000 for the years ended December 31, 1994, 1995 and 1996, respectively. 8. Commitments and Contingencies: The Company leases office facilities and equipment under various operating leases with remaining noncancelable lease terms generally in excess of one year. Rent expense was $2,257,000, $3,849,000 and $3,709,000 in 1994, 1995 and 1996, respectively. Future minimum rental payments at December 31, 1996, on these leases are as follows: 1997............................................................ $3,805,000 1998............................................................ 3,425,000 1999............................................................ 2,725,000 2000............................................................ 575,000 2001............................................................ 429,000 2002 and thereafter............................................. 752,000 ----------- $11,711,000 ===========
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 25 position or results of operations. 9. Related-Party Transactions: The Company paid approximately $93,000, $126,000 and $78,000 in the years ended December 31, 1994, 1995 and 1996, respectively, to an entity owned by the President and Chief Executive Officer of the Company for rental and usage of an aircraft. The Company paid approximately $183,000, $666,000 and $184,000 in the years ended December 31, 1994, 1995 and 1996, respectively, to a law firm of which one of the former directors of the Company is a member. 10. Geographic Segment Data: The Company operates in one business segment. The following table presents information about the Company's operations by geographic area:
Year Ended December 31, - -------------------------------------------------------------------------------- 1994 1995 1996 ----------------------------------------- Revenues: License fees: United States Domestic................... $ 3,228,000 $ 1,197,000 $ 1,896,000 Export Europe.................... 3,115,000 3,800,000 5,650,000 Japan..................... 568,000 591,000 419,000 Other Foreign............. 6,000 454,000 809,000 ----------------------------------------- 6,917,000 6,042,000 8,774,000 ----------------------------------------- Services: United States............... 18,819,000 26,843,000 29,747,000 Europe...................... 9,318,000 15,764,000 22,719,000 Japan....................... 4,102,000 4,780,000 3,086,000 Other Foreign............... 270,000 693,000 1,920,000 ----------------------------------------- 32,509,000 48,080,000 57,472,000 ----------------------------------------- $39,426,000 $54,122,000 $66,246,000 ========================================= Operating income (loss): United States................ $ 2,263,000 $ 6,692,000 $(1,940,000) Europe....................... 1,071,000 (566,000) (752,000) Japan........................ 830,000 866,000 301,000 Other Foreign................ 65,000 178,000 347,000 ----------------------------------------- $ 4,229,000 $ 7,170,000 $(2,044,000) ========================================= Identifiable assets: United States................ $12,858,000 $35,583,000 $35,911,000 Europe....................... 5,727,000 7,859,000 10,802,000 Japan........................ 1,717,000 1,474,000 1,453,000 Other Foreign................ 178,000 351,000 1,049,000 ----------------------------------------- $20,480,000 $45,267,000 $49,215,000 =========================================
26 Report of Independent Public Accountants Dendrite International, Inc. and Subsidiaries 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, 1995 and 1996, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996. 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 present fairly, in all material respects, the financial position of Dendrite International, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Philadelphia, Pa., February 7, 1997 Selected Quarterly Operating Results Dendrite International, Inc. and Subsidiaries The following table sets forth certain unaudited consolidated statement of operations data expressed in dollars for the eight most recently ended fiscal quarters. This data has been derived from unaudited consolidated financial statements of the Company that, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation in accordance with generally accepted accounting principles. The Company's results of operations for a particular quarter are not necessarily indicative of the results of operations for any future period. The Company's quarterly results have varied considerably in the past and are likely to vary from quarter to quarter in the future.
Quarters Ended - --------------------------------------------------------------------------------------------------------------------- 1995 1996 ------------------------------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, ------------------------------------------------------------------------------- (in thousands, except per share data) Statement of Operations Data: Revenues: License fees $ 1,030 $ 1,312 $ 1,275 $ 2,425 $ 1,873 $ 2,241 $ 3,532 $ 1,128 Services 10,143 11,290 13,107 13,540 12,351 15,019 15,065 15,037 ------------------------------------------------------------------------------ 11,173 12,602 14,382 15,965 14,224 17,260 18,597 16,165 ------------------------------------------------------------------------------ Costs of Revenues: Cost of license fees 126 88 107 391 185 184 185 278 Cost of services 4,667 4,991 5,678 5,808 5,782 7,011 7,112 9,727 ------------------------------------------------------------------------------ 4,793 5,079 5,785 6,199 5,967 7,195 7,297 10,005 ------------------------------------------------------------------------------ Gross margin 6,380 7,523 8,597 9,766 8,257 10,065 11,300 6,160 ------------------------------------------------------------------------------ Operating Expenses: Selling, general, and administrative 5,112 5,000 5,001 6,139 5,235 6,764 6,817 7,624 Write-off of in-process Research and development -- -- -- -- -- 2,640 -- -- Research and development 833 1,131 1,413 467 1,520 1,480 2,115 3,632 ------------------------------------------------------------------------------ 5,945 6,131 6,414 6,606 6,755 10,884 8,932 11,256 ------------------------------------------------------------------------------ Operating income (loss) 435 1,392 2,183 3,160 1,502 (819) 2,368 (5,096) Interest expense -- 5 5 5 3 3 3 3 Other expense (income) (28) (147) (176) (175) (237) (176) (386) 11 ------------------------------------------------------------------------------ Income (loss) before income taxes (benefit) 463 1,534 2,354 3,330 1,736 (646) 2,751 (5,110) Income taxes (benefit) 185 615 925 1,262 661 765 1,066 (1,847) ------------------------------------------------------------------------------ Net income (loss) $ 278 $ 919 $ 1,429 $ 2,068 $ 1,075 $(1,411) $ 1,685 $(3,263) ------------------------------------------------------------------------------ Pro forma net income (loss) per share $.03 $.10 $.13 $.19 $.10 $(.13) $.15 $(.29) ============================================================================== Shares used in computing pro forma net income (loss) per share 9,621 9,610 11,088 11,134 11,246 11,121 11,489 11,159 ==============================================================================
Price Range of Common Stock The Company's Common Stock is traded in the over-the-counter market and prices are quoted on the Nasdaq National Market under the symbol "DRTE". The following table sets forth, for the periods indicated, the high and low sale prices for the Common Stock as reported by the Nasdaq National Market.
High Low - -------------------------------------------------------------------------------- Quarter Ended March 31, 1996.............................. $ 22.50 $16.125 Quarter Ended June 30, 1996............................... 34.50 22.50 Quarter Ended September 30, 1996.......................... 34.00 22.50 Quarter Ended December 31, 1996........................... 30.375 7.875
As of March 14, 1997, there were 95 holders of record of Common Stock. The Company has never paid cash dividends on the Common Stock and has no present plans to do so. Corporate Information Dendrite International, Inc. and Subsidiaries Board of Directors John E. Bailye Chairman, President and Chief Executive Officer Dendrite International, Inc. Bernard M. Goldsmith Managing Director The Update Group Paul A. Margolis President Longworth Management Company, Inc. John H. Martinson Managing Partner Edison Venture Fund Executive Officers John E. Bailye Chairman, President and Chief Executive Officer R. Bruce Savage Executive Vice President and Chief Operating Officer Jean LaHaie Senior Vice President Teresa Winslow Senior Vice President Charles Warczakowski Vice President, Finance; Assistant Secretary and Treasurer Christopher J. French Vice President General Counsel; and Secretary Corporate Headquarters/America 1200 Mount Kemble Avenue Morristown, NJ 07960-6797 United States of America (201) 425-1200 Worldwide Offices Consumer Business Division Dendrite France S.A. 1 Place Charles de Gaulle Immeuble Central-Bat. A 78180 Montigny-le-Bretonneux France Health Care Division Dendrite France S.A. 1 Place Charles de Gaulle Immeuble Central-Bat. A 78180 Montigny-le-Bretonneux France Dendrite U.K. Ltd. Forum One Station Road Theale, Berkshire RG7 4RA United Kingdom Dendrite Espana Balmes, 114 08008 Barcelona Spain Dendrite Belgium rue de l'Etuve 52 1000 Brussels Belgium Dendrite Deutschland GmbH Europarc Heinrich-Hertz-Strasse 6 50170 Kerpen Germany Dendrite Italia S.r.l. Via Melchiorre Gioia N. 168 20125 Milan Italy Dendrite Japan K.K. Koike Koraibashi Bldg. 1-3-4 Koraibashi, Chuo-ku Osaka 541 Japan Dendrite Brazil Ltda. Rua do Rocio, 291-2o Andar - Cj. 21 Vila Olimpia - Sao Paulo-SP 04552-000 Brazil Dendrite PTY Ltd. Suite 504, 4 Help Street Chatswood, NSW 2067 Australia Dendrite New Zealand Ltd. Elders House, 3rd Floor 60 Khyber Pass Road Auckland 1 New Zealand Stock Listing NASDAQ National Market System Symbol: DRTE Form 10-K Copies of the Company's 1996 annual report on Form 10-K, as filed with the Securities and Exchange Commission, are available without charge upon written request to Charles Warczakowski, Vice President, Finance; Assistant Secretary and Treasurer, Dendrite International, Inc., 1200 Mount Kemble Avenue, Morristown, NJ 07960-6797 Transfer Agent and Registrar Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 (212) 504-4000 Information Requests To receive faxed information such as earnings announcements, press releases and other general information, please call Dendrite's On-Line Information Retrieval System at (800) 331-1217. Inquiries from the investment community should be directed to Charles Warczakowski, Vice President, Finance at (201) 425-1200. If you have questions concerning stock certificates, change of address, or other registered shareholder account matters, please contact Dendrite's transfer agent and registrar. Annual Meeting of Shareholders Dendrite Headquarters 1200 Mount Kemble Avenue Morristown, New Jersey on Tuesday, May 20, 1997 at 10:00 a.m. local time. [LOGO OF DENDRITE INTERNATIONAL, INC. APPEARS HERE] 1200 Mount Kemble Avenue Morristown, NJ 07960-6797 USA (201) 425-1200 EX-21 5 SUBSIDIARIES EXHIBIT 21 List of Subsidiaries of Registrant 1. Dendrite Delaware, Inc., a Delaware corporation 2. Dendrite Corporate Services, Inc., a New Jersey corporation 3. Dendrite UK Ltd., organized under the laws of the United Kingdom 4. Dendrite Japan K.K., organized under the laws of Japan 5. Dendrite Pty. Ltd., organized under the laws of Australia 6. Dendrite (New Zealand) Ltd., organized under the laws of New Zealand 7. Dendrite Netherlands, B.V., organized under the laws of the Netherlands 8. Dendrite France, S.A., organized under the laws of France 9. Dendrite Italia, S.r.l., organized under the laws of Italy 10. Dendrite (Deutschland) GmbH, organized under the laws of Germany 11. Dendrite Brasil Ltda. organized under the laws of Brazil 12. Dendrite Financial Services, Inc., a Delaware corporation 13. Dendrite Holdings Inc., a Delaware corporation 14. Dendrite Portugal, organized under the laws of Portugal 15. SRCI S.A, organized under the laws of France 29 EX-23 6 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in Dendrite International, Inc.'s Form 10-K, into the Company's previously filed Form S-8 Registration Statement (File No.333-14363) filed with the Securities and Exchange Commission on October 18, 1996, and Form S-8 Registration Statement (File No.333-19141) filed with the Securities and Exchange Commission on January 2, 1997. ARTHUR ANDERSEN LLP Philadelphia, Pa. March 28, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 DEC-31-1996 DEC-31-1995 10,912 11,530 8,421 10,955 18,732 14,699 0 0 0 0 42,234 39,633 3,391 3,602 1,807 1,769 49,215 45,267 11,802 10,978 0 0 0 0 0 0 32,198 26,809 2,978 5,501 49,215 45,267 0 0 66,246 54,122 0 0 30,463 21,856 37,827 25,096 0 0 12 15 (1,268) 7,681 644 2,987 0 0 0 0 0 0 0 0 (1,912) 4,694 (.17) .45 (.17) .45
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