1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
Dendrite International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
2
Dendrite Logo
DENDRITE INTERNATIONAL, INC.
April 16, 1999
Dear Shareholder:
On behalf of the Board of Directors and management, I am pleased to invite
you to the 1999 Annual Meeting of Shareholders of Dendrite International, Inc.
The meeting will be held on Tuesday, May 11, 1999 at 9:00 a.m. at the Company's
headquarters, 1200 Mount Kemble Avenue, Morristown, New Jersey 07960-6796.
To assure that your vote will be counted, I urge you to read the enclosed
materials carefully and to either complete, sign and mail promptly the proxy
card contained with this letter or vote via the Internet in the manner described
on the proxy card. Also enclosed is a copy of the Company's 1999 Annual Report
to Shareholders.
The officers and directors of Dendrite appreciate your continuing support
and we look forward to seeing you at the Annual Meeting.
/s/ John E. Bailye
John E. Bailye
President and Chief Executive Officer
Morristown, New Jersey
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy as promptly as possible and either
return it in the enclosed envelope to which no postage need be affixed if mailed
in the United States or transmit it via the Internet.
3
Dendrite Logo
DENDRITE INTERNATIONAL, INC.
1200 MOUNT KEMBLE AVENUE
MORRISTOWN, NEW JERSEY 07960-6797
WWW.DRTE.COM
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1999
The Annual Meeting of Shareholders (the "Annual Meeting") of Dendrite
International, Inc. (the "Company") will be held at the Company's headquarters,
1200 Mount Kemble Avenue, Morristown, New Jersey 07960-6796, on Tuesday, May 11,
1999 at 9:00 a.m. (local time) for the following purposes:
1. To elect six directors to serve until the next Annual Meeting and until
their successors have been elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP, as the Company's
independent public accountants for the fiscal year ending December 31,
1999;
3. To approve an amendment to the Company's 1997 Stock Incentive Plan (the
"1997 Stock Plan") to increase the maximum number of shares of Common
Stock available for issuance under the 1997 Stock Plan from 2,500,000
to 4,000,000 shares of Common Stock;
4. To reapprove the 1992 Stock Plan, as amended (the "1992 Stock Plan")
and the 1992 Senior Management Incentive Stock Option Plan, as amended
(the "ISO Plan"); and
5. To act upon such other matters as may properly come before the meeting
or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The record date for determining those
shareholders who will be entitled to notice of, and to vote at, the meeting and
at any adjournment thereof is April 1, 1999. The stock transfer books will not
be closed between the record date and the date of the meeting. A list of
shareholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company.
Whether or not you plan to attend the meeting, please complete, date, sign
and return the enclosed proxy promptly either in the accompanying reply envelope
or via the Internet. Your proxy may be revoked at any time prior to the voting
of the proxy at the Annual Meeting. If you decide to attend the Annual Meeting
and wish to change your proxy vote, you may do so by voting in person at the
Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Christopher J. French
Christopher J. French
Secretary
Morristown, New Jersey
April 16, 1999
4
DENDRITE INTERNATIONAL, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Dendrite International, Inc., a New Jersey
corporation ("Dendrite" or the "Company"), for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at 9:00 a.m. (local time) on
Tuesday, May 11, 1999, at the Company's headquarters, 1200 Mount Kemble Avenue,
Morristown, New Jersey 07960-6797, and at any adjournment or postponement of the
Annual Meeting. These proxy materials are being first mailed to shareholders on
or about April 16, 1999.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
VOTING
The Company's Common Stock, no par value (the "Common Stock"), is the only
type of security entitled to vote at the Annual Meeting. On April 1, 1999, the
record date for determination of shareholders entitled to vote at the Annual
Meeting, there were 23,481,835 shares of Common Stock outstanding. Each
shareholder of record on April 1, 1999 is entitled to one vote for each share of
Common Stock held by such shareholder. All information in this Proxy Statement
with respect to shares of Common Stock reflects the two-for-one split of the
Common Stock which became effective August 24, 1998.
The presence in person or by proxy of the holders, as of the record date,
of a majority of the outstanding shares of Common Stock will constitute a quorum
at the Annual Meeting. In the election of directors, the six candidates
receiving the highest number of affirmative votes will be elected. The Board
wishes to receive a majority of the votes cast at the Annual Meeting for
Proposal 2, while Proposals 3 and 4 require for approval the affirmative vote of
a majority of the votes cast at the Annual Meeting. Abstentions will be treated
as shares that are present for purposes of determining the presence of a quorum
but as unvoted for purposes of determining the approval of any matter submitted
for a vote of the shareholders. The New York Stock Exchange, whose rules
effectively govern the voting by any brokerage firm holding Common Stock
registered in the name of its nominee on behalf of a beneficial owner, has
informed the Company that Proposals 1 and 2 are considered "discretionary" items
upon which brokerage firms may vote in their discretion on behalf of their
clients if such clients have not furnished voting instructions within ten days
of the date of the Annual Meeting. Proposals 3 and 4 are "nondiscretionary" and
brokers who have not received instructions from their clients do not have
discretion to vote on this item. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned a
proxy (so called "broker non-votes"), the shares of Common Stock subject to such
broker non-votes will be treated in the same manner as abstentions.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions, and broker non-votes.
5
VOTING ELECTRONICALLY VIA THE INTERNET
Shareholders may vote either by mailing the enclosed proxy card or via the
Internet. Specific instructions to be followed by any registered shareholder
interested in voting via the Internet are set forth on the enclosed proxy card.
The Internet voting procedures are designed to authenticate the shareholder's
identity and to allow shareholders to vote their shares and confirm that their
instructions have been properly recorded. The Company's website for Internet
voting is www.drte.com.
If your shares are registered in the name of a bank or brokerage firm, you
still may be eligible to vote your shares electronically over the Internet.
Please contact your bank or brokerage firm for additional information regarding
Internet voting if your shares are registered in the name of such bank or
brokerage firm.
PROXIES
The persons named as proxies are John E. Bailye, George T. Robson and
Christopher J. French. Mr. Bailye is a director and officer of the Company and
Messrs. Robson and French are officers of the Company. Whether or not you are
able to attend the Annual Meeting, you are urged to complete and return the
enclosed proxy, which is solicited by the Company's Board of Directors and which
will be voted as you direct on your proxy when properly completed. In the event
no directions are specified, such proxies will be voted FOR the nominees of the
Board of Directors (Proposal 1), FOR Proposals 2, 3 and 4, and, as to other
matters that may properly come before the Annual Meeting, in the discretion of
the proxy holders. You may revoke or change your proxy at any time before the
voting of the proxy at the Annual Meeting. To do this, send a written notice of
revocation or another signed proxy with a later date to the Secretary of the
Company at the Company's principal executive offices before the beginning of the
Annual Meeting. You may also revoke your proxy by attending the Annual Meeting
and filing a written notice of revocation with the secretary of the Annual
Meeting prior to the voting at the Annual Meeting or by voting the shares
subject to the proxy by written ballot.
EXPENSES OF SOLICITATION
The Company will bear the entire cost of solicitation, including the
presentation, assembly, printing, and mailing of this Proxy Statement, the
proxy, and any additional soliciting material furnished to shareholders. Copies
of solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees, or agents
of the Company. No additional compensation is anticipated to be paid to these
individuals for any such services. Except as described above, the Company does
not presently intend to solicit proxies other than by mail.
2
6
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
The Company's Board of Directors is elected annually by the holders of the
Common Stock and is currently comprised of six members (the "Directors"). Each
Director holds office until the next Annual Meeting of Shareholders and until
his successor is elected and qualified or until his earlier resignation or
removal. The names of the nominees for Director, each of whom is presently a
Director of the Company, and their positions and offices with the Company are
set forth in the table below.
The proxy holders intend to vote all valid proxies received by them for the
nominees listed below unless otherwise instructed. In the event any nominee is
unable or declines to serve as a Director at the time of the Annual Meeting, the
proxies will be voted for any nominee who may be designated by the present Board
of Directors to fill the vacancy. As of the date of this Proxy Statement, the
Board of Directors is not aware of any nominee who is unable or will decline to
serve as a Director. The six nominees receiving the highest number of
affirmative votes of the shares entitled to vote at the Annual Meeting will be
elected Directors.
Nominees for Election at the 1999 Annual Meeting are:
POSITIONS AND OFFICES HELD
NOMINEES AGE WITH THE COMPANY
- -------- --- --------------------------
John E. Bailye........................ 45 President, Chief Executive Officer,
Director and Chairman of the Board
Bernard M. Goldsmith.................. 55 Director
Edward J. Kfoury...................... 60 Director
Paul A. Margolis...................... 45 Director
John H. Martinson..................... 51 Director
Terence H. Osborne.................... 60 Director
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED HEREIN.
BUSINESS EXPERIENCE OF NOMINEES
The following describes the current and past five years business experience
and certain directorships of each nominee for Director. This information was
furnished to the Company by the respective nominees.
MR. JOHN E. BAILYE has served as President, Chief Executive Officer and
Director since the Company's incorporation in March 1987 and, since October
1991, as Chairman of the Board. Prior to March 1987, Mr. Bailye served as a
market researcher at Foresearch Pty., Limited ("Foresearch"), a consulting
company to the pharmaceutical industry in Australia. In 1976, Mr. Bailye
acquired Foresearch and served as its Managing Director until he sold the
company in 1986. Mr. Bailye holds a Bachelor of Commerce in Finance, Marketing
and Business from the University of New South Wales.
MR. BERNARD M. GOLDSMITH has served as a Director since May 1996. In 1986,
he founded The Updata Group, Inc., an investment banking firm focused on mergers
and acquisitions in the information technology industry ("Updata"). Mr.
Goldsmith currently serves as Managing Director of Updata. Mr. Goldsmith also
founded Updata Software Company, where he served as Chief Executive Officer from
1986 to 1988 and CGA Computer, Inc., where he served as Chairman and Chief
Executive Officer from 1968 to 1986. Mr. Goldsmith is also a director of
Compuware Corporation and several privately held companies. Mr. Goldsmith holds
a B.A. in Business Administration from Rutgers University.
MR. EDWARD J. KFOURY has served as a Director since July 1997. Prior to
joining the Company, Mr. Kfoury served as a division President and Vice
President of IBM Corporation ("IBM") from 1988 through 1993 and in various other
positions with IBM from 1963 to 1988. Mr. Kfoury is a director of Mapics,
3
7
Inc. and five privately held companies. Mr. Kfoury is a director of the Nature
Conservancy, an advisory trustee of the Maine Audobon Society and President of
Rangeley Lakes Heritage Trust. Mr. Kfoury holds a B.B.A. in Marketing from the
University of Notre Dame.
MR. PAUL A. MARGOLIS has served as a Director since July 1993. Mr. Margolis
is President of Longworth Management Company, Inc., his individual investment
firm that specializes in active investments in computer software, services and
the internet. Until August 1998, he served as a director of Marcam Corporation,
a company he founded in 1980. Mr. Margolis is also a director of Industrial
Computing Designs Corporation and Obtech, LLC, both computer software companies.
He is also Chairman of the Open Applications Group, Inc., a software industry
association. Mr. Margolis holds a B.A. from Brown University and an M.B.A. from
Harvard Business School.
MR. JOHN H. MARTINSON has served as a Director since September 1991. In
1986, he founded the Edison Venture Fund. He currently serves as Managing
Partner of Edison Partners I, II, III and IV and as President of Edison
Management Corporation. Mr. Martinson is also a director of Best Software, Inc.
and eight privately held companies. He is former Chairman of the New Jersey
Technology Council and President-elect of the National Venture Capital
Association. Mr. Martinson holds a B.S. in Aeronautics from the United States
Air Force Academy, an M.S. in Astronautics from Purdue University and an M.B.A.
from Southern Illinois University.
MR. TERENCE H. OSBORNE has served as a Director since August 1998. Mr.
Osborne served as Chairman of Dr. Solomon's Group PLC from 1996 until 1998. Mr.
Osborne also served as President and Chief Operating Officer of System Software
Associates ("SSA"), a computer software company, from November 1994 until
October 1996. From October 1992 until November 1994, he served as SSA's General
Manager and Vice President -- Europe. Prior to joining SSA, he was employed by
IBM Corporation in various capacities since 1961, including vice president level
positions in both the United States and Europe. Mr. Osborne is also Chairman of
Prime Response, Inc. and Cimax International and a director of Mapics, Inc. and
Firepond, Inc. Mr. Osborne holds a Bachelor of Science, with honors, in Pure and
Applied Mathematics from London University.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board of Directors held
four meetings. During this period, each member of the Board of Directors
attended or participated in more than 75% of the aggregate of (i) the total
number of meetings of the Board of Directors (held during the period for which
such person has been a Director) and (ii) the total number of meetings held by
all Committees of the Board on which each such Director served (during the
periods such Director served). During the fiscal year ended December 31, 1998,
the Board of Directors also acted by unanimous written consent five times.
The Company has four standing Committees: the Audit Committee, the
Compensation Committee, the Employee Plan Committee and the Operations and
Technology Committee.
The Audit Committee (currently composed of Mr. Martinson and Mr. Margolis)
reviews the internal accounting procedures of the Company and consults with and
reviews the services provided by the Company's independent public accountants.
During the fiscal year ended December 31, 1998, the Audit Committee held five
meetings.
The Compensation Committee (currently composed of Mr. Kfoury and Mr.
Osborne) makes general policy decisions relating to compensation and benefits
for the Company's employees and directors. In addition, the Compensation
Committee is responsible for the administration of all of the Company's stock
option plans. During the fiscal year ended December 31, 1998, the Compensation
Committee held seven meetings. At each of such meetings, however, the
Compensation Committee consisted of Mr. Goldsmith and Mr. Kfoury. Mr. Osborne
replaced Mr. Goldsmith on the Compensation Committee effective February 1, 1999.
During the fiscal year ended December 31, 1998, the Compensation Committee also
acted by unanimous written consent nine times.
4
8
The Employee Plan Committee (currently composed of Mr. Goldsmith, Mr.
Margolis and Mr. Martinson) administers the Company's 1997 Employee Stock
Purchase Plan (the "Employee Plan"). During the fiscal year ended December 31,
1998, the Employee Plan Committee did not meet.
The Operations and Technology Committee (currently composed of Mr. Kfoury
and Mr. Osborne) was constituted in August 1998 and is responsible for providing
the Company with business advice with respect to the conduct of its service
delivery operations and technology-related matters. Mr. Kfoury is responsible
for matters relating to the Company's United States operations while Mr. Osborne
is responsible for matters relating to the Company's European operations. During
the fiscal year ended December 31, 1998, the Operations and Technology Committee
held two meetings and each of Messrs. Kfoury and Osborne attended one meeting
relating to their respective responsibilities.
DIRECTOR COMPENSATION
Directors receive no cash compensation for services provided as a Director
and received no such cash compensation in the 1998 fiscal year. In January 1998,
Messrs. Goldsmith, Kfoury, Margolis and Martinson were each granted options to
purchase 20,000 shares of Common Stock because of the Company's significant
financial achievement in 1997. On August 31, 1998, Mr. Osborne was granted
options to purchase 30,000 shares of Common Stock in accordance with the formula
provisions of the Company's 1997 Stock Plan. Directors receive reimbursement for
reasonable expenses incurred traveling to and from Board meetings. In addition,
each member of the Operations and Technology Committee, at the time such member
joins such committee, is granted options to purchase 12,000 shares of Common
Stock in consideration for serving on such committee. These options are granted
at the fair market value of the underlying shares and are subject to a
three-year vesting schedule. The options previously granted to Mr. Kfoury
pursuant to the terms of a Consulting Agreement with the Company have been
credited towards his service on this committee. See "Certain Transactions."
CERTAIN TRANSACTIONS
In 1998, the Company realized that a receivable of $116,908 (the
"Receivable") existed on its tax books. The Receivable represented an advance
made in 1991 by Kookaburra Inc., the Company's predecessor in interest, to John
E. Bailye, the then sole shareholder of Kookaburra Inc. and the Company's
current President and Chief Executive Officer. Subsequent to the creation of the
Receivable, Kookaburra Inc. acquired all of the assets of Dendrite
International, a partnership which previously operated the business of the
Company (the "Acquisition"). Following completion of the Acquisition and the
related venture capital investment in Kookaburra Inc., Kookaburra Inc. changed
its name to Dendrite International, Inc. Due to an oversight, the Company failed
to cancel the Receivable at the time of the Acquisition, as had been agreed to
by the parties. Both the Company and Mr. Bailye have received advice that the
Company should recognize interest income on the Receivable and that Mr. Bailye
should recognize dividend income attributable to his failure to pay such
interest, in each case, for the period 1991 to the present. In addition, both
parties may be assessed interest and penalties for their respective failures to
make such payments on a timely basis. The Company's Audit Committee determined
that the Company should reimburse Mr. Bailye for all income taxes, including any
associated interest and penalties, assessed against him relating to any income
he may have to recognize as a result of the failure to cancel the Receivable in
1991. In this regard, the Company reimbursed Mr. Bailye $10,250 in April 1999.
In addition, the Audit Committee also determined that because the Receivable
should not have remained on the tax books of the Company following consummation
of the Acquisition, the tax benefit associated with the cancellation of the
Receivable did not belong to the Company, and the cash value of such tax benefit
should be paid to Mr. Bailye. Consequently, the Company paid Mr. Bailye $41,350
in October 1998.
In 1998, the Company leased use of an aircraft from a third party leasing
company not affiliated with Mr. Bailye ("LynStar"). One of the aircraft which
LynStar may, from time to time, lease to the Company is a Beechcraft King Air
airplane owned by Kookaburra Air, LLC, a limited liability company whose sole
members are Mr. Bailye and his spouse. The Company paid fees to LynStar for
aircraft leases of $193,230.28
5
9
during the year ended December 31, 1998. All such leases were on terms no less
favorable to the Company than such leasing company offered to its other
customers.
As of October 28, 1998, the Company entered into an Indemnification
Agreement with each Director of the Company, other than Mr. Margolis, providing
that, with certain exceptions, the Company would hold harmless and indemnify
each Director in connection with his directorship to the extent permitted under
the New Jersey Business Corporation Act. More specifically, the Indemnification
Agreement provides that the Company is obligated to indemnify each Director
against all reasonable costs, expenses (including attorneys' fees), fines,
judgments, and settlement amounts that each Director may incur in connection
with any actual or threatened action, suit, or proceeding (whether civil,
criminal, investigative or administrative) to which each Director is, or may be,
a party by reason of his position as Director or as a director, officer,
employee, or agent of any other company to which such Director provides services
at the request of the Company. The Company had previously entered into an
Indemnification Agreement with Mr. Margolis on identical terms to those
contained in the Indemnification Agreements described above.
John E. Bailye is a party to a registration rights agreement with the
Company under which he has certain rights with respect to the registration under
the Securities Act of 1933 for resale to the public of certain of the shares of
Common Stock which are owned by him. During 1998, certain other shareholders of
the Company that are affiliated with John H. Martinson were also parties to that
agreement; however, these shareholders have since distributed their shares of
Common Stock to their constituent partners.
From January 1, 1998 to February 1, 1999, Updata informally provided advice
to the Company with respect to certain investment banking issues. On February 1,
1999, the Company retained Updata as one of its financial advisors. Mr.
Goldsmith, a Director of the Company, currently serves as a Managing Director of
Updata.
As of January 5, 1998, the Company entered into a Consulting Agreement with
Edward J. Kfoury, a Director, providing that Mr. Kfoury would provide certain
consulting services to the Company in exchange for a grant of options to
purchase 24,000 shares of Common Stock. Such options were granted at the fair
market value of the underlying shares of Common Stock and are subject to a
three-year vesting schedule. In addition, the Company will reimburse Mr. Kfoury
for his reasonable travel and business expenses related to any business travel
or expenditure specifically requested by the Company. Mr. Kfoury and the Company
have agreed that his service on the Company's Operations and Technology
Committee will satisfy his obligations under his Consulting Agreement.
OTHER EXECUTIVE OFFICERS
Each executive officer is an at-will employee, except for Mr. Bailye and
Mr. Savage, and serves at the discretion of the Board of Directors.
MR. R. BRUCE SAVAGE, 50, has served as Executive Vice President and Chief
Operating Officer since September 1994. From June 1993 until September 1994, Mr.
Savage was Vice President, Europe/Asia and, from September 1988 to June 1993,
Vice President, Europe. He also served as General Manager for Dendrite New
Zealand from 1986 to 1987, and served as the General Manager of Dendrite
Australia and Dendrite New Zealand from 1987 until September 1988. Prior to
joining the Company, Mr. Savage spent 15 years in the pharmaceutical industry
working for Ciba Geigy (NZ) Limited as Manager of Sales and Marketing. Mr.
Savage holds a Bachelor's degree from Nelson College.
MR. GEORGE T. ROBSON, 51, has served as Executive Vice President since
February 1999, and as Senior Vice President and Chief Financial Officer since
June 1997. Prior to joining the Company, Mr. Robson served as Senior Vice
President and Chief Financial Officer of H&R Block, Inc. from January 1996 to
May 1997, and as Treasurer of such corporation from June 1996 to May 1197. In
addition, Mr. Robson served as Senior Vice President of Unisys Corporation from
April 1991 to January 1996, and as Chief Financial Officer of such corporation
from January 1990 until January 1996. Mr. Robson holds a B.S. in Economics from
the Wharton School of the University of Pennsylvania and an M.S. in Management
Science from the State University of New York.
6
10
MS. TERESA F. WINSLOW, 43, has served as Senior Vice President for U.S.
Operations since June 1997. Ms. Winslow served as Senior Vice President for the
Pfizer Pharmaceutical Global Account Group from September 1996 to June 1997, as
Vice President, Sales and Business Development from September 1994 to September
1996, as Executive Director, International Sales from August 1993 to September
1994 and as Director of Marketing and Sales for Dendrite Americas from October
1991 to August 1993. Ms. Winslow served in various positions at Schering
Laboratories, a division of Schering-Plough Corporation most recently as
National Sales Director. Ms. Winslow is a registered pharmacist. She holds a
B.S. in Pharmacy from the Philadelphia College of Pharmacy and Science.
MR. MARK H. CIEPLIK, 44, has served as Senior Vice President, Worldwide
Sales since June 1997. Prior to joining the Company, Mr. Cieplik served as Vice
President, Americas of Interleaf, Inc. from May 1995 to May 1997. In addition,
Mr. Cieplik served as Director, North America Major Accounts for System Software
Associates from December 1991 to April 1995, and served in various capacities
for IBM Corporation from 1976 until 1991. Mr. Cieplik holds a B.S. in Marketing
from Millikin University.
MR. JEAN LAHAIE, 43, has served as Senior Vice President of the SalesPlus
Americas Division since December 1998. In addition, Mr. LaHaie served as Senior
Vice President, Business Development from September 1996 to December 1998, as
Vice President, Product Development from April 1996 to September 1996, as
Executive Director, Corporate Technical Services from October 1993 to April
1996, as Director of Operations, Corporate Technical Services from February 1993
to October 1993, as Group Business Director from April 1992 to February 1993,
and as Business Director for a Dendrite service group from July 1991 to April
1992. Prior to joining the Company, Mr. LaHaie spent nine years at American
Cyanamid Corporation in positions ranging from Industrial Engineering Manager to
International Business Manager for the Middle East and the Far East. Mr. LaHaie
is a graduate of Montreal University Polytechnic Institute and of McGill
Graduate School of Business.
MR. CHRISTOPHER J. FRENCH, 39, has served as Vice President and General
Counsel since January 1996, and as Secretary since July 1996. Prior to joining
the Company, Mr. French was an associate at Skadden, Arps, Slate, Meagher & Flom
from 1987 to 1996. Mr. French holds a B.S. in Economics from the Wharton School
of the University of Pennsylvania and a J.D. from Fordham University School of
Law.
MR. THIERRY DURAND, 38, has served as Senior Vice President and General
Manager, Consumer Products Group Worldwide since January 1999. Mr. Durand also
served as Vice President, Europe since July 1997, as General Manager, France
from January 1993 to July 1997 and as a Business Manager in France from
September 1992 to September 1993. Mr. Durand holds a Bachelor's degree, a
Master's degree in Economics and a Ph.D. in Computer Sciences and Economy from
the University of Lyon. Mr. Durand also holds an M.B.A. from the University of
San Francisco ISG, Paris.
7
11
OWNERSHIP OF SECURITIES
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 1, 1999 by (i) each person who is
known by the Company to own beneficially more than five percent of the Common
Stock, (ii) each of the Directors, nominees for Director and Named Officers (as
defined below under "Executive Compensation") and (iii) all current Directors
and executive officers as a group. Unless indicated otherwise, the address of
each of these persons is c/o Dendrite International, Inc., 1200 Mount Kemble
Avenue, Morristown, New Jersey 07960-6797.
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(1)(2) PERCENTAGE(3)
- ------------------------------------ ------------ -------------
Pilgrim Baxter & Associates................................. 2,074,611 8.83
825 Duportoil Road
Wayne, Pennsylvania 19087
The TCW Group, Inc. ........................................ 1,605,116 6.84
865 South Figueroa Street
Los Angeles, CA 90017
John E. Bailye(4)........................................... 3,390,491 14.35
John H. Martinson(5)........................................ 208,208 *
Bernard M. Goldsmith(6)..................................... 66,000 *
Paul A. Margolis(7)......................................... 72,000 *
Edward J. Kfoury(8)......................................... 88,000 *
Terence M. Osborne.......................................... -- --
R. Bruce Savage(9).......................................... 117,000 *
Teresa F. Winslow(10)....................................... 137,200 *
George T. Robson(11)........................................ 131,632 *
Mark H. Cieplik(12)......................................... 55,000 *
All Directors and current executive officers
(13 persons)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)............ 4,345,484 17.94
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Common Stock subject to options currently exercisable or exercisable on or
prior to 60 days after the date as of which information is presented are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
(3) The Company currently has a registration statement on Form S-3
(Registration No. 333-71337) on file with the Securities and Exchange
Commission (the "SEC") relating to the Company's proposed offering of
3,250,000 shares of Common Stock, including 500,000 shares of Common Stock
to be sold by certain selling shareholders of the Company (the "Offering").
The applicable percentages of ownership are based on 23,481,835 shares of
Common Stock outstanding as of April 1, 1999, which number does not include
the 2,750,000 shares of Common Stock to be offered by the Company pursuant
to the Offering.
(4) Represents 2,543,491 shares owned of record by Mr. Bailye, 649,000 shares
owned of record by Carinya Holdings Company ("Carinya"), 56,000 shares
owned of record by the Bailye Family Foundation (the "Foundation") and
options exercisable for 142,000 shares of Common Stock. Carinya is a
general partnership consisting of Mr. Bailye, Mr. Bailye's wife, and trusts
for the benefit of each of their two minor children, the trustees of which
are Mr. Bailye's parents and Mrs. Bailye's parents, respectively, as
general partners. The partnership agreement provides that the voting power
with respect to shares owned by the partnership resides with the majority
vote of all partners other than Mr. Bailye. Mr. Bailye disclaims beneficial
ownership of the shares owned of record by Carinya except to the extent of
the two
8
12
10% partners' interests therein owned by Mr. Bailye and his spouse,
respectively. The Foundation is a trust established exclusively to provide
financial support for charitable organizations which are exempt
institutions under Section 501(c)(3) of the Internal Revenue Code. Mr.
Bailye and his spouse constitute two of the three trustees of the
Foundation.
(5) Represents Mr. Martinson's portion of shares previously owned by Edison
Venture Fund II, L.P. and Edison Venture Fund II-Pa, L.P. which were
distributed to the partners of such entities, including Mr. Martinson, and
options exercisable for 80,000 shares of Common Stock.
(6) Represents options exercisable for 66,000 shares of Common Stock.
(7) Represents options exercisable for 72,000 shares of Common Stock.
(8) Represents options exercisable for 88,000 shares of Common Stock.
(9) Represents 28,500 shares owned of record by Mr. Savage, and options
exercisable for 88,500 shares of Common Stock.
(10) Represents 30,200 shares owned of record by Ms. Winslow and options
exercisable for 107,000 shares of Common Stock.
(11) Represents 4,297 shares owned of record by Mr. Robson and options
exercisable for 127,335 shares of Common Stock.
(12) Represents options exercisable for 55,000 shares of Common Stock.
(13) Includes 17,453 shares of Common Stock and options exercisable for 62,500
shares of Common Stock held by executive officers not listed in the table.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
Compensation of executive officers of the Company is established by the
full Board of Directors of the Company, based upon recommendations made to it by
its Compensation Committee. In addition, the Compensation Committee also
administers the 1992 Stock Plan, the ISO Plan and the 1997 Stock Plan. The
Employee Plan, however, is administered by the Employee Plan Committee. The
Compensation Committee is responsible for establishing the Company's general
policy with regard to executive compensation, and is currently composed of two
directors of the Company, Messrs. Kfoury and Osborne, who are not employees of
the Company. During the year ended December 31, 1998, the Compensation Committee
was composed of Messrs. Goldsmith and Kfoury.
GENERAL POLICY
The Compensation Committee's general policy regarding the form and level of
executive compensation is to attract and retain the highest level of executive
talent possible and to induce such executives to achieve both short-term
objectives and long-term growth and profitability for the Company. Factors used
in determining such compensation include competitive market considerations, the
contribution of the individual to the present financial success of the Company,
and the long term performance of the Company. The Compensation Committee does
not, however, rely upon objective factors to make compensation decisions, but
instead reaches its determination based upon a subjective review of the factors
set forth above. To achieve these objectives, the Company's 1998 fiscal year
executive compensation program consisted of the following elements: annual base
salary, other annual compensation and benefits; annual cash bonus; performance
awards; and long-term compensation in the form of stock options.
ANNUAL COMPONENT: BASE SALARY, OTHER COMPENSATION AND BONUS
Each of the elements of executive compensation has a different purpose and
basis. The base salary and other annual compensation and benefits paid in 1998
were made to compensate ongoing performance throughout the year. The base salary
for each executive officer was based on factors, including, but not limited
9
13
to, a comparison of compensation practices of other companies in the industry,
personal performance, and performance of the Company. Benefits for all executive
officers included group term life insurance premiums and the Company's matching
portion of the executive's 401(k) plan contribution. The Compensation
Committee's policy is to have annual compensation at the higher end of the range
reported by the companies in its industry.
From time to time, the Company may pay to one or more of its executives
annual and/or quarterly cash bonuses and/or performance awards in the form of
option grants as an additional incentive and reward for his or her contribution
in reaching and exceeding short-term Company objectives for revenues and
profitability. These cash bonuses reflect the Compensation Committee's
assessment, in consultation with the President and Chief Executive Officer, of
that individual's achievement and the significance of that executive officer's
contribution to the financial success of the Company during a particular fiscal
year. For the 1998 fiscal year, quarterly cash bonuses were paid to each of the
Company's executive officers. To further induce the executives' continued
employment commitment to the Company, payment of 40% of the cash bonuses earned
by each executive officer in the third and fourth quarters of 1998 was deferred
until the achievement of the Company's 1998 financial objectives. The deferred
portion of these bonuses was paid in February 1999. Finally, in February 1999,
the Company paid additional one-time cash bonuses to each of its executive
officers to reflect the Company's significant financial achievement in 1998.
LONG-TERM COMPONENT: INCENTIVE STOCK OPTIONS
The long-term component of executive compensation involves primarily the
award of tax-qualified incentive stock options to align the interests of the
executive with those of the shareholders. The amount of options awarded is
intended to be set at a level sufficient to create a meaningful opportunity for
stock ownership in executives other than Mr. Bailye, the Company's founding
shareholder. To comply with Federal income tax requirements for incentive stock
options, the options are granted with an exercise price equal to the fair market
value per share of the Common Stock at the time of the grant. To induce the
executives' long term employment commitment to the Company, the options become
exerciseable in equal twenty-five percent (25%) installments over a four-year
vesting schedule, and expire if not exercised within ten years after the date of
grant. Options under the 1997 Stock Plan were granted in 1998 to Mr. French in
connection with such executive officer's performance. In addition, Mr. Savage
and Mr. Robson were granted options in 1998 in accordance with the terms of
their respective employment agreements. Also in 1998, Mr. Durand received 400
shares of Common Stock upon his five-year anniversary of employment with the
Company. Such share grants are designed to reward employees for their long term
employment commitment to the Company.
PRESIDENT AND CHIEF EXECUTIVE OFFICER COMPENSATION
The 1998 annual base salary for Mr. Bailye, the Chairman of the Board,
President and Chief Executive Officer of the Company, was established pursuant
to his Employment Agreement. The Compensation Committee may, in its discretion,
determine to pay Mr. Bailye an annual cash bonus if the Company meets or exceeds
its budgeted goals in a particular fiscal year. Mr. Bailye did receive a cash
bonus for the 1998 fiscal year. From time to time, the Compensation Committee
may, in its discretion, grant to Mr. Bailye options to purchase shares of the
Company's Common Stock. However, none of such options are deemed incentive stock
options, to the extent that the exercise price does not exceed 110% of the fair
market value of the Company's Common Stock at the time of grant, because Mr.
Bailye's stock ownership in the Company exceeds ten percent (10%). Except for a
grant of options to purchase 6,000 shares of Common Stock made in January 1998
in connection with the Company's achievement of its fourth quarter goals in
1997, Mr. Bailye was not granted any options in 1998. Mr. Bailye does not
participate in decisions of the Board relating to his own compensation.
DEFERRED COMPENSATION PLAN
In July 1998, the Board approved the adoption of a Deferred Compensation
Plan (the "Deferred Compensation Plan"). The Deferred Compensation Plan provides
certain highly compensated employees of the Company with the opportunity to
elect to defer receipt of specified portions of compensation and to have
10
14
such deferred amounts treated as if invested in specified investment vehicles.
Under the Deferred Compensation Plan, the amount of compensation or awards
deferred will be credited to a deferral account maintained by the Company on the
date such deferred compensation would have been paid to the employee. Such
deferred compensation in the deferred accounts shall be invested in certain
investment vehicles as may be specified from time to time by the Deferred
Compensation Plan's administrator. The Company shall settle the deferral account
by payment of cash or, in the discretion of the Company, by delivery of other
assets having a fair market value equal to the amount credited to the deferral
account. Payments in settlement of a deferral account shall be made as soon as
practicable after the date, and in such installments, as may be directed by the
employee. 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.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
A feature of the Omnibus Budget Reconciliation Act of 1993 (the "Act")
limits deductibility of certain compensation for the Chief Executive Officer and
the other four highest compensated executive officers (the "Covered Employees")
to $1 million per year, effective for tax years beginning on or after January 1,
1994. Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), if certain conditions are met, including the removal of
positive discretion in the determination of individual rewards, compensation may
be excluded from consideration of the $1 million limit. The policy of the
Compensation Committee related to this Act is to establish and maintain a
compensation program which maximizes the creation of long-term shareholder
value.
In 1992, shareholders approved the 1992 Stock Plan and the ISO Plan. Both
plans are being presented to shareholders for approval again in 1999 as required
to maintain the deductibility of compensation paid pursuant to such plans. The
Company's 1992 Stock Plan, the ISO Plan and the 1997 Stock Plan, as amended,
meet the necessary conditions for exclusion from consideration of
non-deductibility as set forth in Section 162(m) of the Code. The actions taken
evidence the intention of the Compensation Committee to comply with the intent
of the Board of Directors and the shareholders of the Company to recognize and
reward performance which increases the value of the Company.
COMPENSATION COMMITTEE
(as constituted at year-end)
Edward J. Kfoury
Bernard M. Goldsmith
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are as named above in the Compensation Committee Report. No member of
any such Committee was at any time during the 1998 fiscal year or at any other
time an officer or employee of the Company.
No executive officer of the Company served on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
11
15
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table and accompanying footnotes provide certain summary
information concerning the compensation earned by the Company's President and
Chief Executive Officer and the next four most highly compensated executive
officers for 1998 (the "Named Officers"), in each case for services rendered in
all capacities to the Company and its subsidiaries for the years ended December
31, 1996, 1997 and 1998.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS/
-------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- --------------------------- ---- -------- -------- --------------- ------------ ---------------
John E. Bailye............. 1998 $450,000 $360,000 $ 0 0 $164,604
President and Chief 1997 436,920 160,000 11,766 416,000 5,443
Executive Officer 1996 425,012 0 0 0 5,402
R. Bruce Savage............ 1998 297,500 288,750 0 50,000 8,139
Executive Vice President 1997 293,977 109,000 11,766 136,000 5,898
and Chief Operating 1996 282,756 0 0 0 5,898
Officer
Teresa F. Winslow.......... 1998 168,735 79,926 541,895 0 5,408
Senior Vice President 1997 219,267 235,900 3,138 176,000 5,015
1996 172,500 53,400 0 40,000 4,985
George T. Robson........... 1998 284,083 200,000 121,750 80,000 7,064
Senior Vice President and 1997 200,000 120,000 0 400,000 674
Chief Financial Officer 1996 0 0 0 0 0
Mark H. Cieplik............ 1998 255,004 236,250 0 0 408
Senior Vice President, 1997 161,062 100,000 0 220,000 148
Worldwide Sales 1996 0 0 0 0 0
- ---------------
(1) In the case of Ms. Winslow, such amount for 1998 represents deferred
compensation consisting of $86,821 of deferred salary and $455,074 of
deferred bonus. In the case of Mr. Robson, such amount for 1998 represents
deferred compensation consisting of $21,750 of deferred salary and $100,000
of deferred bonus. In the case of Mr. Bailye, Mr. Savage and Ms. Winslow,
respectively, such amounts for 1997 represent the fair market value as of
the date of issuance of a stock award granted to each such person.
(2) All other compensation in 1998 includes Group Term Life Insurance premiums
of $1,346, $3,139, $408, $3,168 and $408, and the Company's matching portion
of the employees 401(k) contributions of $5,000, $5,000, $5,000, $3,896 and
$0, for Mr. Bailye, Mr. Savage, Ms. Winslow, Mr. Robson and Mr. Cieplik,
respectively. In addition, all other compensation in 1998 for Mr. Bailye
also includes $116,908 relating to the forgiveness of the Receivable and
$41,350 as payment for the cash value of the tax benefit relating to such
Receivable. All other compensation in 1997 includes Group Term Life
Insurance premiums of $693, $1,148, $265, $674 and $148, and the Company's
matching portion of the employees 401(k) contributions of $4,750, $4,750,
$4,750, $0 and $0, for Mr. Bailye, Mr. Savage, Mr. Robson, Mr. Cieplik and
Ms. Winslow, respectively. All other compensation in 1996 includes Group
Term Life Insurance premiums of $652, $1,148 and $235, and the Company's
matching portion of the employee's 401(k) contributions of $4,750, $4,750
and $4,750, for Mr. Bailye, Mr. Savage and Ms. Winslow, respectively. Such
amounts under all other compensation previously reported for Mr. Bailye in
1997 and 1996 included life insurance premium payments of $5,120 and $8,550,
respectively. The foregoing payments were deemed not to be compensation to
Mr. Bailye because such amounts represented key man life insurance premium
payments whereby the Company is the beneficiary.
12
16
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made under the 1997 Stock Plan to each of the Named Officers for the fiscal year
ended December 31, 1998. No stock appreciation rights were granted to these
individuals during such year.
PERCENTAGE POTENTIAL REALIZABLE
NUMBER OF OF TOTAL VALUE OF ASSUMED
SECURITIES OPTIONS ANNUAL
UNDERLYING GRANTED TO EXERCISE OR RATES OF STOCK
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRICE APPRECIATION
NAME GRANTED(1) FISCAL YEAR(%) PER SHARE(2) DATE FOR OPTION TERM(3)
- ---- ---------- -------------- ------------ ---------- ---------------------
5% 10%
-------- ----------
John E. Bailye.............. 6,000 * $11.88 1/2008 $ 44,809 $ 113,554
R. Bruce Savage............. 6,000 * 11.88 1/2008 44,809 113,554
50,000 4.5 22.72 7/2008 714,424 1,810,491
Teresa F. Winslow........... 6,000 * 11.88 1/2008 44,809 113,554
George T. Robson............ 80,000 7.2 15.38 6/2008 773,540 1,960,303
Mark H. Cieplik............. 0 0 0 0 0 0
- ---------------
* Less than one percent.
(1) In the case of each of Mr. Bailye, Mr. Savage and Ms. Winslow, the options
granted to purchase 6,000 shares of Common Stock in January 1998 were
granted to each of the Named Officers as quarterly performance awards for
the Company's performance in the fourth quarter of 1997. Such options became
exercisable on the first anniversary of the date of grant.
(2) All options were granted under the 1997 Stock Plan at fair market value on
the date of grant as determined by the Compensation Committee.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are prescribed by rules of the Securities and Exchange Commission and are
calculated on the basis of the fair market value of the underlying
securities on the date of grant as determined by the Compensation Committee.
Actual gains, if any, on stock option exercises and Common Stock holdings
are dependent on the timing of such exercise and the future performance of
the Common Stock. There can be no assurance provided to any executive
officer or any other holder of the Company's securities that the actual
stock price appreciation over the option term will be at the assumed 5% and
10% levels or at any other defined level.
Except as set forth above, each of the options shall become exercisable and
vested based upon a four-year vesting schedule with 25% of each option grant
vesting on the first four anniversaries of the date of grant, and the underlying
shares are subject to cancellation by the Company, to the extent unvested,
should the optionee cease employment. The Compensation Committees has the
discretion to accelerate the date of exercisability of any portion of any option
granted under the 1997 Stock Plan. Each option has a maximum term of ten years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, for each of the Named Officers, information
concerning option exercises and option holdings for the fiscal year ended
December 31, 1998. No stock appreciation rights were exercised during such year
or were outstanding at the end of that year.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR END(#) FISCAL YEAR END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ----------- ------------- ----------- -------------
John E. Bailye........... 0 0 16,000 406,000 $ 264,251 $6,216,082
R. Bruce Savage.......... 62,500 1,446,903 196,500 146,000 4,320,694 1,752,881
Teresa F. Winslow........ 30,000 309,221 74,500 148,000 1,510,987 2,857,564
George T. Robson......... 72,500 1,207,648 27,500 380,000 522,500 6,467,504
Mark H. Cieplik.......... 30,000 483,349 25,000 165,000 464,845 3,067,977
- ---------------
(1) Calculated on the basis of the closing price of the Common Stock at December
31, 1998 of $24.97 per share, less the per share exercise price.
13
17
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
EMPLOYMENT AGREEMENT WITH JOHN E. BAILYE
The Company has entered into an Employment Agreement with John E. Bailye
(the "Bailye Employment Agreement"), which names Mr. Bailye as the President and
Chief Executive Officer of the Company. Pursuant to the Bailye Employment
Agreement, Mr. Bailye's annual base salary is $450,000 per year (for 1998), to
be increased each year in accordance with the increase in the consumer price
index (All-items portion, for Urban Consumers (CPI-U), as published by the U.S.
Bureau of Labor Statistics).
At a minimum of once every two years (but in no event more than once every
year) the Compensation Committee will review Mr. Bailye's annual base salary in
the light of the performance of the Company and evaluate whether it should
consider any adjustment in Mr. Bailye's annual base salary in addition to any
CPI adjustment to which he may be entitled. In addition to his base salary, the
Compensation Committee, in its discretion, shall pay Mr. Bailye a bonus which is
generally envisaged to be fifty percent (50%) of Mr. Bailye's annual base salary
for the year. Under his agreement, Mr. Bailye is entitled to the fringe benefits
generally made available to employees of the Company from time to time and shall
be entitled to four weeks annual vacation, which may be carried forward from
year to year, provided that any accumulated vacation in excess of eight weeks
shall be forfeited.
The Bailye Employment Agreement has an initial term continuing through
December 31, 1999 (the "Term"). Upon December 31 of each year during the Term,
the Term shall automatically be continued for an additional year unless, prior
to such December 31, either party gives written notice to the other party that
the Term will not be extended. In addition, upon a Change in Control (as
defined), the remaining Term shall, if less than two years at such date, be
extended automatically to continue for at least two years following such Change
in Control. Notwithstanding its stated term, (i) either party may terminate the
Bailye Employment Agreement for any reason whatsoever by providing the other
party with certain advance written notice, and (ii) the Board of Directors of
the Company may terminate the Bailye Employment Agreement for (A) any gross
misconduct or gross neglect on Mr. Bailye's part with respect to his duties
under the agreement which gross misconduct or gross neglect has or is likely to
have a material adverse effect upon the business of the Company, provided,
however, that Mr. Bailye's good faith exercise of his business judgment in
executing his duties under the agreement does not constitute Cause (as defined)
thereunder, or (B) the indictment of Mr. Bailye for a felony which relates to
his duties under the agreement or has or is likely to have a material adverse
effect on the business of the Company, provided, that, if Mr. Bailye ultimately
is not convicted of, or does not plead guilty or nolo contendere to, such
felony, Mr. Bailye's termination of employment shall be treated retroactively as
a termination by the Company without cause and he shall be entitled to severance
under the agreement. The Bailye Employment Agreement shall terminate
automatically in the event of the death or Disability (as defined) of Mr.
Bailye.
In the event that (i) the Company terminates Mr. Bailye's employment for
any reason other than Cause or Disability, or as a result of Mr. Bailye's death,
or (ii) by Mr. Bailye for Good Reason (as defined), Mr. Bailye shall be entitled
to receive severance payments in the aggregate amount equal to the sum of (A)
the annual rate of his base salary in effect as of the date of termination (not
taking into account any reductions which would constitute Good Reason) and (B)
the average of the total annual bonus compensation earned by him during the
three completed fiscal years of the Company immediately preceding his date of
termination, divided by twelve (12), and multiplied by the number of full and
fractional months remaining in the Term as of his date of termination. Such
severance payments shall be paid by the Company in cash in consecutive equal
monthly payments commencing no later than thirty (30) days after the effective
date of the termination of Mr. Bailye's employment for a period through the
remainder of the Term as of the date of termination.
In the event that, during the Term and within the two-year period following
a Change in Control, Mr. Bailye's employment is terminated by (i) the Company
for any reason other than Cause or Disability, or as a result of Mr. Bailye's
death, or (ii) Mr. Bailye for Good Reason, Mr. Bailye shall be entitled to
receive severance payments in the aggregate amount equal to three (3) times the
sum of (A) the annual rate of his base salary in effect as of the date of
termination (not taking into account any reductions which would
14
18
constitute Good Reason) and (B) the highest annual bonus compensation earned by
him during the three (3) completed fiscal years of the Company immediately
preceding his date of termination. Such severance payments shall be paid by the
Company in a lump sum in cash.
In the event that the Company provides Mr. Bailye with written notice that
it is not extending the Term, the Compensation Committee shall determine, in its
sole discretion, the amount of any severance payments to be made to Mr. Bailye,
which amount shall be determined as of Mr. Bailye's date of termination in
accordance with what is usual and customary for companies of comparable size
operating in a similar industry as the Company as it exists as of the effective
date of termination and which is appropriate for Mr. Bailye's employment
position with the Company.
During the period of his employment with the Company and for a period of
two (2) years following any voluntary termination by him (other than a
termination for Good Reason) or any termination by the Company for Cause, Mr.
Bailye is prohibited, whether directly or indirectly, in any U.S. state or
foreign country where the Company is doing business at the time of Mr. Bailye's
termination, from (i) engaging in any venture or activity in competition with
the business of the Company or its affiliates, or any business that the Company
may establish that it will likely conduct within one year of Mr. Bailye's
departure; (ii) soliciting for any venture or activity in competition with the
businesses conducted by the Company or its affiliates any customers who were
customers within one year of Mr. Bailye's departure or soliciting, whether
directly or indirectly, such customers to reduce their business with the Company
or its affiliates; or (iii) inducing or attempting to influence any employee of
the Company or its affiliates employed on the effective date of Mr. Bailye's
termination, or within six months prior to such termination, to terminate his or
her employment with the Company. In the event the Company terminates Mr.
Bailye's employment without Cause (or elects not to extend Mr. Bailye's
employment) or Mr. Bailye terminates his employment for Good Reason, the
restrictive covenants described above shall apply for a period of six (6) months
following Mr. Bailye's date of termination.
The Bailye Employment Agreement may not be assigned by either party other
than by the Company in connection with certain business combinations and is
enforceable in accordance with the laws of the State of New Jersey.
OTHER EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (each, an "Employment
Agreement") with each of R. Bruce Savage, Teresa F. Winslow, George T. Robson
and Mark H. Cieplik. Except for Mr. Savage, the Company employs such persons as
at-will employees, and each Employment Agreement may be terminated at any time
for any reason by the Company or by the employee. Mr. Savage will be deemed an
at-will employee after July 24, 2000. Each Employment Agreement provides for
annual vacation and such fringe benefits as are generally made available to
employees of the Company.
Mr. Savage's Employment Agreement provides for an annual base salary of
$297,500 (for 1998), to be increased each year in accordance with the increase
in the consumer price index (All-items portion, for Urban Consumers (CPI-U), as
published by the U.S. Bureau of Labor Statistics). In addition to his base
salary, Mr. Savage is eligible to receive an annual bonus of not less than 30%
of his annual base salary for the year, provided that (i) the Company achieves
certain goals and objectives and (ii) Mr. Savage is employed by the Company at
the end of any such year. Upon execution of his Employment Agreement, Mr. Savage
was granted options to purchase 80,000 shares of Common Stock. Such options were
granted at the fair market value of the underlying shares of Common Stock and
are subject to a four-year vesting schedule. Upon the first anniversary of his
Employment Agreement, Mr. Savage shall receive an additional grant of options to
purchase 50,000 shares of Common Stock provided that he is employed by the
Company on such date. The price for such options will be determined by the
Compensation Committee and will be subject to a four-year vesting schedule.
Notwithstanding the foregoing, in the event of (i) a Change of Control (as
defined), if Mr. Savage is not retained in a similar position or if no similar
position is offered to Mr. Savage following a Change of Control, or (ii) the
termination of Mr. Savage's employment by the Company without Cause (as
defined), all of Mr. Savage's options owned by him at the time of such event
shall immediately vest.
15
19
In the event that the Company terminates Mr. Savage's employment for any
reason other than death, Cause or Disability (as defined) prior to July 24,
2000, Mr. Savage shall be entitled to receive severance payments totaling
twenty-four (24) months base salary (calculated at a rate of base salary then
being paid to Mr. Savage as of the date of termination) and, solely for the
calendar year in which Mr. Savage is terminated, a pro rata portion of the bonus
that Mr. Savage would have otherwise been entitled to had he been employed by
the Company for the entire year in which he was terminated, the amount of any
such bonus corresponding to the portion of the year to have elapsed through the
termination date. Such severance payments in respect of base salary shall be
paid in twenty-four (24) consecutive equal monthly payments commencing not later
than thirty (30) days after the effective date of the termination of Mr.
Savage's employment. Any pro rata bonus payment shall be paid by the Company in
a lump sum within sixty (60) days of the date of termination.
In the event that the Company terminates Mr. Savage's employment for any
reason other than death, Cause or Disability on or after July 24, 2000, Mr.
Savage shall be entitled to receive severance payments totaling twelve (12)
months base salary (calculated at a rate of base salary then being paid to Mr.
Savage as of the date of termination) and, solely for the calendar year in which
Mr. Savage is terminated, a pro rata portion of the bonus that Mr. Savage would
have otherwise been entitled to had he been employed by the Company for the
entire year in which he was terminated, the amount of any such bonus
corresponding to the portion of the year to have elapsed through the termination
date. Such severance payments in respect of base salary shall be paid in twelve
(12) consecutive equal monthly payments commencing not later than thirty (30)
days after the effective date of the termination of Mr. Savage's employment. Any
pro rata bonus payment shall be paid by the Company in a lump sum within sixty
(60) days of the date of termination.
Ms. Winslow's Employment Agreement provides for an initial starting salary
of $110,000 to be reviewed at least annually and to be adjusted based on
performance. In addition to her base salary, Ms. Winslow is eligible to receive
a bonus of at least thirty percent (30%) of her base salary payable on terms and
conditions agreed between Ms. Winslow and the Company.
Mr. Robson's Employment Agreement provides for an annual base salary of
$300,000, to be adjusted annually in the discretion of the Compensation
Committee. In addition to his base salary, commencing on the completion of the
third fiscal quarter of 1997, Mr. Robson is eligible to receive a target
quarterly bonus of $50,000 per quarter, provided that Mr. Robson is employed by
the Company at the end of any such quarter. Mr. Robson's target bonus may be
increased or decreased based upon the Company's performance against its current
year financial objectives. The maximum bonus which Mr. Robson may receive is
200% of his target bonus and his minimum bonus is $0. Mr. Robson was also
granted options to purchase 400,000 shares of Common Stock. Such options were
granted at the fair market value of the underlying shares of Common Stock and
are subject to a four-year vesting schedule. Mr. Robson is also entitled to
receive options to purchase 80,000 and 50,000 shares of Common Stock,
respectively, on each of the first and second anniversary date of his Employment
Agreement. The price of such options will be determined by the Compensation
Committee and will be subject to a four-year vesting schedule. Notwithstanding
the foregoing, in the event of a Change of Control (as defined), if Mr. Robson
is not retained in a similar position or if no similar position is offered to
Mr. Robson following a Change of Control, all of Mr. Robson's options owned by
him at the time of such event shall immediately vest.
In the event that the Company terminates Mr. Robson's employment for any
reason other than death, Cause (as defined) or Disability (as defined), Mr.
Robson shall be entitled to receive severance payments totaling his annual base
salary. Such severance payments shall be paid in twelve (12) consecutive equal
monthly payments commencing not later than thirty (30) days after the effective
date of the termination of Mr. Robson's employment.
Mr. Cieplik's Employment Agreement provides for an annual base salary of
$250,000, to be adjusted annually in the discretion of the Compensation
Committee. In addition to his base salary, commencing on the completion of the
third fiscal quarter of 1997, Mr. Cieplik is eligible to receive a target
quarterly bonus of $50,000 per quarter, provided that Mr. Cieplik is employed by
the Company at the end of any such quarter. Mr. Cieplik's target bonus may be
increased or decreased based upon the Company's performance against its current
year financial objectives. The maximum bonus which Mr. Cieplik may receive is
200% of his target
16
20
bonus and his minimum bonus is $0. Mr. Cieplik was also granted options to
purchase 220,000 shares of Common Stock. Such options were granted at the fair
market value of the underlying shares of Common Stock and are subject to a
four-year vesting schedule.
In the event that the Company terminates Mr. Cieplik's employment for any
reason other than death, Cause (as defined) or Disability (as defined), Mr.
Cieplik shall be entitled to receive severance payments totaling six (6) months
Compensation (as defined) (calculated at the rate of Compensation then being
paid to Mr. Cieplik). Such severance payments shall be paid in six (6)
consecutive equal monthly payments commencing not later than thirty (30) days
after the effective date of the termination of Mr. Cieplik's employment. In the
event such termination occurs on or before June 8, 1999, Mr. Cieplik shall be
entitled to receive severance payments totaling twelve (12) months Compensation
(calculated at the rate of Compensation then being paid to Mr. Cieplik). Such
severance payments shall be paid in twelve (12) consecutive equal monthly
payments commencing not later than thirty (30) days after the effective date of
the termination of Mr. Cieplik's employment.
The Company may terminate the Employment Agreements of each of Mr. Savage,
Mr. Robson and Mr. Cieplik for (i) any gross misconduct on such employee's part
with respect to his duties under his respective agreement, (ii) the engaging by
such employee in an indictable offense which relates to his duties under his
respective agreement or which is likely to have a material adverse effect on the
business of the Company, (iii) the commission by such employee of any willful or
intentional act which injures in a material respect or could reasonably be
expected to injure in any material respect the reputation, business or business
relationships of the Company, or (iv) the engaging by such employee through
gross negligence in conduct which injures materially or could reasonably be
expected to injure materially the business or reputation of the Company. Each
such Employment Agreement shall terminate automatically in the event of the
death or Disability of such employee.
Each Employment Agreement restricts the respective employee from disclosing
any confidential information of the Company, or any confidential information of
the Company's clients, customers or suppliers to any person without the prior
written consent of the Company or the client, customer or supplier, as the case
may be. Each Employment Agreement, other than Ms. Winslow's, also provides that
for a period of two years following termination of employment, with or without
cause, each employee is prohibited from (i) performing services that compete
with the businesses conducted by the Company or any of its affiliates or
rendering services to any organization or entity which competes with the
business or businesses conducted by the Company or any of its affiliates
anywhere in the United States or elsewhere where the Company or any of its
affiliates do business, or any business or businesses that the Company or any of
its affiliates may establish that it will likely conduct within one year (or, in
the case of Ms. Winslow, six months) following the date of such employee's
termination; (ii) soliciting any customers or potential customers of the Company
with whom the employee had contact while employed by the Company or who was a
customer of the Company at any time during the two years immediately before the
employee's termination; (iii) requesting that any of the Company's customers or
suppliers discontinue doing business with the Company; (iv) knowingly taking any
action that would disparage the Company or be to its disadvantage; or (v)
employing or attempting to employ or assisting anyone else to employ any
employee or contractor of the Company to terminate their employment or
engagement with the Company. Ms. Winslow's Employment Agreement is substantially
similar to the other Employment Agreements, except that the term of her
noncompetition covenant is three years, not two. In addition, in consideration
for such noncompetition covenant, the Company has agreed to pay Ms. Winslow one
year's base salary at the Company's discretion, to be paid in equal monthly
installments over two years, except that such payments shall be discontinued if
Ms. Winslow becomes employed during such period.
The four Employment Agreements are not assignable by either party, except
that the Company may assign its rights to any affiliated or successor entity.
The Employment Agreements are enforceable in accordance with the laws of the
State of New Jersey.
17
21
COMMON STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on June 30, 1995, the first day of public trading in the
Common Stock along with the composite prices of companies listed in the Nasdaq
Stock Market-US Index and the Hambrecht & Quist Technology Index.
COMPARISON OF 42 MONTH CUMULATIVE TOTAL RETURN* (1)(2)
AMONG DENDRITE INTERNATIONAL, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
[CUMULATIVE TOTAL RETURN PERFORMANCE GRAPH]
DENDRITE NASDAQ STOCK HAMBRECHT & QUIST
INTERNATIONAL, INC. MARKET (U.S.) TECHNOLOGY
------------------- ------------- -----------------
Jun 95 100 100 100
Dec 95 112 113 107
Dec 96 51 139 133
Dec 97 120 171 156
Dec 98 310 241 243
* $100 INVESTED ON 6/30/95 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS
FISCAL YEAR ENDING DECEMBER 31.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Common Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
- ---------------
(1) The Company's fiscal year ended on December 31, 1998.
(2) No cash dividends have been declared on the Common Stock. Shareholder
returns over the indicated period should not be considered indicative of
future shareholder returns.
18
22
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board is asking the shareholders of the Company to ratify its
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1999. The Board wishes to
receive the majority of the votes cast at the Annual Meeting to ratify the
selection of Arthur Andersen LLP.
In the event the shareholders fail to ratify the appointment, the Board of
Directors will reconsider its selection, but may elect to retain Arthur Andersen
LLP nevertheless. Even if the selection is ratified, the Board of Directors, in
its discretion, may direct the appointment of a different independent accounting
firm at any time during the year if the Board of Directors feels that such a
change would be in the Company's and its shareholders' best interests.
Arthur Andersen LLP has audited the Company's financial statements annually
since fiscal year 1993. Its representatives are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP TO SERVE AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE 1997 STOCK PLAN
The 1997 Stock Plan was adopted by the Board of Directors and shareholders
on July 24, 1997 and May 19, 1998, respectively, and authorizes the grant of
"incentive stock options" (within the meaning of Section 422 of the Code,
non-qualified stock options, and stock awards based on the value of the
Company's Common Stock. No more than 2,500,000 shares of Common Stock (subject
to adjustment) are presently available for grant under the 1997 Stock Plan.
Shareholders are being asked to consider and vote upon a proposed amendment
(the "Amendment") to the 1997 Stock Plan to increase the maximum number of
shares of Common Stock available for issuance under the 1997 Stock Plan from
2,500,000 shares to 4,000,000 shares.
The Board of Directors believes that the Amendment provides an important
inducement to recruit and retain the best available personnel. The Board of
Directors believes that providing employees, non-employee directors and
consultants with an opportunity to invest in the Company rewards them
appropriately for their efforts on behalf of the Company.
Even though the 1997 Stock Plan by its terms does not require shareholder
approval for the Amendment to be adopted, the Board of Directors is seeking that
approval for several reasons. First, the additional options which may be granted
under the 1997 Stock Plan following adoption of the Amendment will not be
considered "incentive stock options" or "ISOs" for federal income tax purposes
unless shareholder approval has been obtained within twelve months from the
adoption of the Amendment by the Board of Directors. If shareholder approval is
not obtained, then the options will be treated as non-qualified stock options.
The Board of Directors believes it is in the Company's best interests to permit
option holders to take advantage of the more favorable tax treatment given to
ISOs (as discussed below).
The Company is also seeking shareholder approval for the Amendment so that
all income attributable to the exercise of such additional options will qualify
as performance-based compensation under Section 162(m) of the Code. Income
realized upon exercise of options granted under the 1997 Stock Plan subsequent
to shareholder approval in May 1998 may qualify as performance-based
compensation under Section 162(m) of the Code. Accordingly, the Company may be
able to deduct ordinary income realized by the Covered
19
23
Employees in excess of $1,000,000. For purposes of this limit, all ordinary
income realized upon exercise of options previously granted under the 1997 Stock
Plan will be counted.
As of April 1, 1999, options to purchase 2,472,579 Common Shares have been
granted under the 1997 Stock Plan at an exercise price per share equal to the
fair market value of the Common Stock on the date of grant, including grants to
officers and directors of the Company as set forth in the table below:
WEIGHTED
NUMBER OF AVERAGE EXERCISE
NAME AND TITLE OPTIONS GRANTED PRICE
- -------------- --------------- ----------------
John Bailye, President, Chief Executive Officer and
Director............................................. 418,000 $ 9.65
Bernard H. Goldsmith, Director......................... 80,000 10.05
Paul A. Margolis, Director............................. 80,000 10.05
John H. Martinson, Director............................ 80,000 10.05
Edward J. Kfoury, Director............................. 104,000 9.92
Terence M. Osborne, Director........................... 42,000 21.00
R. Bruce Savage, Executive Vice President and Chief
Operating Officer.................................... 148,000 14.03
Teresa F. Winslow, Senior Vice President............... 18,000 10.31
George T. Robson, Executive Vice President and Chief
Financial Officer.................................... 80,000 15.38
Mark H. Cieplik, Senior Vice President, Worldwide
Sales................................................ 0 0
All current executive officers as a group (8
persons)............................................. 894,000 10.95
All current Directors who are not executive officers as
a group (5 persons).................................. 386,000 11.20
All employees, including all current officers who are
not executive officers as a group (492 persons)...... 1,192,579 14.87
--------------------
Whether or not shareholder approval of the 1997 Stock Plan is obtained,
options previously granted pursuant to the 1997 Stock Plan will remain valid and
outstanding.
The purpose of the 1997 Stock Plan is to enhance the ability of the Company
to attract and retain employees, directors, and consultants of outstanding
ability and to provide them with an interest in the Company parallel to that of
the shareholders. The 1997 Stock Plan authorizes the grant of incentives in the
form of stock options to officers, other key employees, consultants and
non-employee directors and stock awards based on the value of Common Stock to
employees. The Compensation Committee administers the Plan. As of April 1, 1999,
there were approximately 505 employees and non-employee directors who have
received stock options. No other form of stock awards have been granted. Because
future participation in the 1997 Stock Plan and the level of participation will
vary, it is not possible to determine the value of benefits which may be
obtained by those eligible to participate in the 1997 Stock Plan.
The Compensation Committee may grant options under the 1997 Stock Plan to
eligible employees, consultants and directors selected by the Compensation
Committee. No employee may be granted in any year options to purchase more than
1,000,000 shares of Common Stock. The options may be either non-qualified stock
options or incentive stock options qualifying under Section 422 of the Code. The
Compensation Committee is to establish the option price at the time that each
option is granted. Options granted under the 1997 Stock Plan may be exercised at
such time as is determined by the Compensation Committee, but not more than 10
years from their date of grant.
Options may not be transferred except by will or the laws of descent and
distribution, except that the Compensation Committee may permit non-qualified
stock options to be transferred to members of the holder's immediate family or
trusts, partnerships or limited liability companies established for such family
members.
20
24
Under the 1997 Stock Plan, non-qualified 10-year stock options to purchase
30,000 shares of Common Stock are granted automatically to each Director of the
Company who is not an employee of the Company on the date the Director first
becomes a Director. On the third anniversary of the initial grant of options and
on each succeeding anniversary thereafter, an additional option to purchase
10,000 shares is granted. The option price is the fair market value of the
Common Stock on the date of grant and each option becomes exercisable one year
from the date of grant.
In the event of a Change in Control (as defined in the 1997 Stock Plan) of
the Company, any option will become vested and exercisable in full and all
restrictions or conditions, if any, on other stock awards will automatically
lapse.
If an option holder engages in certain activity which is harmful to the
Company, all outstanding and unexercised options may be canceled and terminated.
In addition, such option holders may have to reimburse the Company for any gain
realized upon exercise of options within one year of the harmful behavior. This
forfeiture and repayment provision will not apply following a Change in Control.
The Board of Directors may amend, suspend or terminate the 1997 Stock Plan
at any time, but no amendment may adversely affect the rights of any person in
connection with an award previously granted. In addition, no amendment to the
1997 Stock Plan may be made without subsequent shareholder approval if such
approval is required under any applicable law, regulation or stock exchange
rule.
The 1997 Stock Plan became effective upon adoption by the Board and will
have a term of 10 years from its effective date.
The following is a general summary of the federal income tax consequences
of the grant and exercise of options under the Plan. This summary is not
intended to provide tax advice to recipients and holders of awards.
Generally, the grant of options does not result in taxable income to the
option holder and the Company is not entitled to a corresponding deduction from
its income taxes.
In the case of ISOs, generally there will be no taxable income for the
option holder upon exercise. In addition, if the option holder does not dispose
of the shares acquired upon exercise of the ISO until the later of two years
from the date of grant or one year from the date of exercise (a "disqualifying
disposition"), any gain or loss realized by the option holder upon disposition
will be taxed as long-term capital gain or loss, as the case may be. The Company
will not be entitled to a tax deduction upon the grant or exercise of ISOs or
the disposition of ISO shares. However, if a disqualifying disposition occurs,
then the option holder will realize ordinary income in the year of disposition
in an amount equal to the excess, if any, of the fair market value of the option
shares at the time of exercise (or, if less, the amount realized on the
disqualifying disposition) over the exercise price thereof. The Company will be
entitled to deduct an amount equal to the ordinary income realized by the option
holder upon a disqualifying disposition.
With respect to non-qualified stock options, the option holder will realize
ordinary income equal to the difference between the fair market value of the
option shares upon exercise over the exercise price thereof. The Company will be
entitled to a corresponding deduction in an amount equal to the amount of
ordinary income realized by the option holder. Upon the subsequent disposition
of the option shares, any gain (loss) will be taxed as short-term or long-term
capital gain (loss), as the case may be.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT.
21
25
PROPOSAL NO. 4
REAPPROVAL OF THE 1992 STOCK PLAN AND THE ISO PLAN
On January 21, 1992 and October 21, 1992, the shareholders and Board of
Directors of the Company approved and adopted the 1992 Stock Plan and the ISO
Plan, respectively.
Section 162(m) of the Code provides that no deduction shall be allowed for
"Applicable Employee Remuneration" with respect to Covered Employees to the
extent that the amount of such remuneration for the taxable year with respect to
such employee exceeds $1,000,000. The term Applicable Employee Remuneration
excludes from its definition compensation which is payable on account of the
attainment of one or more performance goals; but only if: (i) the performance
goals are determined by a compensation committee of the board of directors of
the company which is comprised solely of 2 or more outside directors, (ii) the
material terms under which the compensation is to be paid, including performance
goals, are disclosed to shareholders and approved by a majority of the vote in a
separate shareholder vote before the payment of such remuneration, and (iii)
before any remuneration is paid, the compensation committee referred to above
certifies that the performance goals and any other material terms were in fact
satisfied. Furthermore, Section 162(m) of the Code requires that such option
plans define a maximum number of options that may be granted to any employee in
any calendar year in order to meet the requirements for exclusion from
consideration of non-deductibility. Accordingly, on April 14, 1999, the Board of
Directors amended each of the 1992 Stock Plan and the ISO Plan to provide that
no employee shall be granted in any calendar year options to purchase more than
500,000 shares of Common Stock.
Therefore, in order for the compensation paid to certain of the Covered
Employees to be eligible to be deducted by the Company, shareholders are being
asked to reapprove the 1992 Stock Plan and the ISO Plan pursuant to Section
162(m) of the Code.
Set forth below is a summary of each of the 1992 Stock Plan and the ISO
Plan. These summaries are qualified in their entirety by the actual terms of the
1992 Stock Plan and the ISO Plan, copies of which are attached hereto as Exhibit
A and Exhibit B, respectively.
1992 STOCK PLAN
The 1992 Stock Plan is intended to provide incentives: (a) to the officers
and other employees of the Company and its subsidiaries by providing them with
opportunities to purchase stock in the Company pursuant to options granted under
the Stock Plan which qualify as ISOs under Section 422(b) of the Code; (b) to
directors, officers, employees and consultants of the Company and its
subsidiaries by providing them with opportunities to purchase stock in the
Company pursuant to non-qualified stock options granted under the 1992 Stock
Plan which do not qualify as ISOs (ISOs and non-qualified stock options being
referred to as "Options"); (c) to directors, officers, employees and consultants
of the Company and its subsidiaries by providing them with awards of stock in
the Company ("Awards"); and (d) to directors, officers, employees and
consultants of the Company and its subsidiaries by providing them with
opportunities to make direct purchases of stock in the Company ("Purchases").
Approximately 770 persons were eligible to receive grants of Options, Awards and
Purchases during the fiscal year ended December 31, 1998. However, no additional
shares of Common Stock are currently available for issuance under the 1992 Stock
Plan.
The 1992 Stock Plan is administered by the Compensation Committee which
currently consists of Messrs. Kfoury and Osborne, each of whom are members of
the Board of Directors. The Compensation Committee has the authority to
determine the individuals associated with the Company and its subsidiaries from
among the class of individuals eligible, to whom Options, Awards and
authorizations to make Purchases may be granted in accordance with the terms of
the 1992 Stock Plan.
Either authorized but unissued shares of Common Stock of the Company or
shares of the Common Stock reacquired by the Company in any manner and eligible
for reissuance can be issued under the 1992 Stock Plan. Although 2,400,000
shares of Common Stock have been reserved for issuance under the 1992
22
26
Stock Plan, no additional shares of Common Stock are currently available under
the 1992 Stock Plan. If any Option granted under the 1992 Stock Plan expires or
terminates for any reason without having been exercised in full or ceases for
any reason to be exercisable in whole or in part, or if the Company reacquires
any unvested shares issued pursuant to Awards or Purchases, the unpurchased
shares subject to such Options and any unvested shares so reacquired by the
Company are again available for grants under the 1992 Stock Plan, Grants of
Options, Awards or Purchases can be made under the 1992 Stock Plan at any time
on or after January 21, 1992 and prior to January 20, 2002.
OPTIONS. Non-qualified stock options may be granted at an option price per
share no less than the lesser of (a) the book value per share of Common Stock as
of the end of the fiscal year of the Company immediately preceding the grant
date and (b) the fair market value per share of Common Stock on the grant date.
ISOs must be granted at an option price per share not less than the fair market
value per share of Common Stock on the grant date. To date, all Options (and
rights to make Purchases) have been granted at fair market value. The
Compensation Committee determines the exercise schedule of Options and, in its
discretion, may accelerate such exercisability. If an optionee ceases to be
employed by the Company or a subsidiary other than by reason of death or
disability, no further installments of his Options shall generally become
exercisable, and his Options shall terminate after the passage of ninety (90)
days from the date of termination of his employment. Upon the occurrence of
certain events such as stock dividends and stock splits, consolidations or
mergers, an optionee's rights with respect to Options granted to him are to be
adjusted as provided in the 1992 Stock Plan.
At the written request of any optionee, the Compensation Committee may, in
its discretion, take such action as may be necessary to convert such optionee's
ISOs (or any installments or portions of installments thereof) that have not
been exercised on the date of conversion into non-qualified stock options at any
time prior to the expiration of such ISOs.
LONG-TERM INCENTIVE PLAN. Under the 1992 Stock Plan, on July 1 of each
year, the Company awards shares of Common Stock (the "Anniversary Shares") to
each employee who has attained at least five years of employment and who has not
already received the Anniversary Shares. A total of 57,200 shares of Common
Stock have been issued under this Long-Term Incentive Plan.
EMPLOYEE STOCK PURCHASE PLANS. On October 15, 1993, the Board of Directors
of the Company established the Dendrite International, Inc. Employee Stock
Purchase Plan (the "1994 ESPP") under the 1992 Stock Plan to enable eligible
employees to purchase Common Stock at three one-year intervals in 1994, 1995 and
1996. The 1994 ESPP became effective January 1, 1994 and was open at any given
stock purchase date to any employee of the Company or a subsidiary who had
completed two (2) years of full-time employment on or before such stock purchase
date. The Board of Directors determined that 300,000 of the 1,400,000 shares set
aside for the 1992 Stock Plan were to be allocated to the 1994 ESPP. The shares
would be available in increments of 100,000 shares per year or, if required, in
such greater number as the Board of Directors determined until all allocated
shares were exhausted. An eligible employee was entitled to purchase common
stock having a value not exceeding the lesser of (a) ten (10%) percent of his
annual salary in effect on the stock purchase date or (b) $20,000. In 1994, the
Board expanded the 1994 ESPP to make 160,000 shares available, of which 148,820
shares were purchased at the fair market value of the Common Stock of the
Company.
On February 14, 1995, the Board of Directors terminated the 1994 ESPP and
adopted and ratified a new Employee Stock Purchase Plan, which permits purchases
of Common Stock in 1995 and 1996 (the "1995 ESPP"). The 1995 ESPP expanded the
definition of eligible participants used in the 1994 ESPP to include not only
full-time employees with two (2) years of service, but to also include part-time
employees with five (5) years of service with the Company. For the 1995 ESPP,
the balance of 151,180 shares not purchased under the 1994 ESPP were made
available for purchase, of which 123,534 shares were purchased at the fair
market value of the Common Stock. The 1995 ESPP was terminated at the time of
consummation of the Company's initial public offering.
23
27
Future benefits under the 1992 Stock Plan are not currently determinable.
For additional information regarding grants and exercises of Options during the
fiscal year ended December 31, 1998, see "EXECUTIVE COMPENSATION AND RELATED
INFORMATION -- Executive Compensation."
If the shares are disposed of pursuant to a disqualifying disposition, any
gain realized on such disposition is treated as ordinary income to the extent of
the lesser of (a) the excess of the fair market value of such shares at the time
of exercise over the aggregate option price or (b) the excess of the amount
realized on the disposition over the aggregate option price (and the Company or
its subsidiaries will be entitled to a deduction for Federal income tax purposes
in an equal amount). Generally, if an ISO is exercised by the optionee more than
three months after termination of employment the tax consequences are the same
as described above for non-qualified stock options. Certain additional special
rules may apply if the Option price for an Option is paid for in shares
previously owned by the optionee rather than in cash or if the optionee is
subject to Section 16 of the Exchange Act.
ISO PLAN
The ISO Plan is intended to provide incentives to the senior management of
the Company, and is a qualified stock option plan under Section 422(b) of the
Code. Under this Plan, ISOs may be granted to any senior manager of the Company
or any subsidiary. For purposes of the ISO Plan, a senior manager includes (a)
any employee in the United States or Japan who holds the position of corporate
executive or senior director and (b) any employee in Europe who holds the
position of country manager or European regional manager. Approximately 770
persons were eligible to receive ISOs during the fiscal year ended December 31,
1998. However, no additional shares of Common Stock are currently available for
issuance under the ISO Plan.
The ISO Plan is administered by the Compensation Committee which currently
consists of Messrs. Kfoury and Osborne, each of whom is a member of the Board of
Directors. The granting of ISOs to an individual is at the discretion of the
Compensation Committee. Either authorized but unissued shares of Common Stock or
shares of Common Stock reacquired by the Company in any manner and eligible for
reissuance can be issued under the ISO Plan. Although 800,000 shares of Common
Stock have been reserved for issuance pursuant to the ISO Plan, subject to
adjustment as set forth in the ISO Plan, no additional shares of Common Stock
are currently available under the ISO Plan. The exercise price per share for
each ISO granted under the ISO Plan is not less than the fair market value per
share of Common Stock on the date of grant. The Compensation Committee
determines the exercise schedule of ISOs and, in its discretion, may accelerate
such exercisability.
If the holder of ISOs ceases to be employed by the Company (or a
subsidiary), other than by reason of death or disability, no further
installments of his ISO become exercisable and his vested ISOs terminate unless
exercised before the passage of 90 days from the date of termination of his
employment. In the case of disability or death, the ISO holder or his legal
representative, as the case may be, has 180 days to exercise all vested ISOs.
The ISO Plan contains detailed provisions concerning adjustment to ISOs in the
case of certain corporate events including, stock dividends and stock splits,
consolidations or mergers, and recapitalizations or reorganizations.
Future benefits under the ISO Plan are not currently determinable. For
additional information regarding grants and exercises of ISOs during the fiscal
year ended December 31, 1998, see "EXECUTIVE COMPENSATION AND RELATED
INFORMATION -- Executive Compensation."
FEDERAL INCOME TAX CONSEQUENCES OF THE 1992 STOCK PLAN. The Federal income
tax consequences with respect to Options granted under the 1992 Stock Plan are
as follows:
NON-QUALIFIED OPTIONS. When an optionee exercises a non-qualified stock
option, the excess, if any, of the fair market value of the shares on the date
of exercise over the option price will be ordinary income to the optionee, and
will be allowed as a deduction for Federal income tax purposes to the Company or
its subsidiaries.
24
28
INCENTIVE STOCK OPTIONS. When an optionee exercises an ISO while employed
by the Company or a subsidiary or within the three month period after
termination of employment (other than terminations on account of death or
disability), no ordinary income will be recognized by the optionee at the time
but the excess of the fair market value of the shares acquired by such exercise
over the option price will be an adjustment to taxable income for purposes of
the Federal alternative minimum tax applicable to individuals. If the shares
acquired upon exercise are disposed of more than one year after the date of
transfer and two years after the date of grant, the excess of the sale proceeds
over the aggregate option price of such shares will be long-term capital gain
but neither the Company nor any of its subsidiaries will be entitled to any tax
deductions with respect to such gain.
FEDERAL INCOME TAX CONSEQUENCES OF THE ISO PLAN. The Federal income tax
consequences with respect to ISOs granted under the ISO Plan are as follows:
When an optionee exercises an ISO while employed by the Company or a
subsidiary or within the three-month period after termination of employment
(other than terminations on account of death or disability) no ordinary income
will be recognized by the optionee at the time but the excess of the fair market
value of the shares acquired by such exercise over the option price will be an
adjustment to taxable income for purposes of the Federal alternative minimum tax
applicable to individuals. If the shares acquired upon exercise are disposed of
more than one year after the date of transfer and two years after the date of
grant, the excess of the sale proceeds over the aggregate option price of such
shares will be long-term capital gain but neither the Company nor any of its
subsidiaries will be entitled to any tax deductions with respect to such gain.
If the shares are disposed of prior to such date (a "disqualifying
disposition"), any gain realized on such disposition is treated as ordinary
income to the extent of the lesser of (a) the excess of the fair market value of
such shares at the time of exercise over the aggregate option price or (b) the
excess of the amount realized on the disposition over the aggregate option price
(and the Company or its subsidiary will be entitled to a deduction for Federal
income tax purposes in a like amount). Generally, if an ISO is exercised by the
optionee more than three months after termination of employment, the tax
consequences are the same as described above for Non-Qualified Options (See
"-- 1992 Stock Plan").
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the Company's directors, officers,
and any person holding more than ten percent of the Common Stock are required to
report initial ownership of the Common Stock and any subsequent changes in
ownership to the Securities and Exchange Commission ("SEC"). Specific due dates
have been established by the SEC, and the Company is required to disclose in
this Proxy Statement any failure to file by these dates. Except as set forth
below, based upon (i) the copies of the Section 16(a) reports that the Company
received from such persons for their 1998 fiscal year transactions and (ii) the
written representations received from one or more of such persons that no annual
Form 5 reports were required to be filed for them for the 1998 fiscal year, the
Company believes that there has been compliance with all Section 16(a) filing
requirements applicable to such directors, officers, and ten percent beneficial
owners.
The Company is aware that John E. Bailye, Chairman of the Board, President
and Chief Executive Officer of the Company, filed a Form 4 with the SEC on
January 10, 1999. The Company believes that such Form 4 should have been filed
no later than October 10, 1998.
SHAREHOLDER PROPOSALS FOR 1999 PROXY STATEMENT
Shareholder proposals that are intended to be presented at the 2000 Annual
Meeting of Shareholders currently expected to be held on or about May 16, 2000
must be received by the Company at its principal executive offices no later than
December 17, 1999 and must be in compliance with applicable SEC regulations, in
order to be included in the proxy statement and related proxy materials.
25
29
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ITS
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES, AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO DENDRITE INTERNATIONAL, INC., 1200
MOUNT KEMBLE AVENUE, MORRISTOWN, NEW JERSEY 07960-6797, ATTN: CHRISTOPHER J.
FRENCH, SECRETARY.
OTHER MATTERS
The Board knows of no other matters to be presented for shareholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Christopher J. French
Christopher J. French
Secretary
26
30
EXHIBIT A
DENDRITE INTERNATIONAL, INC.
1992 STOCK PLAN
AS AMENDED THROUGH APRIL 14, 1999
1. PURPOSE. This 1992 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Dendrite International,
Inc. (the "Company"), its parent (if any) and any present or future subsidiaries
of the Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-qualified Options") (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options". Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered
by the Board of Directors of the Company (the "Board"). The Board may
appoint a Stock Plan Committee (the "Committee") of three or more of its
members to administer this Plan. However, at least two members of the
Committee appointed by the Board to administer the Plan and to perform the
functions set forth herein must be "outside directors" within the meaning
of Section 162(m) of the Code. If the Committee has been so appointed, no
member of the Committee, while a member, shall be eligible to participate
in the Plan. Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by the Board
(if so required by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine the employees
of the Company and Related Corporation (from among the class of employees
eligible under paragraph 3 to receive ISOs) to whom ISOs may be granted,
and to determine (from among the class of individuals and entities eligible
under paragraph 3 to receive Non-Qualified Options and Awards and to make
Purchases) to whom Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at which Options
or Awards may be granted or Purchases made; (iii) determine the Option
price of shares subject to each Option, which price shall not be less than
the minimum price specified in paragraph 6, and the purchase price of
shares subject to each Purchase; (iv) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (v) determine (subject to
paragraph 7) the time or times when each Option shall become exercisable
and the duration of the exercise period; (vi) determine whether
restrictions such as repurchase Options are to be imposed on shares subject
to Options, Awards and Purchases and the nature of such restrictions, if
any, and (vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it deems necessary,
under Section 422 of the Code and the regulations promulgated thereunder,
to ensure that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any Stock
Right granted under it shall be final unless otherwise determined by the
Board. The Committee may from time to time adopt such rules and regulations
for carrying out the Plan as it may deem best. No member of the Board or
the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Stock Right granted under it.
A-1
31
B. COMMITTEE ACTIONS. The Committee may select one of its members as
its chairman, and shall hold meetings at such time and place as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be
the valid acts of the Committee. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be
granted to members of the Board, but any such grant shall be made and
approved in accordance with paragraph 2(D), if applicable. All grants of
Stock Rights to members of the Board shall in all other respects be made in
accordance with the provisions of this Plan applicable to other eligible
persons. Members of the Board who are either (i) eligible for Stock Rights
pursuant to the Plan or (ii) have been granted Stock Rights may vote on any
matters affecting the administration of the Plan or the grant of any Stock
Rights pursuant to the Plan, except that no such member shall act upon the
granting to himself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during
which action is taken with respect to the granting to him of the Stock
Rights.
D. COMPLIANCE WITH FEDERAL SECURITIES LAWS. In the event the Company
registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grant
of Stock Rights to a member of the Board (made at any time from the
effective date of such registration until six months after the termination
of such registration) must be approved by a majority vote of the Committee;
provided, however, that the Committee shall consist of two or more
directors, each of whom is a disinterested person, i.e., a director who is
not, during the one year prior to service as an administrator of the Plan,
eligible to be granted or awarded Options or equity securities pursuant to
the Plan or any other plan of the Company or a Related Company.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to an employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.
4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, no par value per
share (the "Common Stock"), or shares of the Common Stock reacquired by the
Company in any manner. The aggregate number of shares, on a post-split adjusted
basis, which may be issued pursuant to Stock Rights under the Plan is 2,400,000,
subject to adjustment as provided in paragraph 13. If any Option granted under
the Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Awards or
authorizations to Purchase, the unpurchased shares subject to such Options and
any unvested shares so reacquired by the Company shall again be available for
grants of Stock Rights under the Plan. Subject to adjustment as provided in
paragraph 13, no employee shall be granted in any calendar year Options to
purchase more than 500,000 shares of Common Stock, on a post-split adjusted
basis.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time on or after January 21, 1992 and prior to January 20, 2002. The date
of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
A-2
32
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less that the lesser of (i) the book
value per share of Common Stock as of the end of the fiscal year of the
company immediately preceding the date of such grant, or (ii) fifty percent
(50%) of the fair market value per share of Common Stock on the date of
such grant.
B. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related
Corporation, such ISOs do not become exercisable for the first time by such
employee during any calendar year in a manner which would entitle the
employee to purchase more than $100,000 in fair market value (determined at
the time the ISOs were granted) of Common Stock in that year. Any Options
granted to an employee in excess of such amount will be granted as
Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the Plan, the Common Stock is publicly traded, "fair market
value" shall be determined as of the last business day for which prices or
quotes are available prior to the date such Option is granted and shall
mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that date) of
the Common Stock on the Nasdaq National Market List, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the
Common Stock is not reported on the Nasdaq National Market List. However,
if the Common Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall be deemed to be the fair value of
the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, which date shall be no more than (i) ten years and one day from the
date of grant in the case of Non-Qualified Options, (ii) ten years from the date
of grant in the case of ISOs other than those ISOs described in clause (iii),
and (iii) five years from the date of grant in the case of ISOs granted to an
employee owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Related
Corporation. Subject to earlier termination as provided in paragraphs 9 and 10,
the term of each ISO shall be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is converted
into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
A-3
33
C. PARTIAL EXERCISE. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided
that the Committee shall not, without the consent of an optionee,
accelerate the exercise date of any installment of any Option granted to
any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the
annual vesting limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISO's granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he shall
have the right to exercise any ISO held by him on the date of termination
of employment, to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or 180 days from the date of
the termination of the optionee's employment. For the purposes of the Plan,
the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or successor statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS.
A. GENERAL TERMS AND CONDITIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee
may from time to time approve. Such instruments shall conform to the terms
and conditions set forth in paragraphs 6 through 11 hereof and may contain
such other provisions as the Committee deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of
Common Stock issuable upon exercise of Options. In granting any
Non-Qualified Option, the Committee may specify that such Non-Qualified
Option shall be subject to the restrictions set forth herein with respect
to ISO's, or to such other termination and cancellation
A-4
34
provisions as the Committee may determine. The Committee may from time to
time confer authority and responsibility on one or more of its own members
and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed
to take any and all action necessary or advisable from time to time to
carry out the terms of such instruments.
B. SPECIAL TERMS AND CONDITIONS. Without limiting the generality of
paragraph 12(A), the Committee may include in any such instrument described
in paragraph 12(A) one or more of the following provisions:
1. ADDRESSING THE BEHAVIOR OF INDIVIDUALS
"The exercise of any Option after termination of employment shall
be subject to satisfaction of the condition precedent that the optionee
neither takes other employment nor renders services to others without
the written consent of the Company, nor conducts himself/herself in a
manner adversely affecting the Company."
2. LIMITING PUBLIC COMMENTS
"You agree not to make any false, misleading, or negative
statements, either orally or in writing, about the Company, its
Directors or organizations they represent, or its Officers or to
otherwise disparage them or any of them, and Dendrite's Directors and
the organizations they represent, and its Executive Officers, agree not
to make any false, misleading or negative statements, either orally or
in writing, about you or to otherwise disparage you. The appropriate
liquidated damages for each such incident will be $25,000.00."
3. FORFEITURE OF BENEFITS
"The optionee acknowledges that a material part of the inducement
for the Company to enter into this agreement is the optionee's covenants
with respect to non-competition and non-disparagement set forth in this
agreement. The optionee agrees that if he shall breach any of those
covenants, the Company shall have no further obligation to pay the
optionee any benefits otherwise payable hereunder (except as may
otherwise be required at law) and shall be entitled to such other legal
and equitable relief as a court or arbitrator shall reasonably
determine, unless such breach is an inadvertent breach that does not
result in any significant harm to the Company."
13. ADJUSTMENTS. Upon the occurrence of any of the events described in
subparagraphs A, B or D below, an optionee's rights with respect to Stock Rights
granted to him hereunder (and the securities reserved for issuance hereunder)
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the Stock Right recipient and the
Company relating to such Stock Right:
A. ADJUSTMENTS IN CAPITALIZATION. Subject to any specific provisions
in paragraph B below, in the event of any change in the outstanding shares
of Common Stock (including any increase or decrease in such shares) by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or other similar
corporate change, or any distributions to common stockholders other than
regular cash dividends, the Committee, the Board or the board of directors
of any entity assuming the obligations of the Company hereunder (the
"Successor Board") may make such substitution or adjustment, if any, as it
deems to be equitable, as to the number or kind of shares of Common Stock
or other securities reserved for issuance pursuant to the Plan, or subject
to outstanding ISOs, and to any other terms and conditions of outstanding
ISOs including the ISO exercise price.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Committee, the Board, or the Successor Board, shall, as to outstanding
Options, either (i) make appropriate provision for the continuation of such
Options by substituting on an equitable basis for the shares then subject
to such Options the consideration payable with respect to the outstanding
shares of Common Stock in connection with the Acquisition; or (ii) upon
written notice to the optionees, provide that all Options must be
exercised, to the extent then exercisable, within a specified number of
days of the date of such notice, at the end of which period the Options
shall terminate; or (iii) terminate all Options
A-5
35
in exchange for a cash payment equal to the excess of the fair market value
of the shares subject to such ISOs (to the extent then exercisable) over
the exercise price thereof; or (iv) upon written notice to the optionees,
provided that all ISOs shall be immediately exercisable in full regardless
of any vesting schedule otherwise applicable.
C. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A or B with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs, it may refrain from
making such adjustments.
D. DISSOLUTION OF LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
E. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
F. RESTRICTED COMMON STOCK. If any person or entity owning
restricted Common Stock obtained by exercise of a Stock Right made
hereunder receives shares or securities or cash in connection with a
corporate transaction described in subparagraph A or B above as a result of
owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to
the restricted Common Stock with respect to which such shares or securities
or cash were issued, unless otherwise determined by the Committee or the
Successor Board or otherwise provided herein.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, or (c) at the discretion of the Committee, by delivery
of the grantee's personal recourse note bearing interest payable not less than
annually at not less than 100% of the lowest applicable Federal rate, as defined
in Section 1274(d) of the Code, or (d) at the discretion of the Committee,
through a cashless exercise procedure established with a broker dealer or (e) at
the discretion of the Committee, by any combination of (a), (b), (c) and (d)
above. If the committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in clauses (b), (c),
(d) or (e) of the preceding sentence, such discretion shall be exercised in
writing at the time of the grant of the ISO in question. The holder of a Stock
Right shall not have the rights of a shareholder with respect to the shares
covered by his Stock Right until the date of issuance of a stock certificate to
him for such shares. Except as expressly provided above in paragraph 13 with
respect to changes in capitalization and stock dividends, no adjustment shall be
made for dividends or similar rights for which the record date is before the
date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
January 21, 1992, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to January 20, 1993, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on January 20, 2002 (except as to Options outstanding on
that date). Subject to the provisions of paragraph 5 above, Stock Rights may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of stockholders obtained within 12 months before or
after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13);
A-6
36
(b) the provisions of paragraph 3 regarding eligibility for grants of ISOs may
not be modified; (c) the provisions of paragraph 6(B) regarding the exercise
price at which shares may be offered pursuant to ISOs may not be modified
(except by adjustment pursuant to paragraph 13); and (d) the expiration date of
the Plan may not be extended. Except as otherwise provided in this paragraph 15,
in no event may any action of the Committee, the Board or stockholders alter or
impair the rights of a grantee, without his consent, under any Stock Right
previously granted to him.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF
ISOS. The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such conversion.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of any Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW: CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the Laws
of the State of New Jersey, without regard to the conflict of laws provisions
thereof. In construing this Plan, the singular shall include the plural and the
masculine gender shall include the feminine and neuter, unless the context
otherwise requires.
A-7
37
EXHIBIT B
DENDRITE INTERNATIONAL, INC.
1992 SENIOR MANAGEMENT INCENTIVE STOCK OPTION PLAN
AS AMENDED THROUGH APRIL 14, 1999
1. PURPOSE. This 1992 Senior Management Incentive Stock Option Plan (the
"Plan") is intended to provide incentives: (a) to the senior managers of
Dendrite International, Inc. (the "Company"), its parent (if any) and any
present or future subsidiaries of the Company (collectively, "Related
Corporations") by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which qualify as "incentive stock
options" under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code") ("ISO" or "ISOs"). As used in this Plan, the term "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered
by the Board of Directors of the Company (the "Board"). The Board may
appoint a Stock Plan Committee (the "Committee") of three or more of its
members to administer this Plan. However, at least two members of the
Committee appointed by the Board to administer the Plan and to perform the
functions set forth herein must be "outside directors" within the meaning
of Section 162(m) of the Code. If the Committee has been so appointed, no
member of the Committee, while a member, shall be eligible to participate
in the Plan or any other option plan of the Company. All references in this
Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of each
ISO by the Board (if so required by applicable state law), and subject to
the terms of the Plan, the Committee shall have the authority to determine
the employees of the Company and Related Corporation (from among the class
of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may
be granted; (ii) determine the time or times at which ISOs may be granted;
(iii) determine the option price of shares subject to each ISO, which price
shall not be less than the minimum price specified in paragraph 6; (iv)
determine (subject to paragraph 7) the time or times when each ISO shall
become exercisable and the duration of the exercise period; (v) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to ISOs and the nature of such restrictions, if any, and (vi)
interpret the Plan and prescribe and rescind rules and regulations relating
to it. The interpretation and construction by the Committee of any
provisions of the Plan or of any ISO granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan as it may deem
best. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
ISO granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members as
its chairman, and shall hold meetings at such time and place as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the committee, shall be
the valid acts of the Committee. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
C. GRANT OF ISOS TO BOARD MEMBERS. ISOs may not be granted to
members of the Board under the terms of this Plan.
3. ELIGIBLE EMPLOYEES. ISOs may be granted to any employee of the Company
or any Related Corporation who is a senior manager. Employees of the Company who
are not senior managers may not be granted ISOs under the Plan. The Committee
may take into consideration a recipient's individual circumstances in
determining whether to grant an ISO. Granting of any ISO to any individual or
entity shall neither entitle that individual or entity to, nor disqualify him
from, participation in any other grant of stock rights
B-1
38
under any other plan of the Company. For purposes of this Plan, a "senior
manager" shall include (i) any employee in the United States or Japan who holds
the position of Corporate Executive or Senior Director, and (ii) any employee in
Europe who holds the position of Country Manager or European Regional Manager.
4. STOCK. The stock subject to ISOs shall be authorized but unissued
shares of Common Stock of the Company, no par value per share (the "Common
Stock"), or shares of the Common Stock reacquired by the Company in any manner.
The aggregate number of shares, on a post-split adjusted basis, which may issued
as ISOs pursuant to the Plan is 800,000, subject to adjustment as adjustment as
provided in paragraph 13. If any ISO granted under the Plan expires or
terminates for any reason without having been exercised in full or ceases for
any reason to be exercisable in whole or in part, the unpurchased shares subject
to such ISOs shall again be available for grants of ISOs under the Plan. Subject
to adjustment as provided in paragraph 13, no employee shall be granted in any
calendar year ISOs to purchase more than 500,000 shares of Common Stock, on a
post-split adjusted basis.
5. GRANTING OF ISOS. ISOs may be granted under the Plan at any time on or
after October 21, 1992 and prior to October 20, 2002. The date of grant of an
ISO under the Plan will be the date specified by the Committee at the time it
grants the ISO; provided, however, that such date shall not be prior to the date
on which the Committee acts to approve the grant. The Committee shall have the
right, with the consent of the optionee, to convert an ISO granted under the
Plan to a non-qualified option pursuant to paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock on the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant.
B. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related
Corporation, such ISOs do not become exercisable for the first time by such
employee during any calendar year in a manner which would entitle the
employee to purchase more than $100,000 in fair market value (determined at
the time the ISOs were granted) of Common Stock in that year. Any options
granted to an employee in excess of such amount will be granted as
non-qualified options.
C. DETERMINATION OF FAIR MARKET VALUE. If, at the time an ISO is
granted under the Plan, the Common Stock is publicly traded, "fair market
value" shall be determined as of the last business day for which the prices
or quotes are available prior to the date such ISO is granted and shall
mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that date) of
the Common Stock on the Nasdaq National Market List, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the
Common Stock is not reported on the Nasdaq National Market List. However,
if the Common Stock is not publicly traded at the time an ISO is granted
under the Plan, "fair market value" shall be deemed to be the fair value of
the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each ISO shall expire on the date specified by the
Committee, which date shall be no more than (i) ten years from the date of grant
in the case of ISOs other than those ISOs described in clause (ii), and (ii)
five years from the date of grant in the case of ISOs granted to an employee
owning stock possessing more than ten percent (10%) of the
B-2
39
total combined voting power of all classes of stock of the Company or any
Related Corporation. Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a non-qualified option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each ISO granted under the Plan shall be exercisable as follows:
A. VESTING. The ISO shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of
the ISO, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each ISO or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any ISO; provided
that the Committee shall not, without the consent of an optionee,
accelerate the exercise date of any installment of any ISO granted to any
employee (and not previously converted into a non-qualified option pursuant
to paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in
paragraph 6(B).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installment of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into non-qualified
options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISO's granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any guarantee of any ISO the right to be
retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he shall
have the right to exercise any ISO held by him on the date of termination
of employment, to the extent of the number of shares with respect to which
he could have exercised it on that date, at any time prior to the earlier
of the specified expiration date of the ISO or 180 days from the date of
the termination of the optionee's employment. For the purposes of the Plan,
the term "disability" shall mean "permanent and total disability" as
defined in Section 22 (e) (3) of the Code or successor statute.
B-3
40
11. ASSIGNABILITY. No ISO shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each ISO shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS.
A. GENERAL TERMS AND CONDITIONS. ISOs shall be evidenced by
instruments (which need not be identical) in such forms as the Committee
may from time to time approve. Such instruments shall conform to the terms
and conditions set forth in paragraphs 6 through 11 of this Plan and may
contain such other provisions as the Committee deems advisable which are
not inconsistent with the Plan, including restrictions applicable to shares
of Common stock issuable upon exercise of Options. The Committee may from
time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver
such instruments. The proper officers of the Company are authorized and
directed to take any and all action necessary or advisable from time to
time to carry out the terms of such instruments.
B. SPECIAL TERMS AND CONDITIONS. Without limiting the generality of
paragraph 12(A), the Committee may include in any such instrument described
in paragraph 12(A) one or more of the following provisions:
1. ADDRESSING THE BEHAVIOR OF INDIVIDUALS
"The exercise of any Option after termination of employment shall
be subject to satisfaction of the condition precedent that the optionee
neither takes other employment nor renders services to others without
the written consent of the Company, nor conducts himself/herself in a
manner adversely affecting the Company."
2. LIMITING PUBLIC COMMENTS
"You agree not to make any false, misleading, or negative
statements, either orally or in writing, about the Company, its
Directors or organizations they represent, or its Officers or to
otherwise disparage them or any of them, and Dendrite's Directors and
the organizations they represent, and its Executive Officers, agree not
to make any false, misleading or negative statements, either orally or
in writing, about you or to otherwise disparage you. The appropriate
liquidated damages for each such incident will be $25,000.00."
3. FORFEITURE OF BENEFITS
"The optionee acknowledges that a material part of the inducement
for the Company to enter into this agreement is the optionee's covenants
with respect to non-competition and non-disparagement set forth in this
agreement. The optionee agrees that if he shall breach any of those
covenants, the Company shall have no further obligation to pay the
optionee any benefits otherwise payable hereunder (except as may
otherwise be required at law) and shall be entitled to such other legal
and equitable relief as a court or arbitrator shall reasonably
determine, unless such breach is an inadvertent breach that does not
result in any significant harm to the Company."
13. ADJUSTMENTS. Upon the occurrence of any of the events described in
subparagraphs A, B or D below, an optionee's rights with respect to ISOs granted
to him under this Plan (and the securities reserved for issuance hereunder),
shall be adjusted as provided in this paragraph unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such ISO:
A. ADJUSTMENTS IN CAPITALIZATION. Subject to any specific provisions
in paragraph B below, in the event of any change in the outstanding shares
of Common Stock (including any increase or decrease in such shares) by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or other similar
corporate change, or any distributions to common stockholders other than
regular cash dividends, the Committee, the Board or the board of directors
of any entity assuming the obligations of the Company hereunder (the
"Successor Board") may make such substitution or adjustment, if any, as it
deems to be equitable, as to the number or kind of shares of
B-4
41
Common Stock or other securities reserved for issuance pursuant to the
Plan, or subject to outstanding ISOs, and to any other terms and conditions
of outstanding ISOs including the ISO exercise price.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Committee, the Board, or the Successor Board, shall, as to outstanding
ISOs, either (i) make appropriate provision for the continuation of such
ISOs by substituting on a equitable basis for the shares then subject to
such ISOs the consideration payable with respect to the outstanding shares
of Common Stock in connection with the Acquisition; or (ii) upon written
notice to the optionees, provide that all ISOs must be exercised, to the
extent then exercisable, within a specified number of days of the date of
such notice, at the end of which period the ISOs shall terminate; or (iii)
terminate all ISOs in exchange for a cash payment equal to the excess of
the fair market value of the shares subject to such ISOs (to the extent
then exercisable) over the exercise price thereof; or (iv) upon written
notice to the optionees, provide that all ISOs shall be immediately
exercisable in full regardless of any vesting schedule otherwise
applicable.
C. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A or B with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs, it may refrain from
making such adjustments.
D. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each ISO will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
E. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
F. RESTRICTED COMMON STOCK. If any person or entity owning
restricted Common Stock obtained by exercise of a ISO under this Plan
receives shares or securities or cash in connection with a corporate
transaction described in subparagraphs A or B above as a result of owning
such restricted Common Stock such shares or securities or cash shall be
subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or
cash were issued, unless otherwise determined by the Committee or the
Successor Board.
14. MEANS OF EXERCISING ISOS. A ISO (or any part or installment thereof)
shall be exercised by giving written notice to the Company at its principal
office address. Such notice shall identify the ISO being exercised and specify
the number of shares as to which such ISO is being exercised, accompanied by
full payment of the purchase price therefor either (a) in United States dollars
in cash or by check, or (b) at the discretion of the Committee, through delivery
of shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the ISO, or (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at not less than 100% of the lowest applicable
Federal rate, as defined in section 1274(d) of the Code, or (d) at the
discretion of the Committee, through a cash-less exercise procedure established
with a broker-dealer, or (e) at the discretion of the Committee, by any
combination of (a), (b), (c) and (d) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c), (d), or (e) of the preceding sentence,
such discretion shall be exercised in writing at the time of the grant of the
ISO in question. The holder of an ISO shall not have the rights of a shareholder
with respect to the shares covered by his ISO until the date of issuance of a
stock certificate to him for such shares. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
B-5
42
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
October 21, 1992, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders, or in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to October 20, 1993, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on October 20, 2002 (except as to ISOs outstanding on that
date). Subject to the provisions of paragraph 5 above, ISOs may be granted under
the plan prior to the date of stockholder approval of the plan. The Board may
terminate or amend the Plan in any respect at any time, except that, without the
approval of the stockholders obtained within 12 months before or after the Board
adopts a resolution authorizing any of the following actions: (a) the total
number of shares that may be issued under the Plan may not be increased (except
by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may any action of the
Committee, the Board or stockholders alter or impair the rights of a grantee,
without his consent, under any ISO previously granted to him. In the event of a
conversion of any ISO into a non-qualified option, all references to ISOs shall
be deemed to apply, to the extent appropriate, to such non-qualified option.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF
ISOS. The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments there of) that have not been
exercised on the date of conversion into non-qualified options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may included, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting non-qualified
options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into non-qualified options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such conversion.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to ISOs issued under the Plan shall be used for general
corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
non-qualified option, or the making of a Disqualifying Disposition (as defined
in paragraph 20), the Company, in accordance with Section 3402(a) of the Code,
may require the optionee to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition the exercise of an ISO on the
grantee's payment of such additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirement do
not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
Plan and the instrument evidencing ISOs shall be governed by the Laws of the
State of New Jersey, without regard to the conflict of laws provisions thereof.
In construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
B-6
43
APPENDIX A
DENDRITE INTERNATIONAL, INC.
1997 STOCK INCENTIVE PLAN
AS AMENDED THROUGH APRIL 14, 1999
1. Purpose. The purpose of the Dendrite International, Inc. 1997
Stock Incentive Plan (the "Plan") is to enhance the ability of Dendrite
International, Inc. (the "Company") and its subsidiaries to attract and retain
employees, directors and consultants of outstanding ability and to provide
employees, directors and consultants with an interest in the Company parallel to
that of the Company's shareholders.
2. Definitions.
(a) "Award" shall mean an award determined in accordance with
the terms of the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Change in Control" shall mean the occurrence of any one
of the following events:
(i) any "person" (as such term is defined in Section
3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 33-1/3% or
more of the combined voting power of the Company's then outstanding
securities eligible to vote for the election of the Board (the
"Company Voting Securities"); provided, however, that the event
described in this paragraph (i) shall not be deemed to be a Change
in Control by virtue of any of the following acquisitions: (A) by
the Company or any subsidiary, (B) by any employee benefit plan
sponsored or maintained by the Company or any subsidiary, (C) by any
underwriter temporarily holding securities pursuant to an offering
of such securities, (D) pursuant to a Non-Control Transaction (as
defined in paragraph (iii)), or (E) a transaction (other than one
described in (iii) below) in which Company Voting Securities are
acquired from the Company, if a majority of the Incumbent Board (as
defined below) approves a resolution providing expressly that the
acquisition pursuant to this clause (E) does not constitute a Change
in Control under this paragraph (i);
(ii) individuals who, on the Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority thereof, provided that any person becoming a
director subsequent to the Effective Date, whose election or
nomination for election was approved by a vote of at least
two-thirds of the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without objection to such nomination) shall be considered a member
of the Incumbent Board; provided, however, that no individual
initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with 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;
44
(iii) the shareholders of the Company approve a merger,
consolidation, share exchange or similar form of corporate
reorganization of the Company or any such type of transaction
involving the Company or any of its subsidiaries (whether for such
transaction or the issuance of securities in the transaction or
otherwise) (a "Business Combination"), unless immediately following
such Business Combination: (A) more than 50% of the total voting
power of the publicly traded corporation resulting from such
Business Combination (including, without limitation, any corporation
which directly or indirectly has beneficial ownership of 100% of the
Company Voting Securities or all or substantially all of the assets
of the Company and its subsidiaries) eligible to elect directors of
such corporation would be represented by shares that were Company
Voting Securities immediately prior to such Business Combination
(either by remaining outstanding or being converted), and such
voting power would be in substantially the same proportion as the
voting power of such Company Voting Securities immediately prior to
the Business Combination, (B) no person (other than any publicly
traded holding company resulting from such Business Combination, any
employee benefit plan sponsored or maintained by the Company (or the
corporation resulting from such Business Combination), or any person
which beneficially owned, immediately prior to such Business
Combination, directly or indirectly, 33-1/3% or more of the Company
Voting Securities (a "Company 33-1/3% Stockholder")) would become
the beneficial owner, directly or indirectly, of 33-1/3% or more of
the total voting power of the outstanding voting securities eligible
to elect directors of the corporation resulting from such Business
Combination and no Company 33-1/3% Stockholder would increase its
percentage of such total voting power, and (C) at least a majority
of the members of the board of directors of the corporation
resulting from such Business Combination would be members of the
Incumbent Board at the time of the Board's approval of the execution
of the initial agreement providing for such Business Combination (a
"Non-Control Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or the sale or
disposition of all or substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 33-1/3% of the Company Voting Securities as a result of
the acquisition of Company Voting Securities by the Company which, by reducing
the number of Company Voting Securities outstanding, increases the percentage of
shares beneficially owned by such person; provided, that if a Change in Control
of the Company would occur as a result of such an acquisition by the Company (if
not for the operation of this sentence), and after the Company's acquisition
such person becomes the beneficial owner of additional Company Voting Securities
that increases the percentage of outstanding Company Voting Securities
beneficially owned by such person, then a Change in Control of the Company shall
occur.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Committee" shall mean a committee of at least two members
of the Board appointed by the Board to administer the Plan and to perform the
functions set forth herein and who are "non-employee directors" within the
meaning of Rule 16b-3 as promulgated under Section 16 of the Exchange Act and
who are also "outside directors" within the meaning of Section 162(m) of the
Code.
-2-
45
(f) "Common Stock" shall mean the common stock, no par value
per share, of the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(h) "Fair Market Value" per share as of a particular date
shall mean the last reported sale price (on the day immediately preceding such
date) of the Common Stock on the Nasdaq National Market List.
(i) "Immediate Family Member" shall mean, except as otherwise
determined by the Committee, a Participant's children, stepchildren,
grandchildren, parents, stepparents, grandparents, spouse, siblings, in-laws and
persons related by reason of legal adoption.
(j) "Incentive Stock Option" shall mean a stock option which
is intended to meet the requirements of Section 422 of the Code.
(k) "Non-Employee Director" shall mean a member of the Board
who is not an employee of the Company or any Subsidiary.
(l) "Nonqualified Stock Option" shall mean a stock option
which is not intended to be an Incentive Stock Option.
(m) "Option" shall mean either an Incentive Stock Option or a
Nonqualified Stock Option.
(n) "Participant" shall mean an employee, director or
consultant of the Company or its Subsidiaries who is selected to participate in
the Plan in accordance with Section 5.
(o) "Subsidiary" shall mean any subsidiary of the Company that
is a corporation and which at the time qualifies as a "subsidiary corporation"
within the meaning of Section 424(f) of the Code.
3. Shares Subject to the Plan. Subject to adjustment in accordance
with Section 16, the total of the number of shares of Common Stock which shall
be available for the grant of Awards under the Plan shall not exceed 4,000,000
shares, on a post-split adjusted basis; provided, that, for purposes of this
limitation, any Option which is canceled or expires without exercise shall again
become available for Awards under the Plan. Upon forfeiture of Awards in
accordance with the provisions of the Plan, and the terms and conditions of the
Award, such shares shall no longer be counted in any determination of the number
of shares available under the Plan and shall be available for subsequent Awards.
Subject to adjustment in accordance with Section 16, no employee shall be
granted in any calendar year Options to purchase more than 1,000,000 shares of
Common Stock. Shares of Common Stock available for issue or distribution under
the Plan shall be authorized and unissued shares or shares reacquired by the
Company in any manner.
-3-
46
4. Administration. (a) The Plan shall be administered by the
Committee.
(b) The Committee shall (i) approve the selection of
Participants, (ii) determine the type of Awards to be made to Participants,
(iii) determine the number of shares of Common Stock subject to Awards, (iv)
determine the terms and conditions of any Award granted hereunder (including,
but not limited to, any restriction and forfeiture conditions on such Award) and
(v) have the authority to interpret the Plan, to establish, amend, and rescind
any rules and regulations relating to the Plan, to determine the terms and
provisions of any agreements entered into hereunder, and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Award in the manner and to the extent it
shall deem desirable to carry it into effect.
(c) Any action of the Committee shall be final, conclusive and
binding on all persons, including the Company and its Subsidiaries and
shareholders, Participants and persons claiming rights from or through a
Participant.
(d) The Committee may delegate to officers or employees of the
Company or any Subsidiary, and to service providers, the authority, subject to
such terms as the Committee shall determine, to perform administrative functions
with respect to the Plan and Award agreements.
(e) Members of the Committee and any officer or employee of
the Company or any Subsidiary acting at the direction of, or on behalf of, the
Committee shall not be personally liable for any action or determination taken
or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified by the Company with respect to any such
action or determination.
5. Eligibility. Individuals eligible to receive Awards under the
Plan shall be the directors, officers, other key employees and selected
consultants of the Company and its Subsidiaries selected by the Committee. In
addition, all Non-Employee Directors shall be eligible to receive Options as
provided in Section 9 hereof.
6. Awards. Awards under the Plan may consist of Options, stock
awards or other awards based on the value of the Common Stock. Awards shall be
subject to the terms and conditions of the Plan and shall be evidenced by an
agreement containing such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall deem desirable.
7. Options. Options may be granted under the Plan in such form as
the Committee may from time to time approve pursuant to terms set forth in an
Option agreement. The Committee may alter or waive, at any time, any term or
condition of an Option that is not mandatory under the Plan.
(a) Types of Options. Each Option agreement shall state
whether or not the Option will be treated as an Incentive Stock Option or
Nonqualified Stock Option. Incentive Stock Options shall only be granted to
employees of the Company and its Subsidiaries.
(b) Option Price. The purchase price per share of the Common
Stock purchasable under an Option shall be determined by the Committee, but in
the case of Incentive Stock Options, the Option price will be not less than 100%
of the Fair Market Value of the Common Stock on the date of the grant of the
Option and in the case of Incentive Stock Options granted to an employee owning
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company
-4-
47
and its Subsidiaries (a "10% Shareholder") the price per share specified in the
agreement relating to such Option shall not be less than 110% of the Fair Market
Value per share of the Common Stock on the date of grant.
(c) Option Period. The term of each Option shall be fixed by
the Committee, but no Option shall be exercisable after the expiration of 10
years from the date the Option is granted, provided, however, that in the case
of Incentive Stock Options granted to 10% Shareholders, the term of such Option
shall not exceed 5 years from the date of grant.
(d) Exercisability. Each Option shall vest and become
exercisable at a rate determined by the Committee at or subsequent to grant.
(e) Method of Exercise. Options may be exercised, in whole or
in part, by giving written notice of exercise to the Company specifying the
number of shares of Common Stock to be purchased. Such notice shall be
accompanied by the payment in full of the Option purchase price. Such payment
shall be made: (a) in cash, or (b) to the extent authorized by the Committee, by
surrender of shares of Common Stock owned by the holder of the Option, or (c)
through simultaneous sale through a broker of shares acquired on exercise, as
permitted under Regulation T of the Federal Reserve Board, or (d) through
additional methods prescribed by the Committee, or (e) by a combination of any
such methods.
8. Stock Awards. Subject to such performance and employment
conditions as the Committee may determine, awards of Common Stock or awards
based on the value of the Common Stock may be granted either alone or in
addition to Options granted under the Plan. Any Awards under this Section 8 and
any Common Stock covered by any such Award may be forfeited to the extent so
provided in the Award agreement, as determined by the Committee.
9. Non-Employee Director Stock Options.
(a) Initial Grant. Nonqualified Stock Options to purchase
30,000 shares of Common Stock shall be granted automatically to each
Non-Employee Director who is a Non-Employee Director on the day the Board
approves the adoption of the Plan. With respect to each person who becomes a
Non-Employee Director after such date, Nonqualified Stock Options to purchase
30,000 shares of Common Stock shall be granted automatically to each such
Non-Employee Director on the day he or she first becomes a Non-Employee
Director.
(b) Subsequent Options. In addition to the Nonqualified Stock
Options granted to Non-Employee Directors under Section 9(a), Nonqualified Stock
Options to purchase 10,000 shares of Common Stock shall be granted automatically
to each Non-Employee Director, effective on the third anniversary date on which
such director was granted an Initial Option under Section 9(a) and on each
anniversary date thereafter; provided, however, he or she continues to serve as
a Non-Employee Director on such date.
(c) Option Price. The purchase price for each Option granted
under this Section 9 to a Non-Employee Director shall be the Fair Market Value
of the Common Stock on the date of grant of the Option.
(d) Exercisability. Each Initial Option and Subsequent Option
granted under this Section 9 shall become exercisable and vest on the first
anniversary of the date of grant of such Option.
-5-
48
(e) Method of Exercise. Each Option granted under this Section
9 may be exercised in the same manner as provided in Section 7(e).
(f) Option Period. Each Option granted under this Section 9
shall terminate 10 years from the date of grant unless sooner terminated by
reason of termination of service as a director of the Company and its
Subsidiaries.
(g) Termination of Director Status.
(i) In the event of termination of service as a director
of the Company and its Subsidiaries for any reason other than cause,
death or permanent disability (as determined by the Committee), an
Option granted under this Section 9 (to the extent exercisable as of
the date of termination) shall be exercisable for the remaining term
of the Option and shall thereafter terminate.
(ii) In the event of the death of a Non-Employee
Director while a director of the Company or any Subsidiaries, the
Option (to the extent exercisable as of the date of death), shall be
exercisable by any prior transferee or by the Non-Employee
Director's designated beneficiary, or if none, the person(s) to whom
such Non-Employee Director's rights under the Option are transferred
by will or the laws of descent and distribution for 180 days
following the date of death (but in no event beyond the term of the
Option), and shall thereafter terminate.
(iii) In the event of the termination of service as a
director of the Company and its Subsidiaries due to permanent
disability (as determined by the Committee), the Option (to the
extent exercisable as of the date of termination), shall be
exercisable for 180 days following such termination of service (but
in no event beyond the term of the Option), and shall thereafter
terminate.
(iv) In the event of the termination of service as a
director of the Company and its Subsidiaries for cause (as
determined by the Committee in its sole discretion), the Option
shall terminate upon such termination of status as director,
regardless of whether the Option was then exercisable.
(h) Except as expressly provided in this Section 9, any Option
granted to a Non-Employee Director hereunder shall be subject to the terms and
conditions of the Plan.
10. Change in Control. Upon the occurrence of a Change in Control,
all Options shall automatically become vested and exercisable in full and all
restrictions or conditions, if any, on any stock awards granted hereunder shall
automatically lapse. The Committee may, in its discretion, include such further
provisions and limitations in any agreement documenting such Options as it may
deem equitable and in the best interests of the Company.
11. Forfeiture. Notwithstanding anything in the Plan to the
contrary, the Committee may provide in any Award agreement that in the event of
a serious breach of conduct by the person granted such Award (including, without
limitation, any conduct prejudicial to or in conflict with the Company or its
Subsidiaries), or any activity of any such person in competition with any of the
businesses of the Company or any Subsidiary, (a) cancel any outstanding Award
granted to such person, in whole or in part, whether or not vested, and/or (b)
if such conduct or activity occurs within 1 year following the exercise or
payment
-6-
49
of an Award, require such person to repay to the Company any gain realized or
payment received upon the exercise or payment of such Award (with such gain or
payment valued as of the date of exercise or payment). Such cancellation or
repayment obligation shall be effective as of the date specified by the
Committee. Any repayment obligation may be satisfied in Common Stock or cash or
a combination thereof (based upon the Fair Market Value of Common Stock on the
day prior to the date of payment), and the Committee may provide for an offset
to any future payments owed by the Company or any Subsidiary to such person if
necessary to satisfy the repayment obligation. The determination of whether any
such person has engaged in a serious breach of conduct or any activity in
competition with any of the businesses of the Company or any Subsidiary shall be
determined by the Committee in good faith and in its sole discretion. This
Section 11 shall have no application following a Change in Control.
12. Withholding. The Company shall have the right to deduct from any
payment to be made pursuant to the Plan the amount of any taxes required by law
to be withheld therefrom, or to require a Participant to pay to the Company in
cash such amount required to be withheld prior to the issuance or delivery of
any shares of Common Stock or the payment of cash under the Plan. Such taxes may
be paid by (a) delivering previously owned shares of Common Stock or (b) having
the Company retain shares of Common Stock which would otherwise be delivered
upon exercise or payment of Awards or (c) any combination of a cash payment or
the methods set forth in (a) and (b) above. For purposes of (a) and (b) above,
shares of Common Stock shall be valued at Fair Market Value determined as of the
day immediately prior to exercise or payment. If and to the extent authorized by
the Committee, the Company may, upon election by a Participant, withhold from
any distribution of Common Stock hereunder shares of Common Stock with a Fair
Market Value in excess of the Participant's required withholding obligation.
13. Nontransferability, Beneficiaries. Unless otherwise determined
by the Committee with respect to the transferability of Nonqualified Stock
Options by a Participant to his Immediate Family Members (or to trusts or
partnerships or limited liability companies established for such family
members), no Award shall be assignable or transferable by the Participant,
otherwise than by will or the laws of descent and distribution or pursuant to a
beneficiary designation, and Options shall be exercisable, during the
Participant's lifetime, only by the Participant (or by the Participant's legal
representatives in the event of the Participant's incapacity). Each Participant
may designate a beneficiary to exercise any Option held by the Participant at
the time of the Participant's death or to be assigned any other Award
outstanding at the time of the Participant's death. If no beneficiary has been
named by a deceased Participant, any Award held by the Participant at the time
of death shall be transferred as provided in his will or by the laws of descent
and distribution. Except in the case of the holder's incapacity, an Option may
only be exercised by the holder thereof.
14. No Right to Employment. Nothing contained in the Plan or in any
Award under the Plan shall confer upon any employee any right with respect to
the continuation of employment with the Company or any of its Subsidiaries, or
interfere in any way with the right of the Company to terminate his or her
employment at any time. Nothing contained in the Plan shall confer upon any
employee or other person any claim or right to any Award under the Plan.
15. Governmental Compliance. Each Award under the Plan shall be
subject to the requirement that if at any time the Committee shall determine
that the listing, registration or qualification of any shares issuable or
deliverable thereunder upon any securities exchange or under any Federal or
state law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition thereof, or in connection therewith, no
such grant or award may be exercised or shares issued or delivered unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
-7-
50
16. Adjustments. In the event of any change in the outstanding
shares of Common Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spinoff, combination or exchange of
shares or other corporate change, or any distribution to holders of Common Stock
other than regular cash dividends, the number or kind of shares available for
Options and Awards under the Plan may be adjusted by the Committee as it shall
in its sole discretion deem equitable and the number and kind of shares subject
to any outstanding Awards granted under the Plan and the purchase price thereof
may be adjusted by the Committee as it shall in its sole discretion deem
equitable to preserve the value of such Awards.
17. Award Agreement. Each Award under the Plan shall be evidenced by
an agreement setting forth the terms and conditions, as determined by the
Committee, which shall apply to such Award, in addition to the terms and
conditions specified in the Plan.
18. Amendment. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, provided that (a) except as provided in Section
16, no amendment shall be made that would adversely affect the rights of a
Participant under an Award theretofore granted, without such Participant's
written consent and (b) if and when the Plan is approved by the shareholders of
the Company, no amendment made after such approval shall be made without
shareholder approval if such approval is necessary to comply with any applicable
law, regulation or stock exchange rule.
19. General Provisions.
(a) The Committee may require each Participant purchasing or
acquiring shares pursuant to an Award under the Plan to represent to and agree
with the Company in writing that such Participant is acquiring the shares for
investment and without a view to distribution thereof.
(b) All certificates for shares of Common Stock delivered
under the Plan pursuant to any Award shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is then listed, and
any applicable Federal or state securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. If the Committee determines that the issuance of
shares of Common Stock hereunder is not in compliance with, or subject to an
exemption from, any applicable Federal or state securities laws, such shares
shall not be issued until such time as the Committee determines that the
issuance is permissible.
(c) It is the intent of the Company that the Plan satisfy, and
be interpreted in a manner that satisfies, the applicable requirements of Rule
16b-3 as promulgated under Section 16 of the Exchange Act so that Participants
will be entitled to the benefit of Rule 16b-3, or any other rule promulgated
under Section 16 of the Exchange Act, and will not be subject to short-swing
liability under Section 16. Accordingly, if the operation of any provision of
the Plan would conflict with the intent expressed in this Section 19(c), such
provision to the extent possible shall be interpreted and/or deemed amended so
as to avoid such conflict.
(d) Except as otherwise provided by the Committee in the
applicable grant or Award agreement, a Participant shall have no rights as a
shareholder with respect to any shares of Common Stock subject to Options until
a certificate or certificates evidencing shares of Common Stock shall have been
issued to the Participant and, subject to Section 16, no adjustment shall be
made for
-8-
51
dividends or distributions or other rights in respect of any share for
which the record date is prior to the date on which Participant shall become the
holder of record thereof.
(e) The law of the State of New Jersey shall apply to all
Awards and interpretations under the Plan regardless of the effect of such
state's conflict of laws principles.
(f) Where the context requires, words in any gender shall
include any other gender.
20. Term of Plan. Subject to earlier termination pursuant to Section
18, the Plan shall have a term of 10 years from its Effective Date.
21. Effective Date. The Plan is effective as of July 24, 1997.
-9-
52
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
DENDRITE INTERNATIONAL, INC.
The undersigned hereby appoints John E. Bailye, George T. Robson and
Christopher J. French as proxies, with power to act without the other and with
power of substitution, hereby authorizes them to represent and vote, as
designated on the other side, all the shares of stock of Dendrite
International, Inc. (the "Company") standing in the name of the undersigned
with all powers which the undersigned would possess if present at the Annual
Meeting of Shareholders of the Company to be held May 11, 1999 or any
adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
* FOLD AND DETACH HERE *
53
PROXY BY MAIL Mark vote
like this
THIS PROXY WILL BE VOTED AS DIRECTED, /X/
OR IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" THE PROPOSALS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Board of Directors recommends
a vote FOR items 1, 2, 3 and 4
ITEM 1-ELECTION OF DIRECTORS
NOMINEES: WITHHELD
01 John E. Bailye FOR FOR ALL
02 Bernard M. Goldsmith / / / /
03 Edward J. Kfoury
04 Paul A. Margolis
05 John H. Martinson
06 Terence H. Osborne
WITHHELD FOR: (Write that nominee's name in the space provided below).
- ---------------------------------------------------------------------
ITEM 2 -- APPOINTMENT OF ARTHUR ANDERSEN LLP FOR AGAINST ABSTAIN
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
/ / / / / /
ITEM 3 -- APPROVAL OF AN AMENDMENT TO THE 1997 FOR AGAINST ABSTAIN
STOCK INCENTIVE PLAN
/ / / / / /
ITEM 4 -- REAPPROVAL OF 1992 STOCK PLAN AND 1992 FOR AGAINST ABSTAIN
SENIOR MANAGEMENT INCENTIVE STOCK OPTION
PLAN / / / / / /
- -------------------------------------------------------------------------
IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE INSTRUCTIONS BELOW.
- -------------------------------------------------------------------------
------------------
COMPANY NUMBER:
PROXY NUMBER:
ACCOUNT NUMBER:
------------------
Signature -------------------- Signature ------------- Date -------------
NOTE: Please sign exactly as name appears herein. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give your title as such.
* FOLD AND DETACH HERE AND READ THE REVERSE SIDE *
----------------------------------------------------------------
VOTE BY INTERNET
----------------------------------------------------------------
DENDRITE INTERNATIONAL, INC.
* You can now vote your shares electronically through the Internet.
* This eliminates the need to return the proxy card.
* Your electronic vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed, dated and
returned the proxy card.
TO VOTE YOUR PROXY BY MAIL
--------------------------
Mark, sign and date your proxy card above, detach it and return it
in the postage-paid envelope provided.
TO VOTE YOUR PROXY BY INTERNET
------------------------------
www.drte.com
Have your proxy card in hand when you access the above website.
You will be prompted to enter the company number, proxy number
and account number to create an electronic ballot. Follow the
prompts to vote your shares.
PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED ELECTRONICALLY
- -----------------------------------------------------------