-----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, NfipK4axgdhtmiGViKCHmLdLYSXUNj27Zh2NtnQz3wJHznTcXDKJebXWFCeo7Ob1 MTEgTC/3JtQyAf+IA8XKxw== 0000950123-98-007609.txt : 19980817 0000950123-98-007609.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950123-98-007609 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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-Q SEC ACT: SEC FILE NUMBER: 033-92434 FILM NUMBER: 98688842 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-Q 1 DENDRITE INTERNATIONAL, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES Exchange Act of 1934 For the quarter ended June 30, 1998 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from Commission File Number 0-26138 DENDRITE INTERNATIONAL, INC. (Exact name of registrant as specified in its Charter) New Jersey 22-2786386 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1200 Mount Kemble Avenue Morristown, NJ 07960 973-425-1200 (Address, including zip code, and telephone number (including area code) of registrant's principal executive office) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date.
Class Shares Outstanding at August 3, 1998 ------------------------------------------------------------ Common Stock 11,488,037
2 DENDRITE INTERNATIONAL, INC INDEX PART I FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements
PAGE NO ------- Consolidated Statements of Operations Three months and six months ended June 30, 1998 and 1997 3 Consolidated Balance Sheets June 30, 1998 and December 31, 1997 4 Consolidated Statements of Cash Flows Six months ended June 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders 14 ITEM 5. Other Information 14 ITEM 6. Exhibits and Reports on Form 8-K 15 Signatures 15
2 3 PART 1 FINANCIAL INFORMATION ITEM 1. Financial Statements DENDRITE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1998 1997 1998 1997 ------- ------- ------- ------- Revenues: License fees $ 4,299 $ 1,725 $ 7,270 $ 2,819 Services 24,028 16,342 43,684 31,890 ------- ------- ------- ------- 28,327 18,067 50,954 34,709 ------- ------- ------- ------- Cost of revenues: Cost of license fees 1,024 392 1,385 664 Cost of services 12,402 8,333 22,296 18,128 ------- ------- ------- ------- 13,426 8,725 23,681 18,792 ------- ------- ------- ------- Gross margin 14,901 9,342 27,273 15,917 ------- ------- ------- ------- Operating expenses: Selling, general and administrative 9,962 7,636 18,421 14,010 Research and development 870 653 1,770 1,336 ------- ------- ------- ------- 10,832 8,289 20,191 15,346 ------- ------- ------- ------- Operating income 4,069 1,053 7,082 571 Interest income 214 131 410 259 Other expense 45 95 365 152 ------- ------- ------- ------- Income before income taxes 4,238 1,089 7,127 678 Income taxes 1,581 442 2,708 297 ------- ------- ------- ------- Net income $ 2,657 $ 647 $ 4,419 $ 381 ======= ======= ======= ======= Net income per share: Basic $ 0.24 $ 0.06 $ 0.40 $ 0.03 ======= ======= ======= ======= Diluted $ 0.22 $ 0.06 $ 0.37 $ 0.03 ======= ======= ======= ======= Shares used in computing net income per share: Basic 11,209 11,071 11,187 11,148 ======= ======= ======= ======= Diluted 12,151 11,368 12,048 11,400 ======= ======= ======= =======
The accompanying notes are an integral part of these statements 3 4 DENDRITE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
June 30, December 31, 1998 1997 ----------- ------------ Assets Current Assets: Cash and cash equivalents $ 15,671 $ 15,917 Short-term investments 3,723 2,955 Accounts receivable, net 30,853 24,724 Prepaid expenses and other 2,416 2,222 Deferred tax asset 441 441 -------- -------- Total current assets 53,104 46,259 Property and equipment, net 3,062 3,110 Deferred taxes 667 667 Goodwill, net 489 575 Capitalized software development costs, net 2,443 2,408 -------- -------- $ 59,765 $ 53,019 ======== ======== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 2,647 $ 2,211 Income taxes payable 978 867 Accrued compensation and benefits 3,219 3,439 Other accrued expenses 5,485 4,352 Deferred revenues 1,596 1,409 -------- -------- Total current liabilities 13,925 12,278 -------- -------- Deferred rent 503 598 -------- -------- Deferred taxes 1,970 1,970 -------- -------- Stockholders' Equity Preferred Stock, no par value, 10,000,000 shares authorized, none issued -- -- Common Stock, no par value, 50,000,000 shares authorized, 11,420,945 and 11,329,774 shares issued and 11,220,445 and 11,129,274 outstanding 33,965 32,814 Retained earnings 13,687 9,268 Deferred compensation (1,278) (1,141) Cumulative translation adjustment (1,080) (841) Less treasury stock, at cost (1,927) (1,927) -------- -------- 43,367 38,173 -------- -------- $ 59,765 $ 53,019 ======== ========
The accompanying notes are an integral part of these statements 4 5 DENDRITE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, ------------------------- 1998 1997 -------- -------- Operating activities: Net income $ 4,419 $ 381 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,398 810 Changes in assets and liabilities: Increase in accounts receivable (6,354) (2,069) Increase in prepaid expenses and other (225) (386) Increase (decrease) in accounts payable and accrued expenses 1,522 (1,341) Decrease in deferred rent (95) (107) Increase (decrease) in income taxes payable 111 (451) Increase in deferred revenues 213 136 -------- -------- Net cash provided by (used in) operating activities 989 (3,027) -------- -------- Investing activities: Purchases of short-term investments (2,558) (1,085) Sale of short-term investments 1,790 6,370 Purchases of property and equipment (596) (587) Additions to capitalized software development costs (698) (574) -------- -------- Net cash provided by (used in) investing activities (2,062) 4,124 -------- -------- Financing activities: Purchase of Treasury Stock -- (1,927) Issuance of Common Stock 959 96 -------- -------- Net cash provided by (used in) financing activities 959 (1,831) -------- -------- Effect of foreign exchange rate changes on cash (132) 327 -------- -------- Net decrease in cash and cash equivalents (246) (407) Cash and cash equivalents, beginning of period 15,917 10,912 -------- -------- Cash and cash equivalents, end of period $ 15,671 $ 10,505 ======== ========
The accompanying notes are an integral part of these statements 5 6 DENDRITE INTERNATIONAL, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The consolidated financial statements of Dendrite International, Inc. and its subsidiaries (collectively, the "Company") included herein are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the three and six month periods ended June 30, 1998. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The interim operating results of the Company may not be indicative of operating results for the full year. 2. Net Income Per Share The Company has presented net income per share pursuant to Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," and the Securities and Exchange Commission Staff Accounting Bulletin No. 98. Basic income per share ("Basic EPS") was computed by dividing the net income for each period by the weighted average number of shares of Common Stock outstanding for each period. Diluted income per share ("Diluted EPS") was computed by dividing net income for each period by the weighted average number of shares of Common Stock and Common Stock equivalents outstanding during each period. For the three months ended June 30, 1998 and 1997, Common Stock equivalents used in computing Diluted EPS were 942,000 and 297,000, respectively. For the six months ended June 30, 1998 and 1997, Common Stock equivalents used in computing Diluted EPS were 861,000 and 252,000, respectively. 3. Recently Adopted Accounting Pronouncements Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. For the three and six months ended June 30, 1998 and 1997, the Company engaged in numerous transactions involving foreign currency, which resulted in unrealized gains and losses. Total after-tax comprehensive income for the quarters ended June 30, 1998 and 1997 was $2.603 million and $594,000, respectively. Total after-tax comprehensive income for the six months ended June 30, 1998 and 1997 was $4.271 million and $384,000, respectively. 4. Stock Split On July 21, 1998, the Company's Board of Directors declared a two-for-one common stock split. The stock split will be distributed in the form of a 100% stock dividend to stockholders of record as of August 11, 1998. It is anticipated that such dividend will be payable on August 21, 1998. Share and per share information included in the accompanying consolidated financial statements have not been restated to reflect the stock split. 5. Certain Reclassifications During the three months ended June 30, 1998, the Company determined that costs associated with certain activities that were previously classified as research and development expense, should be classified as cost of services, as these expenditures relate to client specific activities. For consistency of presentation, prior periods have been reclassified. The reclassification for the six months ended June 30, 1998 and 1997 was $1.399 million and $1.266 million, respectively. The reclassification for the three months ended June 30, 1998 and 1997 was $714,000 and $679,000, respectively. 6 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements In addition to historical information, this Form 10-Q contains forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinion only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Overview The Company succeeded in 1991 to a business co-founded in 1986 by the Company's current Chairman, President and Chief Executive Officer to provide comprehensive Electronic Territory Management ("ETM") solutions to be used to manage, coordinate and control the activities of large sales forces in complex selling environments, primarily in the ethical pharmaceutical industry. Today, the Company's solutions combine advanced software products with a wide range of specialized support services including implementation services, technical and hardware support services and sales force support services. The Company develops, implements and services advanced ETM systems in the United States, Canada, Western Europe, Japan, Australia, New Zealand, Hong Kong and Brazil through its own sales, support and technical personnel located in offices worldwide. The Company generates revenues from two sources: service and license fees. Service revenues, which account for a substantial majority of the Company's revenues, consist of fees from a wide variety of contracted services which the Company makes available to its customers, generally under multi-year contracts. Customization and implementation fees are generated from services provided to modify and implement the ETM solution for the customer. Technical and hardware support fees are derived from services related to the operation of the customer's server computers and from the provision of ongoing technical and customer service support including customization of the software following initial implementation. Sales force support fees are derived from organizing and managing support for the customer's sales force. License fees are charged by the Company for use of its proprietary computer software. Customers generally pay one-time perpetual license fees based upon the number of users, territory covered and the number of modules in the particular system licensed by the customer. The Company generally recognizes one-time license fees as revenue using the percentage of completion method over a period of time that commences with execution of the license agreement and concludes with the completion of initial customization, if any. For license contracts that contain customer acceptance provisions, revenue is not recognized until such time as the acceptance provisions are satisfied. Certain license revenue relates to software which the Company considers to be off-the-shelf. These revenues are generally recognized upon delivery of the software. Additional license fees are recognized when customers agree to license additional functions or enhancements, acquire an upgraded version of the Company's software and/or when the maximum number of users or initial geographic coverage is exceeded. The United States, the United Kingdom, France and Japan are the Company's main markets. Approximately 52% and 27% of the Company's total revenues were generated outside the United States during the three month periods ended June 30, 1997 and 1998, respectively. Approximately 49% and 31% of the Company's total revenues were generated outside the United States during the six month periods ended June 30, 1997 and 1998, respectively. This decrease in the percentage of revenues generated outside the United States was principally due to very strong revenue growth in the United States Pharmaceutical and CPG businesses, in addition to a modest revenue decline outside the United States, concentrated in Europe. Services provided by Dendrite's foreign branches and subsidiaries are billed in local currency. License fees for Dendrite products are billed in U.S. dollars regardless of where they originate. Operating results generated in local currencies are translated into United States dollars at the average exchange rate in effect for the reporting period. The efficient operation of the Company's business is dependent in part on computer software programs and operating systems which it uses internally (collectively, the "Internal Programs and Systems"). The Company has been evaluating its Internal Programs and Systems to identify potential Year 2000 compliance problems. These actions are necessary to ensure that the Internal Programs and Systems will be Year 2000 compliant. It is anticipated that modification or replacement of some of the Internal Programs and Systems may be necessary to make such Programs and Systems Year 2000 compliant. The Company is also communicating with its suppliers and others to coordinate Year 2000 conversion. Based on present information, the Company believes that it will be able to achieve such Year 2000 compliance through a combination of modification of some existing Internal Programs and Systems and the replacement of other Internal Programs and Systems with new programs and systems that are already Year 2000 compliant. However, no assurance can be given that these efforts will be successful. The Company expects that the expenses and capital expenditures associated with achieving Year 2000 compliance will not have a material effect on its financial results for the remainder of 1998 and 1999. 7 8 Results of Operations Three Months Ended June 30, 1997 and 1998 Revenues. Total revenues increased $10.260 million or 57% from $18.067 million in the three months ended June 30, 1997 to $28.327 million in the three months ended June 30, 1998. License fee revenues increased 149% from $1.725 million in the three months ended June 30, 1997 to $4.299 million in the three months ended June 30, 1998. This increase was primarily attributable to continued strength in Japan, new customer wins for the Company's Consumer Business Division and increased sales of third party software. Service revenues increased 47% from $16.342 million in the three months ended June 30, 1997 to $24.028 million in the three months ended June 30, 1998. This increase was primarily the result of an increase in the Company's installed base of Dendrite ETM systems at both new and existing customers, the commencement of major product rollouts, as well as the provision of additional services to the Company's existing customers. Cost of Revenues. Cost of revenues increased $4.701 million or 54% from $8.725 million in the three months ended June 30, 1997 to $13.426 million in the three months ended June 30, 1998. Cost of license fees increased 161% from $392,000 in the three months ended June 30, 1997 to $1.024 million in the three months ended June 30, 1998. Cost of license fees for the three months ended June 30, 1998 represents the amortization of capitalized software development costs of $332,000 and third party vendor license fees of $692,000. Cost of license fees for the three months ended June 30, 1997 represents the amortization of capitalized software development costs of $272,000 and third party license fees of $120,000. Cost of services increased 49% from $8.333 million in the three months ended June 30, 1997 to $12.402 million in the three months ended June 30, 1998. This increase was primarily due to an increase in staff required to support higher client activity including the use of higher cost consultants and contractors. As a percentage of service revenues, cost of services increased from 51% of service revenues in the three months ended June 30, 1997 to 52% in the three months ended June 30, 1998. During the first quarter of 1997, there was a $307,000 misclassification of SG&A expense as cost of services, which was corrected in the second quarter of 1997. If this $307,000 misclassification had not been corrected in the second quarter, cost of services, as a percentage of service revenues would have been 53% in the three months ended June 30, 1997. Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased 30% from $7.636 million in the three months ended June 30, 1997 to $9.962 million in the three months ended June 30, 1998. This increase was primarily attributable to increased staff required for sales and support operations. After adjusting SG&A expenses by $307,000 for the misclassification that was corrected during the three months ended June 30, 1997, SG&A expenses increased 36%. As a percentage of revenue, SG&A expenses, after the correction for the misclassification, decreased from 41% in three months ended June 30, 1997 to 35% in the three months ended June 30, 1998, due to leveraging the fixed cost elements in general and administrative expenses. Research and Development Expenses. Research and development expenses increased 33% from $653,000 in the three months ended June 30, 1997 to $870,000 in the three months ended June 30, 1998. As a percentage of revenues, research and development expenses decreased from 4% in the three months ended June 30, 1997 to 3% in the three months ended June 30, 1998. The increase in research and development expenses during the most recent period was primarily attributable to increased spending on development of the Company's Consumer Packaged Goods products, the continued development of Force MultiplieRx(TM) and the development of the next generation pharmaceutical ETM system. Provision for Income Taxes. The effective tax rate was reduced to 38%, retroactive to the first quarter, during the three months ended June 30, 1998. This decrease was due primarily to the implementation of tax minimization strategies throughout the world. 8 9 Six Months Ended June 30, 1997 and 1998 Revenues. Total revenues increased $16.245 million or 47% from $34.709 million in the six months ended June 30, 1997 to $50.954 million in the six months ended June 30, 1998. License fee revenues increased 158% from $2.819 million in the six months ended June 30, 1997 to $7.270 million in the six months ended June 30, 1998. This increase was primarily attributable to the recognition of revenue related to license fees from several significant customer implementations, new customer wins for the Company's consumer business division and increased sales of third party software. Service revenues increased 37% from $31.890 million in the six months ended June 30, 1997 to $43.684 million in the six months ended June 30, 1998. This increase was primarily the result of an increase in the Company's installed base of Dendrite ETM systems at both new and existing customers, the commencement of major product rollouts, as well as the provision of additional services to the Company's existing customers. Cost of Revenues. Cost of revenues increased $4.889 million or 26% from $18.792 million in the six months ended June 30, 1997 to $23.681 million in the six months ended June 30, 1998. Cost of license fees increased 109% from $664,000 in the six months ended June 30, 1997 to $1.385 million in the six months ended June 30, 1998. Cost of license fees for the six months ended June 30, 1998 represents the amortization of capitalized software development costs of $664,000 and third party vendor license fees of $721,000. Cost of license fees for the six months ended June 30, 1997 represents the amortization of capitalized software development costs of $544,000 and third party vendor license fees of $120,000. Cost of services increased 23% from $18.128 million in the six months ended June 30, 1997 to $22.296 million in the six months ended June 30, 1998. This increase was primarily due to an increase in staff required to support higher client activity including the use of higher cost consultants and contractors. As a percentage of service revenues, cost of services decreased from 57% of service revenues in the six months ended June 30, 1997 to 51% in the six months ended June 30, 1998. This decrease was primarily the result of increased operational efficiencies in 1998 as well as unusually high costs in the first quarter of 1997. Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased 31% from $14.010 million in the six months ended June 30, 1997 to $18.421 million in the six months ended June 30, 1998. This increase is primarily attributable to increased staff required for sales and support operations. As a percentage of revenue, SG&A expenses decreased from 40% in six months ended June 30, 1997 to 36% in the six months ended June 30, 1998, due to leveraging the fixed cost elements in general and administrative expenses. Research and Development Expenses. Research and development expenses increased 32% from $1.336 million in the six months ended June 30, 1997 to $1.770 million in the six months ended June 30, 1998. As a percentage of revenues, research and development expenses remained relatively constant at 4%. The increase in research and development expenses during the most recent period was primarily attributable to increased spending on development of the Company's Consumer Packaged Goods products, the continued development of Force MultiplieRx(TM) and the development of the next generation pharmaceutical ETM system. Other Expense. Other expense increased $213,000 from $152,000 in the six months ended June 30, 1997 to $365,000 in the six months ended June 30, 1998. This increase was primarily attributable to a one-time expense associated with correcting administrative errors by the plan administrator in the Company's 401(k) plan that relates to the 1994 and 1995 plan years. These errors were found in the first quarter of 1998, and the Company estimated the associated costs during that period. Provision for Income Taxes. Provision for Income Taxes. The effective tax rate was reduced to 38% during the six months ended June 30, 1998. This decrease was due primarily to the implementation of tax minimization strategies throughout the world. 9 10 Liquidity and Capital Resources On January 16, 1997 the Board of Directors approved a stock buy-back program initially limited to $3,000,000, which subject to further Board review and approval could be increased to a maximum of $10,000,000, but not greater than 9% of the Company's outstanding shares of Common Stock. During the six months ended June 30, 1997, the Company repurchased 200,500 shares of Common Stock for a total value of $1,927,000. The Company has historically financed its operations primarily through cash generated by operations. Net cash provided by operating activities was $989,000 for the six months ended June 30, 1998 compared to cash used in operating activities of $3.027 million for the six months ended June 30, 1997. This increase is due primarily to higher net income during the six months ended June 30, 1998. Accounts receivable grew in 1998 due to growth in the business , but this was mostly offset by efficient liability management. Cash used in investing was $2.062 million in the six months ended June 30, 1998 compared to cash obtained from investing of $4.124 million in the six months ended June 30, 1997. This change was due primarily to the purchase of short-term investments in the six months ended June 30, 1998 as opposed to the sale of such investments in the six months ended June 30, 1997 as the Company attempted to improve yields on its excess cash. The Company obtained $959,000 of cash from financing activities in the six months ended June 30, 1998 compared to the utilization of $1.831 million in cash from financing activities in the six months ended June 30, 1997. The change in the Company's cash provided from financing activities is due to open-market purchases of its common stock during the six months ended June 30, 1997 and an increase in the issuance of common stock primarily from the exercise of employee stock options during the six months ended June 30, 1998. The Company maintains a $5.0 million revolving line of credit agreement with the Chase Manhattan Bank, N.A. The agreement provides for borrowing up to $1.0 million in local currencies directly by the Company or certain of its overseas subsidiaries and is available to finance working capital needs and possible future acquisitions. The $5.0 million line of credit is secured by substantially all of the Company's assets. The $5.0 million line of credit agreement requires the Company to maintain a minimum consolidated net worth, among other covenants, measured quarterly, which is equal to the Company's net worth as of December 31, 1994 plus 50% of net income earned after December 31, 1994 and plus the net proceeds of any stock offering. This covenant has the effect of limiting the amount of cash dividends the Company may pay. At June 30, 1998, there were no borrowings outstanding under the agreement. At June 30, 1998, the Company's working capital was approximately $39.179 million. The Company has no significant capital spending or purchasing commitments other than normal purchase commitments and commitments under facility and capital leases. Management regularly evaluates opportunities to acquire products or businesses complementary to the Company's operations. Such acquisition opportunities, if they arise, and are successfully completed, may involve the use of cash or equity instruments. Factors that May Affect Future Operating Results Impact on Company of changes in ethical drug market. A majority of the Company's ETM systems are currently used in connection with the marketing and sale of prescription-only drugs ("ethical pharmaceutical products" or "ethical drugs"). The market currently serviced by the Company is undergoing a number of significant changes, including (i) consolidations and mergers which may reduce the number of existing and potential customers of the Company, (ii) the increasing prescription of generic drugs, in substitution for ethical drugs, produced by manufacturers which do not use a Company ETM system, (iii) the trend toward the reclassification of formerly prescription-only drugs to permit their over-the-counter sale and (iv) competitive pressures on the Company's pharmaceutical customers resulting from the increasing emphasis in the United States on the delivery of healthcare through managed care organizations such as health maintenance organizations and preferred provider organizations, consolidation of the managed care industry in the United States and other changes in healthcare delivery systems occurring in other countries. Any one or more of these changes may adversely affect the Company's business, operating results or financial condition. The Company may also be materially affected by legislative enactments which alter the structure of, or increase regulations governing, the healthcare systems in any of the countries where Company customers and potential customers are located, including, without limitation, government mandated price reductions in the price of ethical pharmaceutical products. There can be no assurance that the Company can respond positively to all of these and other changes in the marketplace and maintain profitability. 10 11 Potential for significant fluctuations in quarterly results; seasonality; lengthy sales and implementation cycle. The Company's quarterly revenues, expenses and operating results have varied considerably in the past and are likely to vary from quarter to quarter in the future. Fluctuations in the Company's revenues depend on a number of factors, some of which are beyond the Company's control. These factors include, among others, the timing of contracts, delays in customer installation of the Company's software, the length of sales cycles, customer budget changes and changes in pricing policy by the Company or its competitors. For example, the Company incurred a net loss of $3.3 million in the fourth quarter of 1996, which loss was attributable to, among other things, the delay of certain new license purchases by an existing customer, the delay of an existing client's upgrade decision, the postponement of certain post-production implementations for an existing client in multiple country sites and increased research and development spending. The Company establishes its expenditure levels for product development and other operating expenses based in large part on its expected future revenues. As a result, should revenues fall below expectations, operating results are likely to be adversely and disproportionately affected because only a small portion of the Company's expenses vary with its revenues. In addition, the Company's quarterly license fees and service revenues may vary due to seasonal, cyclical and other factors. Selection of an ETM system often entails an extended decision-making process for the customer because of the substantial costs and strategic implications associated with acquiring the system. Senior levels of management are often involved in this process, given the importance of the decision as well as the risks faced by the customer should a system fail or not perform as expected. Depending upon the size of the system and the associated computer hardware and software costs, senior corporate management or even the board of directors of a customer may make the final decision to license a Company ETM system. Therefore, decisions to acquire a Company ETM system involve long selling cycles, typically 12 to 18 months for larger customers, although sometimes as long as 24 months, and usually require lengthy periods of evaluation prior to full installation and roll-out. In addition, the Company's ability to recognize license revenue is affected by the duration of the customization process, if any. Finally, the Company has historically realized a greater percentage of its annual license fees and service revenues in the second half of the year than it does in the first half because, among other things, the Company's customers typically spend more of their annual budget authorization for ETM products and services in the second half of the year. However, the interplay among the foregoing factors means that actual results for a given year may vary from this seasonal expectation. In the future, because service revenues tend to be less seasonal and cyclical than license fees, to the extent the percentage of revenue from service revenues from existing customers of the Company continues to increase, seasonal and cyclical trends in the Company's revenues may change. New products and technological change. The market for ETM systems is characterized by rapid change and improvements in computer hardware and software technology. The Company's future success will depend in part on its ability to enhance its current products, to introduce new products that keep pace with technological and market developments and to address the increasingly sophisticated needs of its customers. While the Company expects to continue doing so, there can be no assurance that the Company will be successful in developing and marketing in a timely manner product enhancements or new products that respond to the technological advances by others, or that its products will adequately and competitively address the needs of the changing marketplace. Competition with respect to software products has been characterized by shortening product cycles, and there can be no assurance that the Company will not be adversely affected by this trend. If the product cycles for the Company's systems prove to be shorter than management anticipates, the Company's operating results could be adversely affected. In addition, in order to remain competitive, the Company may be required to expend a greater percentage of its revenues on product innovation and development than historically has been the case, in which case, the Company's gross profit margins and results of operations could be materially and adversely affected. In addition, products as complex as those offered by the Company may contain previously undetected errors or failures. Such errors have occurred in the past and there can be no assurance that, despite testing by the Company, errors will not be found in new products resulting in losses or delays which could have a material adverse effect on the Company's business, operating results or financial condition. Dependence on major customers. The Company has approximately 30 pharmaceutical customers (considering all members of an affiliated group to be a single customer). The Company derived approximately 56%, 58% and 59% of its revenues in the aggregate in the years ended December 31, 1995, 1996 and 1997, respectively, from the three largest pharmaceutical customers, two of which had been among the three largest customers of the Company in terms of revenues in each of those periods. The Company believes that the costs to its customers of switching to an ETM system offered by a competitor, or taking significant system management functions in-house would be substantial. Nevertheless, from time to time in the past, such a change has been made by some of the Company's customers with respect to a Company ETM system or all or some of the services offered by the Company. If such change is made by one or more of the Company's major customers, the Company's business, operating results or financial condition could be materially and adversely affected. 11 12 Risks from competition. Globally, the current market for sales and marketing information management systems of the type sold by the Company is highly competitive. Many companies offer sales force automation and ETM systems. In addition to Dendrite, the Company believes that there are several companies which supply products automating sales, marketing and customer service functions and specifically target the pharmaceutical industry. The Company believes at least four of these companies are actively selling in more than one country. In addition, the other vertical markets in which the Company markets its products possess numerous vendors who market and sell sales force automation and ETM systems. The Company believes that most of its competitors offer a variety of less configurable software products, which are typically available more rapidly than Company systems and often at a substantially lower price. In addition, competition will increase as new competitors enter the market to supply ETM systems and as existing competitors expand their product lines or consolidate. The Company expects it may encounter additional competition in the future from firms offering outsourcing of information technology services, from purveyors of software products providing specialized applications not offered by the Company, including enterprise resource planning vendors and database vendors not currently in this market space to any substantial degree, and from the development and/or operation of in-house systems by its customers and potential customers. Many of the Company's competitors and potential competitors have longer operating histories and significantly greater financial, technical, sales, marketing and other resources than those of the Company. Some of the Company's competitors and potential competitors are part of large corporate groups with significantly greater resources and broader technology bases than those of the Company. There can be no assurance that the Company will be able to compete successfully or that competition will not have a material adverse effect on the Company's business, operating results or financial condition. Reliance on competitors for market data. Current market data on the sales of ethical pharmaceutical products is an important element for the operation of Company ETM systems, which the Company's customers use to guide and organize their sales forces and marketing efforts. There are currently few sources of such data in the United States, Europe and the Pacific Rim. Two of the leading purveyors of such market information in the United States or elsewhere compete with the Company either directly or through affiliates in the market for ETM systems. Were these purveyors of market information to require that pharmaceutical companies also utilize their ETM systems (or those of their affiliates) instead of the Company's, the Company's business, operating results and financial condition would be materially and adversely affected. International operations. Currently, the Company expects the portion of its business located outside of the United States to continue to account for a material part of its revenues. Licensing software and providing services in many foreign countries is subject to risks inherent in international business activities. Risks include general economic conditions in each such country, the effect of applicable foreign tax structures, tariff and trade regulations, difficulties in obtaining local licenses, the difficulty of managing an organization spread over various jurisdictions, unexpected changes in regulatory environments, complying with a variety of foreign laws and regulations and any adverse changes in the political environments in any such countries. In addition, laws in foreign countries may not always provide protection for the Company's proprietary rights in its software products. Providing specialized system support services outside the United States paid for in local currencies carries the additional risk of currency fluctuation and may also affect the net income, if any, reported by the Company. Dependence on key personnel, management of growth. The success of the Company depends to a significant extent upon the contributions of its executive officers and key sales, technical and customer service personnel. The Company's future success also depends on its continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel is intense. The Company has at times experienced difficulty in recruiting qualified personnel and there can be no assurance that the Company will not experience such difficulties in the future. Any such difficulties could adversely affect the Company's business, operating results and financial condition. All of the Company's executive officers and technical employees and a significant number of sales employees have entered into non-competition agreements with the Company. The laws governing such non-competition agreements vary in different jurisdictions and are evolving. The enforceability of such agreements in any case will depend upon all of the facts and circumstances, including the jurisdiction in which enforcement is sought. In some cases these agreements might be unenforceable, a result that could have a material adverse effect on the Company. To manage growth effectively, the Company must continue to strengthen its operational, financial and management information systems, and expand, train and manage its work force. There can be no assurance that the Company will be able to do so on a timely basis. Failure to do so effectively and on a timely basis could have a material adverse effect upon the Company's business, operating results or financial condition. 12 13 Dependence on proprietary technology. The Company relies on a combination of trade secret, copyright and trademark laws, non-disclosure and other contractual agreements, and technical measures to protect its proprietary rights in its products. There can be no assurance that the steps taken by the Company will prevent misappropriation of this technology. Further, there can be no assurance that such protective steps will preclude competitors from developing products with features similar to the Company's products. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. The Company believes that its products and trademarks do not infringe upon the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims against the Company in the future or that any such claims will not require the Company to enter into royalty arrangements or result in costly litigation involving the imposition of damages or injunctive relief against the Company, any of which could materially and adversely affect the Company's business, operating results and financial condition. Year 2000. A substantial amount of current demand for applications software may be generated by customers in the process of replacing and upgrading applications in order to accommodate the change in date to the year 2000. Once such customers have completed such activities, the Company may experience a significant deceleration in this source of revenue which is expected to contribute to its 1998 and 1999 annual growth. In addition, the expense and time associated with remediation efforts by customers to address Year 2000 compliance problems for software products other than the Company's, may cause such customers to delay the purchase of, or reduce the amount spent on the Company's products and services. Such a reduction, if it occurs, could have a material adverse effect on the Company's business, operating results or financial condition. Some of the Company's older products may not accurately process dates after the date December 31, 1999. To the extent any of these products are still in use in 1999, the Company will continue to attempt to migrate these customers to products which are year 2000 compliant, although there can be no assurance that this will occur. A failure to migrate any such customer to a product which is Year 2000 compliant could adversely affect the Company's business, operating results or financial condition. In addition, the Company may experience increased expenses which it cannot recoup from customers in addressing the migration of current and prospective customers to software that is Year 2000 compliant. Some customers may attempt to hold the Company responsible for Year 2000 compliance for hardware or software not supplied or created by the Company, but used in conjunction with one or more of the Company's products. The Company intends to defend itself vigorously against any such allegation. Finally, there can be no assurance that the Company will not incur material expenses in connection with any claim relating to Year 2000 compliance of its own products or others. Consumer Business Division. The Company is currently engaged in the marketing and selling of ETM systems to companies in the over-the-counter pharmaceutical and consumer packaged goods vertical markets. The selling environment in this vertical market has competitive and other characteristics that are unique to it. In addition, the Company believes that the CPG vertical market is composed of sub-markets each of which may have characteristics unique to such sub-market. Accordingly, there can be no assurance that the Company will be able to achieve in these markets the success it has attained in the ethical pharmaceutical market. 13 14 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On May 19, 1998, the Company held its 1998 Annual Meeting of Shareholders (the "Annual Meeting"). At the Annual Meeting, the following five individuals were elected to the Company's Board of Directors: John E. Bailye, Bernard M. Goldsmith, Edward J. Kfoury, Paul A. Margolis and John H. Martinson. In addition, at the Annual Meeting the shareholders of the Company approved the following two proposals: (1) A proposal to ratify the appointment of Arthur Andersen LLP as the Company's independent public accountants for the fiscal year ending December 31, 1998 and (2) A proposal to approve the Company's 1997 Stock Incentive Plan. The results of the voting in the Company's election of directors and on the foregoing two proposals are set forth below. Election of Directors:
Nominee For Withheld -------------------- --------- -------- John E. Bailye....................... 6,616,013 11,804 Bernard M. Goldsmith................. 6,609,747 18,070 Edward J. Kfoury..................... 6,616,247 11,570 Paul A. Margolis..................... 6,616,247 11,570 John H. Martinson.................... 6,616,247 11,570
Ratification of Appointment of Arthur Andersen LLP:
For Against Abstain --------- ------- ------- 6,616,117 11,500 200
Approval of the Company's 1997 Stock Incentive Plan:
For Against Abstain --------- --------- ------- 5,429,557 1,195,741 2,519
Item 5. Other Information On July 21, 1998, the Company's Board of Directors approved a 2-for-1 stock split of the Company's common stock payable to holders of record of the common stock as of August 11, 1998. On July 21, 1998, the Company's Board of Directors approved the Dendrite International, Inc. Deferred Compensation Plan. In accordance with recently adopted regulations of the Securities and Exchange Commission, proxies solicited by the Company's Board of Directors for the Company's 1999 Annual Meeting of Shareholders may be voted by the named proxies in their discretion regarding any shareholder proposal before such meeting; provided that the Company did not have notice of such matter on or -------- before March 16, 1999. 14 15 ITEM 6. Exhibits and Reports on Form 8-K (a) The Company is furnishing the following exhibits in connection with this report: 10.1 Dendrite International Inc., Deferred Compensation Plan 10.2 Dendrite International, Inc. Deferred Compensation Plan Trust Agreement 27 Financial Data Schedule (b) The Company did not file any Reports on Form 8-K during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act OF 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 1998 By:/s/ John E. Bailye ------------------------------------ John E. Bailye, President and Chief Executive Officer By: /s/ George T. Robson ------------------------------------ George T. Robson, Senior Vice President and Chief Financial Officer Exhibit Index
Exhibit No. Exhibit - ----------- ------- 10.1 Dendrite International, Inc. Deferred Compensation Plan 10.2 Dendrite International, Inc. Deferred Compensation Plan Trust Agreement 27 Financial Data Schedule
15 EX-10.1 2 DEFERRED COMPENSATION PLAN 1 ---------------------------------------------------------------------------- Dendrite International, Inc. Deferred Compensation Plan ---------------------------------------------------------------------------- 2 ---------------------------------------------------------------------------- Dendrite International, Inc. Deferred Compensation Plan ----------------------------------------------------------------------------
Page ---- 1. Purposes..................................................... 1 2. Definitions.................................................. 1 3. Administration............................................... 3 4. Participation................................................ 4 5. Deferrals.................................................... 4 6. Deferral Accounts............................................ 5 7. Settlement of Deferral Accounts.............................. 6 8. Provisions Relating to Section 162(m) of the Code............ 7 9. Statements................................................... 7 10. Amendment/Termination........................................ 7 11. General Provisions........................................... 7 12. Effective Date............................................... 9
3 ---------------------------------------------------------------------------- Dendrite International, Inc. Deferred Compensation Plan ---------------------------------------------------------------------------- 1. PURPOSES. The purposes of this Dendrite International, Inc. Deferred Compensation Plan (the "Plan") are to provide certain highly compensated employees of Dendrite International, Inc. (the "Company") and its subsidiaries with the opportunity to elect to defer receipt of specified portions of compensation and to have such deferred amounts treated as if invested in specified investment vehicles. 2. DEFINITIONS. In addition to the terms defined in Section 1 above, the following terms used in the Plan shall have the meanings set forth below: (a) "Administrator" shall mean the Administration Committee set forth in Section 3(b) to whom the Committee has delegated the authority to take action under the Plan. (b) "Beneficiary" shall mean any person (which may include trusts and is not limited to one person) who has been designated by the Participant in his or her most recent written beneficiary designation filed with the Company to receive the benefits specified under the Plan in the event of the Participant's death. If no beneficiary has been designated who survives the participant's death, then Beneficiary means any person(s) entitled by will or, in the absence thereof, the laws of descent and distribution to receive such benefits. (c) "Board" shall mean the Board of Directors of the Company. (d) "Change in Control" shall mean the occurrence of any one of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(s) of the Exchange Act), is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 33 1/3% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any subsidiary, (B) by any employee benefit plan sponsored or maintained by the Company or any subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), or (E) a transaction (other than one described in (iii) below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Board (as defined below) approves a resolution providing expressly that the acquisition pursuant to this clause (E) does not constitute a Change in Control under this paragraph (I); (ii) individuals who, on the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the Effective Date, whose election or nomination for election was approved by a vote of at least two-thirds of the directors comprising 4 the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered a member of the Incumbent Board; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; (iii) the shareholders of the Company approve a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction involving the Company or any of its subsidiaries (whether for such transaction or the issuance of securities in the transaction or otherwise) (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of the publicly traded corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities or all or substantially all of the assets of the Company and its subsidiaries) eligible to elect directors of such corporation would be represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power would be in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (B) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such Business Combination), or any person which beneficially owned immediately prior to such Business Combination, directly or indirectly, 33 1/3% or more of the Company Voting Securities (a "Company 33 1/3% Stockholder")) would become the beneficial owner, directly or indirectly, of 33 1/3% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination and no Company 33 1/3% Stockholder would increase its percentage of such total voting power, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination would be members of the Incumbent Board at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (a "Non-Control Transaction"); or (iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company of the sale or disposition of all or substantially all of the Company's assets. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 33 1/3% of the Company Voting Securities as a result of the acquisition of the Company Voting Securities by the Company which, by reducing the number of Company Voting Securities outstanding, increases the percentage of shares beneficially owned by such person; provided, that if a Change in Control of the Company would occur as a result of such an acquisition by the Company (if not for the operation of this sentence), and after the Company's acquisition such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, then a Change in Control of the Company shall occur. - 2 - 5 (e) "Code" shall mean the Internal Revenue Code of 1986, as amended. References to any provision of the Code or regulation (including a proposed regulation) thereunder shall include any successor provisions or regulations. (f) "Committee" shall mean the Compensation Committee of the Board or any other directors of the Company designated as the Committee. Any function of the Committee may be delegated to the Administrator. (g) "Deferral Account" shall mean the account or subaccount established and maintained by the Company for specified deferrals by a Participant, as described in Sections 6 and 7. Deferral Accounts will be maintained solely as bookkeeping entries by the Company to evidence unfunded obligations of the Company. (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. References to any provision of the Exchange Act or rule thereunder shall include any successor provisions or rules. (i) "Participant" shall mean any employee of the Company or any subsidiary or a member of the Board thereof who is designated by the Committee as an eligible Participant in the Plan and who participates or makes an election to participate in the Plan. (j) "Trust" shall mean any trust or trusts established by the Company as part of the Plan; provided, however, that the assets of such trusts shall remain subject to the claims of the general creditors of the Company. (k) "Trustee" shall mean the trustee of a Trust. (l) "Trust Agreement" shall mean the agreement entered into between the Company and the Trustee to carry out the purposes of the Plan, as amended or restated from time to time. (m) "Valuation Date" shall mean the close of business on the last business day of each calendar month. 3. ADMINISTRATION (a) Authority. Both the Committee and the Administrator (subject to the ability of the Committee to restrict the Administrator) shall administer the Plan in accordance with its terms, and shall have all powers necessary to accomplish such purpose, including the power and authority to construe and interpret the Plan, to define the terms used herein, to prescribe, amend and rescind rules and regulations, agreements, forms, and notices relating to the administration of the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. Any actions of the Committee or the Administrator with respect to the Plan shall be conclusive and binding upon all persons interested in the Plan, except that any action of the Administrator will not be binding on the Committee. The Committee and Administrator may each appoint agents and delegate thereto powers and duties under the Plan, except as otherwise limited by the Plan. (b) Administrator. The Administration Committee shall consist of such number of members as shall be determined by the Committee, each of whom shall be - 3 - 6 appointed by, shall remain in office at the will of, and may be removed, with or without cause, by the Committee. Any member of the Administration Committee may resign at any time. No member of the Administration Committee shall be entitled to act on or decide any matter relating solely to himself or herself or any of his or her rights or benefits under the Plan. The members of the Administration Committee shall not receive any special compensation for serving in their capacities as members of the Administration Committee but shall be reimbursed for any reasonable expenses incurred in connection therewith. No bond or other security need be required of the Administration Committee or any member thereof in any jurisdiction. The initial members of the Administration Committee are the Company's Chief Executive Officer, Chief Operating Officer, General Counsel, Vice President of Human Resources and Chief Financial Officer. (c) Limitation of Liability. Each member of the Committee and the Administrator shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company or any subsidiary, the Company's independent certified public accountants, or any executive compensation consultant, legal counsel, or other professional retained by the Company to assist in the administration of the Plan. To the maximum extent permitted by law, no member of the Committee or the Administrator, nor any person to whom ministerial duties have been delegated, shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan. 4. PARTICIPATION. The Administrator will notify each person of his or her participation or eligibility to participate in the Plan not later than 15 days (or such lesser period as may be practicable in the circumstances) prior to any deadline for filing an election form. 5. DEFERRALS. To the extent authorized by the Committee, a Participant may elect to defer compensation or awards in the form of cash or other property to be received from the Company or a subsidiary, including annual base salary, annual incentive compensation, or as otherwise designated by the Committee; provided, however, that a Participant who is an employee of the Company or a subsidiary may defer, with respect to a given year, receipt of only that portion of the Participant's annual base salary, annual incentive compensation, exceeds the amount necessary to satisfy Medicare and all other payroll taxes (other than Federal, state or local income tax withholding) imposed on the wages of such Participant from the Company and its subsidiaries. In addition to such limitation, and any terms and conditions of deferral set forth under plans, programs or arrangements from which receipt of compensation or awards is deferred, the Committee may impose limitations on the amounts permitted to be deferred and other terms and conditions on deferrals under the Plan. Any such limitations, and other terms and conditions of deferral, shall be set forth in the rules relating to the Plan or election forms, other forms, or instructions published by the Committee and/or the Administrator. (a) Elections. Once an election form, properly completed, is received by the Company, the elections of the Participant shall be irrevocable; provided, however, that the Committee and/or the Administrator may, in its discretion, permit a Participant to elect a further deferral of amounts credited to a Deferral Account by filing a later election form; provided, further, that, unless otherwise approved by the Committee, any election to further defer amounts credited to a Deferral Account must be made at least one (1) year prior to the date such amounts would otherwise be payable. A second redeferral will be permitted, but only if - 4 - 7 made at least one (1) year prior to the date that such amounts would otherwise be payable and only if the second redeferral period ends at least two (2) years beyond the original redeferral period. (b) Date of Election. An election to defer compensation or awards hereunder must be received by the Administrator prior to the date specified by the Administrator. Under no circumstances may a Participant defer compensation or awards to which the Participant has attained, at the time of deferral, a legally enforceable right to current receipt of such compensation or awards. (c) Company Contributions. In addition to the deferrals elected by Participants, the Company may choose at any time to make discretionary Company contributions to the Deferral Accounts of Participants in such amounts as it, in its sole discretion, wishes. Discretionary Company contributions may be subject to a vesting schedule, if the Committee so declares, except that any unvested Deferral Account balance will become fully vested upon a Change in Control. 6. DEFERRAL ACCOUNTS. (a) Establishment; Crediting of Amounts Deferred. One or more Deferral Accounts will be established for each Participant, as determined by the Administrator. The amount of compensation or awards deferred with respect to each Deferral Account will be credited to such Account as of the date on which such amounts would have been paid to the Participant but for the Participant's election to defer receipt hereunder. The amounts of hypothetical income and appreciation and depreciation in value of such account will be credited and debited to, or otherwise reflected in, such Account from time to time. Unless otherwise determined by the Administrator, amounts credited to a Deferral Account shall be deemed invested in a hypothetical investment as of the date of deferral. (b) Hypothetical Investment Vehicles. Amounts credited to a Deferral Account shall be deemed to be invested, at the Participant's direction, in one or more investment vehicles as may be specified from time to time by the Administrator. The Administrator may change or discontinue any hypothetical investment vehicle available under the Plan in its discretion; provided, however, that, subject to the authority of the Administrator to disregard the directions of any Participant, each affected Participant is given the opportunity, without limiting or otherwise impairing any other right of such Participant regarding changes in investment directions, to redirect the allocation of his or her Deferral Account deemed invested in the discontinued investment vehicle among the other hypothetical investment vehicles, including any replacement vehicle. (c) Allocation and Reallocation of Hypothetical Investments. A Participant may allocate amounts credited to his or her Deferral Account to one or more of the hypothetical investment vehicles authorized under the Plan. Subject to the rules established by the Administrator, a Participant may reallocate amounts credited to his or her Deferral Account as of the Valuation Date following the Participant's election to one or more of such hypothetical investment vehicles, by filing with the Administrator a notice, in such form as may be specified by the Administrator, not later than the 15th of the month preceding such Valuation Date. The Committee or Administrator may, in its discretion, restrict allocation into or reallocation by - 5 - 8 specified Participants into or out of specified investment vehicles or specify minimum amounts that may be allocated or reallocated by Participants. (d) Trusts. The Committee may, in its discretion, establish one or more Trusts (including sub-accounts under such Trusts), and deposit therein amounts of cash or other property not exceeding the amount of the Company's obligations with respect to a Participant's Deferral Account established under this Section 6. In such case, the amounts of hypothetical income and appreciation and depreciation of in value of such Deferral Account shall be equal to the actual income on, and appreciation and depreciation of, the assets in such Trusts. Other provisions of this Section 6 notwithstanding, the timing of allocations and reallocations of assets in such a Deferral Account, and the investment vehicles available with respect to such Deferral Account, may be varied to reflect the timing of actual investments of the assets of such Trust and the actual investments available to such Trust. 7. SETTLEMENT OF DEFERRAL ACCOUNTS. (a) Form of Payment. The Company shall settle a Participant's Deferral Account, and discharge all of its obligations to pay deferred compensation under the Plan with respect to such Deferral Account, by payment of cash or, in the discretion of the Committee, by delivery of other assets having a fair market value equal to the amount credited to the Deferral Account. Any forfeited amounts will be held in the trust to offset future contributions and directed by the Committee. (b) Timing of Payments. Payments in settlement of a Deferral Account shall be made as soon as practicable after the date or dates (including upon the occurrence of specified events), and in such number of installments, as may be directed by the Participant in his or her election relating to such Deferral Account, except that in the event of termination of employment, distribution of the Participant's Deferral Account will commence as soon as practicable, in the form previously selected. If the total distribution to be made is less than $25,000, then the form of distribution in all cases will be a lump sum. (c) Financial Emergency and Other Payments. Other provisions of the Plan notwithstanding, if, upon the written application of a Participant, the Administrator determines that the Participant has a financial emergency of such a substantial nature and beyond the individual's control that payment of amounts previously deferred under the Plan is warranted, the Committee may direct the payment to the Participant of all or a portion of the balance of a Deferral Account and the time and manner of such payment. Such withdrawals may be made, upon approval of the Administrator, only for the following reasons: the Participant's or dependent's illness or accident, casualty loss of the Participant's property, or other similar circumstances. In addition, a Participant may at any time request a distribution of some or all of his or her Deferral Account (with a minimum distribution amount of $25,000) for any reason; if such distribution is approved by the Committee, however, then ten percent (10%) of the amount deducted from the Participant's Deferral Account will be forfeited and not paid to the Participant, and the Participant may make no further deferrals for the balance of that calendar year or the following calendar year. - 6 - 9 8. PROVISIONS RELATING TO SECTION 162(m) OF THE CODE. Compliance with Section 162(m) of the Code. It is the intent of the Company that any compensation (including any award) deferred under the Plan by a person who is, with respect to the year of payout, deemed by the Committee to be a "covered employee" within the meaning of Section 162(m) of the Code and regulations thereunder, which compensation constitutes "qualified performance-based compensation" within the meaning of Section 162(m) of the Code and regulations thereunder, shall not, as a result of deferral hereunder, become compensation with respect to which the Company in fact would not be entitled to a tax deduction under Section 162(m) of the Code. Accordingly, unless otherwise determined by the Committee, if any compensation would become so disqualified under Section 162(m) as a result of deferral hereunder, the terms of such deferral shall be automatically modified to the extent necessary to ensure that the compensation would not, at the time of payout, be so disqualified. 9. STATEMENTS. The Administrator will furnish statements to each Participant reflecting the amount credited to a Participant's Deferral Accounts and transactions therein not less frequently than once each calendar year. 10. AMENDMENT/TERMINATION. The Committee may, with prospective or retroactive effect, amend, alter, suspend, discontinue, or terminate the Plan at any time without the consent of Participants, stockholders, or any other person; provided, however, that, without the consent of a Participant, no such action shall materially and adversely affect the rights of such Participant with respect to any rights to payment of amounts credited to such Participant's Deferral Account. Notwithstanding the foregoing, the Committee may, in its sole discretion, terminate the Plan (in whole or in part) and distribute to Participants (in whole or in part) the amounts credited to their Deferral Accounts. 11. GENERAL PROVISIONS. (a) Limits on Transfer of Awards. Other than by will or the laws of descent and distribution, no right, title or interest of any kind in the Plan shall be transferable or assignable by a Participant or his or her Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment, attachment, levy, execution or other legal or equitable process, nor subject to the debts, contracts, liabilities or engagements, or torts of any Participant or his or her Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, garnish, attach or take any other action subject to legal or equitable process or encumber or dispose of any interest in the Plan shall be void. (b) Receipt and Release. Payments (in any form) to any Participant or Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims for the compensation or awards deferred and relating to the Deferral Account to which the payments relate against the Company or any subsidiary thereof, the Committee, or the Administrator, and the Administrator may require such Participant or Beneficiary, as a condition to such payments, to execute a receipt and release to such effect. (c) Unfunded Status of Awards: Creation of Trusts. The Plan is intended to constitute an "unfunded" plan for deferred compensation and Participants shall rely solely on the unsecured promise of the Company for payment hereunder. With respect to any payment - 7 - 10 not yet made to a Participant under the Plan, nothing contained in the Plan shall give a Participant any rights that are greater than those of a general unsecured creditor of the Company; provided, however, that the Committee may authorize the creation of Trusts, including but not limited to the Trusts referred to in Sections 6 and 7 hereof, or make other arrangements to meet the Company's obligations under the Plan, which Trusts or other arrangements shall be consistent with the "unfunded" status of the Plan unless the Committee otherwise determines with the consent of each affected Participant. (d) Compliance. A Participant in the Plan shall have no right to receive payment (in any form) with respect to his or her Deferral Account until legal and contractual obligations of the Company relating to establishment of the Plan and the making of such payments shall have been complied with in full. In addition, the Company shall impose such restrictions on any interest constituting a security as it may deem advisable in order to comply with the Securities Act of 1933, as amended, the requirements of the New York Stock Exchange or any other applicable stock exchange or automated quotation system, any state securities laws applicable to such a transfer, any provision of the Company's Certificate of Incorporation or Bylaws, or any other law, regulation, or binding contract to which the Company is a party. (e) Other Participant Rights. No provision of the Plan or transaction hereunder shall confer upon any Participant any right to be employed by the Company or a subsidiary thereof, or to interfere in any way with the right of the Company or a subsidiary to increase or decrease the amount of any compensation payable to such Participant. Subject to the limitations set forth in Section 13(a) hereof, the Plan shall inure to the benefit of, and be binding upon, the parties hereto and their successors and assigns. (f) Tax Withholding. The Company and any subsidiary shall have the right to deduct from amounts otherwise payable in settlement of a Deferral Account any sums that federal, state, local or foreign tax law requires to be withheld with respect to such payment. (g) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of New Jersey, without giving effect to principles of conflicts of laws, and applicable provisions of federal law. (h) Limitation. A Participant and his or her Beneficiary shall assume all risk in connection with any decrease in value of the Deferral Account and neither the Company, the Committee nor the Administrator shall be liable or responsible therefor. (i) Construction. The captions and numbers preceding the sections of the Plan are included solely as a matter of convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of the Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular. (j) Severability. In the event that any provision of the Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of the Plan but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein. - 8 - 11 (k) Status. The establishment and maintenance of, or allocations and credits to, the Deferral Account of any Participant shall not vest in any Participant any right, title or interest in and to any Plan assets or benefits except at the time or times and upon the terms and conditions and to the extent expressly set forth in the Plan and in accordance with the terms of the Trust. 12. EFFECTIVE DATE. The Plan shall be effective as of September 1, 1998. - 9 - EX-10.2 3 DEFERRED COMPENSATION PLAN 1 DENDRITE INTERNATIONAL, INC. DEFERRED COMPENSATION PLAN TRUST AGREEMENT This Agreement is made this 21st day of July, 1998, by and between Dendrite International, Inc. (the "Company") and First American Trust Company (the "Trustee"). WHEREAS, the Company has adopted the Dendrite International, Inc. Deferred Compensation Plan; and WHEREAS, the Company will incur liability under the terms of such Plan with respect to the individuals participating in such Plan; and WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: SECTION 1. ESTABLISHMENT OF TRUST (a) The Company hereby deposits with the Trustee in trust certain assets, which, together with future contributions and earnings, shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 2 (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES (a) The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. (b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by the Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. 2 3 SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARIES WHEN THE COMPANY IS INSOLVENT (a) The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. (2) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (3) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plan or otherwise. (4) The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the 3 4 terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4. PAYMENTS TO THE COMPANY Except as provided in Section 3 hereof, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan. SECTION 5. INVESTMENT AUTHORITY The Trustee may invest in securities (including stock or rights to acquire stock) or obligations issued by the Company. All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Plan participants. The Company shall have the right at anytime, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. This right is exercisable by the Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. SECTION 6. DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7. ACCOUNTING BY THE TRUSTEE The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 30 days following the close of each calendar year and within 30 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. 4 5 SECTION 8. RESPONSIBILITY OF THE TRUSTEE (a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE The Company shall pay all administrative and the Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. 5 6 SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE (a) The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. (b) The Trustee may be removed by the Company without advance notice. (c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 7 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. (d) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraphs (a) and (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. SECTION 11. APPOINTMENT OF SUCCESSOR (a) If the Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate the Trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for, and the Company shall indemnify and defend the successor Trustee from, any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. SECTION 12. AMENDMENT OR TERMINATION (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable. (b) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. 6 7 Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. (c) Upon written approval of participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, the Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to the Company. SECTION 13. MISCELLANEOUS (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of New Jersey, except to the extent that federal law controls. SECTION 14. EFFECTIVE DATE The effective date of this Trust Agreement shall be September 1, 1998. DENDRITE INTERNATIONAL, INC., AS GRANTOR /s/ Christopher J. French --------------------------------------- By: Christopher J. French Vice President, General Counsel FIRST AMERICAN TRUST COMPANY, AS TRUSTEE /s/ Denise C. Mehus --------------------------------------- By: Denise C. Mehus Vice President 7 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 15,671 3,723 30,853 0 0 53,104 7,657 4,595 59,765 13,925 0 0 0 33,965 9,402 59,765 0 50,954 0 23,681 20,191 0 0 7,127 2,708 4,419 0 0 0 4,419 .40 .37
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