<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1996.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SPSS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 36-2815480
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
444 NORTH MICHIGAN AVENUE, CHICAGO, ILLINOIS 60611
(312) 329-2400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
EDWARD HAMBURG
SENIOR VICE PRESIDENT, CORPORATE OPERATIONS, CHIEF FINANCIAL OFFICER, AND
SECRETARY
SPSS INC.
444 NORTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60611
(312) 329-2400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
T. Stephen Dyer, Esq. James Roberts, Esq.
Ross & Hardies Johnston, Horton and Roberts
150 North Michigan Avenue 1901 Harrison Street, Suite 1500
Chicago, Illinois 60601 Oakland, CA 94612
(312) 558-1000 (510) 452-2133
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
UPON CONSUMMATION OF THE MERGER DESCRIBED HEREIN.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each of Amount to be Offering Price Aggregate Amount of
Securities to be Registered registered(1) Per Share(2) Offering Price(2) Registration Fee(3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 357,000 $0.33 $117,810 $ 100
</TABLE>
(1) This Registration Statement relates to securities of the Registrant
issuable to Jandel Corporation, a California corporation ("Jandel"), in
the proposed acquisition of Jandel by Registrant.
(2) There is no established trading market for the shares of Jandel which
are to be converted into shares of Common Stock of the Registrant
pursuant to the Merger described herein. In accordance with Rule
457(f)(2) under the Securities Act of 1933, as amended, given that
Jandel has an accumulated capital deficit, the Proposed Maximum
Aggregate Offering Price has been calculated on the basis of one-third
the par value of the Jandel shares. One-third of such par value was
$0.33 (based on an assumed par value of $1.00 pursuant to Section 205 of
the California General Corporation Law) on October 30, 1996, the most
recent practicable date for determination.
(3) Represents the minimum filing fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
JANDEL CORPORATION
2591 KERNER BOULEVARD
SAN RAFAEL, CALIFORNIA 94901
Dear Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of Jandel
Corporation ("Jandel") will be held at 2591 Kerner Boulevard, San Rafael,
California 94901 on ____________, 1996 at 10:00 a.m.
At the Special Meeting, you will be asked to consider and vote upon the
adoption of an Agreement and Plan of Merger dated October __, 1996 (the "Merger
Agreement"), by and among Jandel, SPSS Inc., a Delaware corporation ("SPSS") and
SPSS Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of
SPSS ("Acquisition Subsidiary"), providing for the merger of Acquisition
Subsidiary with and into Jandel (the "Merger"), as described in the accompanying
Notice of Special Meeting of Stockholders and Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, upon consummation of the Merger, all
outstanding shares of capital stock of Jandel will be converted into shares of
Common Stock of SPSS, on the terms and in the manner set forth in the Merger
Agreement. Of the shares issuable to each Jandel shareholder in the Merger, 10%
will be held in escrow for a period not to exceed one year following the Merger
as security for indemnity obligations to SPSS under the Merger Agreement.
Jandel's Board of Directors has approved the Merger and the
Merger Agreement and has determined that they are fair to, and in the best
interests of, Jandel and its shareholders. After careful consideration, the
Board of Directors recommends a vote FOR the Merger and the Merger Agreement.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Proxy Statement/Prospectus relating to the actions to
be taken at the Special Meeting and a proxy card. The Proxy Statement/Prospectus
provides more detailed information regarding the proposed Merger and related
matters, includes information about Jandel, SPSS and Acquisition Subsidiary and
discusses the Board of Directors' reasons for recommending the Merger.
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE
SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AND VOTED AT THE SPECIAL MEETING.
November __, 1996
Sincerely,
-----------------------------------
President
If you have any questions or need any help in voting your shares, please
telephone Ross Garofalo, Chief Financial Officer of Jandel, at (415) 453-6700.
ii
<PAGE> 3
JANDEL CORPORATION
2591 KERNER BOULEVARD
SAN RAFAEL, CALIFORNIA 94901
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on __________ __, 1996
TO THE SHAREHOLDERS OF JANDEL:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of Jandel Corporation, a California corporation ("Jandel"),
will be held on __________ ____, 1996, at 10:00 o'clock a.m. at 2591 Kerner
Boulevard, San Rafael, California 94901.
A Proxy Card and Proxy Statement/Prospectus for the Special Meeting are
enclosed.
The Special Meeting is for the purpose of considering and acting upon the
adoption of an Agreement and Plan of Merger, dated October 30, 1996 (the "Merger
Agreement"), by and among Jandel, SPSS Inc., a Delaware corporation ("SPSS") and
SPSS Acquisition Inc., a Delaware corporation ("Acquisition Subsidiary"), and
the approval of the merger of Acquisition Subsidiary with and into Jandel (the
"Merger"). As a result of the Merger, all outstanding shares of Jandel Common
Stock (with the exception of any shares held by dissenting shareholders) will be
converted into shares of SPSS Common Stock.
The Merger is more fully described in, and the Merger Agreement is attached
in its entirety to, the Proxy Statement/Prospectus accompanying this Notice.
Only the shareholders of record at the close of business on October 31,
1996 (the "Record Date") are entitled to notice of, and to vote at, the Special
Meeting or at any postponement(s) or adjournment(s) thereof.
Approval of the Merger and the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of Jandel Common
Stock outstanding on the Record Date. If the Merger is consummated,
shareholders of Jandel who do not vote in favor of the Merger and the Merger
Agreement and who otherwise comply with Sections 1300-1312 of the California
General Corporation Law will be entitled to statutory dissenters' rights.
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE
SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED
AND VOTED AT THE SPECIAL MEETING.
November __, 1996
By Order of the Board of Directors.
- ------------------------------------------
Ross Garofalo, Chief Financial Officer
iii
<PAGE> 4
PROXY STATEMENT/PROSPECTUS
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _________ __, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Parties to the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Description of SPSS and SPSS Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Description of Jandel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Special Meeting of Jandel Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
MARKET PRICE AND DIVIDEND DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SPSS INC. SELECTED SUPPLEMENTAL, HISTORICAL, AND PRO FORMA FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . 11
SPSS INC. SELECTED SUPPLEMENTAL FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SPSS INC. SELECTED HISTORICAL FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
JANDEL CORPORATION SELECTED HISTORICAL FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Fluctuations in Quarterly Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dependence on a Single Product Category; Declining Sales of Certain Products . . . . . . . . . . . . . . 16
Rapid Technological Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
International Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Potential Volatility of Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Reliance on Relationships with Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Changes in Public Expenditures and Overall Economic Activity Levels . . . . . . . . . . . . . . . . . . 18
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Dependence on Key Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Intellectual Property; Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Control by Existing Stockholders; Anti-takeover Effects . . . . . . . . . . . . . . . . . . . . . . . . 19
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Integration of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
VOTING AND PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Voting and Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder Votes Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C>
TERMS AND CONDITIONS OF THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Background and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SPSS
Jandel
Material Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Conversion of Shares of Jandel Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Conduct Pending Merger; Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Effect on Jandel Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Effects of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Certain Federal Income Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
RESALE OF SPSS COMMON STOCK ISSUED IN THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SPSS INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Industry Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Market and Sales Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Scientific Research and Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Statistical Software Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Clear Software Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Publications and Student Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Training and Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Customer Service and Technical Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Product Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Manufacturing and Order Fulfillment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Reliance on Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
IBM Software Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Prentice Hall Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Computer Software Development Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Financial Information About Foreign and Domestic Operations and Export Sales . . . . . . . . . . . . . . . . . 45
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Principal Shareholders of SPSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Management of SPSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
v
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<TABLE>
<S> <C>
Management Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SPSS' FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . 49
JANDEL CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Customers and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Intellectual Property and Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Employees and Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Principal Shareholders of Jandel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Management of Jandel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF JANDEL'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . 60
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SPSS Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Jandel Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
COMPARISON OF RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Cumulative Voting for Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Filling Board Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Shareholder Power to Call Special Shareholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Actions by Written Consent of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Anti-Takeover Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Loans to Officers, Directors and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Class Vote for Certain Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Inspection of Shareholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Differences Regarding Amendment of Charters or Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Classified Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Indemnification and Personal Liability of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . 67
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
LIST OF ANNEXES
Annex A Agreement and Plan of Merger
Annex B California General Corporation Law - Rights of Dissenting Shareholders
vi
<PAGE> 7
JANDEL CORPORATION SPSS INC.
2591 KERNER BOULEVARD 444 NORTH MICHIGAN AVENUE
SAN RAFAEL, CA 94901 CHICAGO, IL 60611
(415) 453-6700 (312) 329-2400
PROXY STATEMENT/PROSPECTUS
This Proxy Statement of Jandel Corporation, a California corporation
("Jandel"), and Prospectus of SPSS Inc., a Delaware corporation ("SPSS" or the
"Company") (the "Proxy Statement/Prospectus"), is being furnished to the
shareholders of Jandel in connection with the solicitation of proxies by the
Board of Directors of Jandel for use at a special meeting of shareholders to be
held on __________ __, 1996 (the "Special Meeting") and any adjournment or
postponements of the Special Meeting. This Proxy Statement/Prospectus also
constitutes a prospectus of SPSS in respect of approximately 357,000 shares of
the common stock of SPSS to be issued in connection with the proposed Merger.
At the Special Meeting, holders of shares of Jandel common stock, no par
value per share ("Jandel Common Stock"), will be asked to adopt an Agreement and
Plan of Merger, dated as of October 30, 1996, by and among Jandel, SPSS and
SPSS Acquisition Inc., a Delaware corporation and a wholly owned subsidiary of
SPSS ("Acquisition Subsidiary") (the"Merger Agreement"). Pursuant to the Merger
Agreement, Acquisition Subsidiary will merge with and into Jandel (the
"Merger"), with Jandel as the surviving corporation (the "Surviving
Corporation"). At the time the Merger becomes effective, the Jandel
shareholders will receive, in the aggregate, shares of SPSS Common Stock, $.01
par value per share ("SPSS Common Stock"), having a total value of $9,000,000
(or such lower figure as is obtained by subtracting the amount to be
paid to any shareholders exercising statutory dissenters' rights and any amount
to be paid for expenses incurred by Jandel in connection with the Merger) (the
"Total Value") in exchange for all of the shares of Jandel Common Stock issued
and outstanding on the effective date of the Merger (the "Effective Date").
The total number of shares of SPSS Common Stock to be issued in the Merger
shall be determined by dividing the Total Value by the average closing market
price of the SPSS Common Stock, as reported on the Nasdaq National Market, for
the trading days between June 3, 1996 until three (3) trading days immediately
prior to the Closing Date of the Merger. Of the shares of SPSS Common Stock
issuable to each Jandel shareholder in the Merger, 10% will be held in escrow
for a period not to exceed one (1) year following the Merger as security for
indemnity obligations to SPSS under the Merger Agreement.
Under the rules and regulations of the Securities and Exchange Commission
(the "Commission"), the solicitation of Jandel's shareholders to approve the
Merger constitutes an offering of SPSS Common Stock to be issued in connection
with the Merger. Accordingly, SPSS has filed with the Commission a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to such offering, and this Proxy
Statement/Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: With the exception of historical information, the matters discussed in
this Prospectus are forward-looking statements that involve risks and
uncertainties including, but not limited to, market conditions, competition and
other risks indicated in the Registration Statement of which this Prospectus
forms a part, and the Company's other filings with the Securities and Exchange
Commission.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to the shareholders of Jandel on or about November ____,
1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION.
SHAREHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER
"RISK FACTORS."
NEITHER THIS TRANSACTION NOR THE SECURITIES OF SPSS TO BE ISSUED IN THE
MERGER HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY
<PAGE> 8
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is November __, 1996.
2
<PAGE> 9
AVAILABLE INFORMATION
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SEE "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." THESE DOCUMENTS (EXCLUDING EXHIBITS UNLESS
SPECIFICALLY INCORPORATED THEREIN) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR
ORAL REQUEST TO EDWARD HAMBURG, SENIOR VICE PRESIDENT, CORPORATE OPERATIONS,
CHIEF FINANCIAL OFFICER AND SECRETARY, SPSS INC., 444 NORTH MICHIGAN AVENUE,
CHICAGO, ILLINOIS 60611 (TELEPHONE NUMBER: (312) 329-2400), WITH RESPECT TO
DOCUMENTS CONCERNING SPSS. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY NOVEMBER ___, 1996.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS TRANSACTION OTHER THAN THOSE CONTAINED IN
THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SPSS OR
JANDEL. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH
IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS AT ANY TIME, NOR ANY OFFER OR SOLICITATION MADE HEREUNDER,
SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION SET FORTH HEREIN OR
INCORPORATED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
SPSS is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by SPSS can be inspected and copied at Room 1024 of the Offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices in New York (7 World Trade Center, 13th Floor, New
York, New York 10048) and Chicago (Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511), and copies of such material
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Website that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.
SPSS Common Stock is traded in the over-the-counter market and quoted on
the Nasdaq National Market under the symbol "SPSS." Documents filed by SPSS
with the Commission can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
All information contained in this Proxy Statement/Prospectus with respect
to Jandel was supplied by Jandel and all information contained or incorporated
in this Proxy Statement/Prospectus with respect to SPSS was supplied by SPSS.
Although neither Jandel nor SPSS has any knowledge that would indicate that any
statements or information relating to the other party contained herein is
inaccurate or incomplete, neither Jandel nor SPSS can warrant the accuracy or
completeness of such statements or information as they relate to the other
party.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference the following documents
previously filed with the Commission:
(a) The Company's Annual Report on Form 10-K, filed March 27, 1996
for the fiscal year ended December 31, 1995;
(b) The Company's Quarterly Report on Form 10-Q, filed May 15,
1996 for the fiscal quarter ended March 31, 1996;
(c) The Company's Quarterly Report on Form 10-Q, filed August 14,
1996 for the fiscal quarter ended June 30, 1996;
(d) The description of the SPSS Common Stock contained in the
Company's Registration Statement on Form 8-A filed with Commission on August 4,
1993, pursuant to Section 12 of the Exchange Act;
3
<PAGE> 10
(e) the Company's Proxy Statement, filed with the Commission on May 16,
1996, for its annual meeting of stockholders held on June 19, 1996, except for
the report of the Compensation Committee contained therein; and
(f) the Company's Current Report on Form 8-K, and amendments thereto,
filed with the Commission on September 26, 1996 (acquisition of Clear Software,
Inc.).
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Proxy Statement/Prospectus and prior to the date of the Jandel Special Meeting
shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein, or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
TRADEMARKS
This Proxy Statement/Prospectus contains trademarks of SPSS and Jandel and
may contain certain other trademarks.
4
<PAGE> 11
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus and the documents incorporated herein by
reference. This is not intended to be a summary of all information relating to
the Merger and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, including
the Annexes hereto which are incorporated by reference herein.
PARTIES TO THE TRANSACTION
DESCRIPTION OF SPSS AND SPSS ACQUISITION
SPSS: SPSS develops, markets and supports statistical software products
and services that enable the effective use of marketplace and enterprise data in
decision-making. The primary users of the Company's software are managers and
data analysts in corporate settings, government agencies and academic
institutions. In addition to its widespread use in survey analysis, SPSS
software is also used in other types of market research, as well as quality
improvement analyses, scientific and engineering applications and data
reporting. The current generation of SPSS Desktop products features a
point-and-click graphical user interface, sophisticated statistical procedures,
data access and management capabilities, report writing and integrated graphics.
The Company's products provide extensive analytical and decision-support
capabilities not found in spreadsheets, database management systems or graphics
packages. SPSS' principal executive office are located at 444 North Michigan
Avenue, Chicago, Illinois 60611. Its telephone number is (312) 329-2400.
ACQUISITION SUBSIDIARY: SPSS Acquisition Inc., a Delaware corporation, was
formed on October 11, 1996, for the purpose of effecting the acquisition of
Jandel. It is a wholly-owned subsidiary of SPSS, has no material assets and has
not engaged in any activities except in connection with the proposed acquisition
of Jandel. Acquisition Subsidiary's principal executive offices are located at
444 North Michigan Avenue, Chicago, Illinois 60611. Its telephone number is
(312) 329-2400.
DESCRIPTION OF JANDEL
Jandel develops, markets and supports microcomputer software for the
analysis and presentation of scientific data. Jandel's products are designed
specifically to meet the needs of research scientists and engineers. Jandel's
products enable scientists and engineers to collect, analyze and present
scientific data. Among the tasks performed by Jandel's products are running
statistical tests on research data, automatically taking measurements from
photographs, maps and other visual images and analyzing and manipulating that
data, determining the mathematical formula that most closely matches graphed
data curves and creating publication-quality graphs and charts for scientific
journal articles.
Jandel believes it is one of the first companies to offer a PC program to
automate the process of preparing charts and graphs for publication with the
introduction of SigmaPlot in 1985. Since 1985, Jandel has developed a number of
other programs that complement SigmaPlot and address the data collection
analysis and presentation needs of research scientists.
All Jandel's products run on IBM PC and PC compatible microcomputers
running MS DOS Windows, Windows 95 or Windows NT, which are the predominant
microcomputer operating systems now in use by scientists. In addition, Jandel
markets a version of SigmaPlot for use on the Apple Macintosh. Jandel's
principal executive offices are located at 2591 Kerner Boulevard, San Rafael,
California 94901. Its telephone number is (415) 453-6700.
SPECIAL MEETING OF JANDEL SHAREHOLDERS
TIME AND DATE: 10:00 a.m., Pacific Standard Time, on ________________,
1996.
PLACE: 2591 Kerner Boulevard, San Rafael, CA 94901.
5
<PAGE> 12
PURPOSE: To consider and vote upon a proposal to approve and adopt the
Merger Agreement and approve the Merger of Acquisition Subsidiary with and into
Jandel. Pursuant to the Merger Agreement, Jandel's shareholders will receive
shares of SPSS Common Stock in exchange for shares of Jandel Common Stock. A
copy of the Merger Agreement is attached hereto as Annex A and are incorporated
herein by reference. See "VOTING AND PROXIES."
RECORD DATE; SHARES ENTITLED TO VOTE: Holders of record of shares of
Jandel Common Stock outstanding at the close of business on October 31, 1996
(the "Record Date") are entitled to notice of and to vote at the Special
Meeting. At that date, 351,034 shares of Jandel Common Stock were outstanding,
each of which will be entitled to one vote on each matter to be acted upon or
which may properly come before the Special Meeting. See "VOTING AND PROXIES -
Record Date and Outstanding Shares."
VOTES REQUIRED; QUORUM: The adoption of the Merger Agreement and approval
of the Merger by the shareholders of Jandel will require the affirmative vote of
the holders of a majority of the shares of Jandel Common Stock outstanding on
the Record Date. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Jandel Common Stock entitled
to vote at the Special Meeting is necessary to constitute a quorum at the
Special Meeting. See "VOTING AND PROXIES - Record Date and Outstanding Shares,"
"- Voting and Revocability of Proxies" and "- Shareholder Votes Required."
BENEFICIAL OWNERSHIP BY OFFICERS AND DIRECTORS: As of the Record Date, the
executive officers and directors of Jandel and their affiliates owned 164,293
shares, or approximately 44.7%, of the outstanding shares of Jandel
Common Stock. This figure includes shares issuable upon exercise of options
to purchase shares of Jandel Common Stock which were exercisable on
that date. See "JANDEL CORPORATION - Principal Shareholders of Jandel."
THE MERGER
MERGER: Upon consummation of the Merger, Acquisition Subsidiary will merge
with and into Jandel, with Jandel as the Surviving Corporation, and Acquisition
Subsidiary will cease to exist as a separate entity. See "TERMS AND CONDITIONS
OF THE PROPOSED MERGER - Effects of Merger."
EFFECTIVE DATE; RIGHT TO TERMINATE: The Merger will become effective
at such time as an agreement of merger between Jandel and Acquisition
Subsidiary is accepted for filing with the Secretary of State of the State of
California and the Secretary of State of the State of Delaware. Jandel and
SPSS each will have the right to terminate the Merger Agreement if the other
party does not satisfy the conditions set forth in the Merger Agreement on or
before December 31, 1996. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER -
Effective Date" and "- Conditions Precedent."
SHARE PRICE: At the Effective Date of the Merger, all of the shares of
Jandel Common Stock that are issued and outstanding immediately prior to the
Effective Date will be converted by virtue of the Merger and without further
action into that number of shares of SPSS Common Stock determined by dividing
$9,000,000 (or such lower figure as is obtained by subtracting the amount to be
paid to any dissenting shareholders) less the expenses of Jandel in respect of
the Merger, by the average closing market price of the SPSS Common Stock, as
reported on the Nasdaq National Market, for the trading days between June 3,
1996 until the earlier of (a) November 25, 1996 or (b) three (3) trading days
immediately prior to the Special Meeting. See "TERMS AND CONDITIONS OF THE
PROPOSED MERGER - Exchange Ratio."
PROCEDURE FOR EXCHANGE OF SHARES: As soon as practicable after the
Closing Date, Jandel will deliver to SPSS the certificates previously
representing shares of Jandel Common Stock, representing the shares for
cancellation, duly endorsed for transfer by the former Jandel shareholders.
Certificates for shares of SPSS Common Stock will then be issued in the name of
each former shareholder of Jandel. See "TERMS AND CONDITIONS OF THE PROPOSED
MERGER - Exchange of Certificates."
NO FRACTIONAL SHARES: No fractional shares will be issued in connection
with the Merger. Jandel shareholders will receive cash in lieu of any
fractional shares which they would otherwise be entitled to receive based on the
Share Price. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - No Fractional
Shares."
ACCOUNTING: It is intended that the Merger will be accounted for by the
pooling of interests method in accordance with generally accepted accounting
principles. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Accounting
Treatment."
6
<PAGE> 13
EFFECT OF THE MERGER ON JANDEL STOCK OPTIONS: On the Effective Date,
holders of options for Jandel Common Stock who have exercised their options
contingent on the consummation of the Merger shall be deemed to have received
shares of Jandel Common Stock and will be treated as Jandel shareholders.
Option holders who do not exercise their options prior to the Effective Date
will not receive shares of SPSS Common Stock in the Merger nor will they receive
options for SPSS Common Stock in the Merger, and Jandel option holders who do
not exercise their options prior to the Effective Date will not be able to
exercise such options and receive shares of Jandel Common Stock after the
Effective Date of Merger. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER -
Exchange Ratio."
INTERESTS OF CERTAIN PERSONS IN THE MERGER: Each employee of Jandel who
becomes an employee of SPSS or its subsidiaries subsequent to the Merger will be
entitled to participate in all employee benefit plans sponsored by SPSS or its
subsidiaries on the same terms and to the same extent as similarly situated
employees of SPSS. SPSS shall provide reasonable severance packages for Jandel
employees who are not retained subsequent to the Merger. See "TERMS AND
CONDITIONS OF THE PROPOSED MERGER - Effect on Jandel Employees" and "- Interests
of Certain Persons in the Merger."
ESCROW: Pursuant to the terms of the Merger Agreement, the Jandel
shareholders will pledge 10% of the shares of SPSS Common Stock received by them
to satisfy certain claims for indemnification pursuant to the Merger Agreement.
Subject to the resolution of any unsatisfied claims the escrow will terminate
upon the first to occur of the first anniversary of the Effective Date or the
date of release of results of the first post-acquisition financial
statement audit of the combined company. See "TERMS AND CONDITIONS OF THE
PROPOSED MERGER - Escrow."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF JANDEL: The Board of Directors
of Jandel believes that the Merger is in the best interests of Jandel and its
shareholders and has approved the Merger and the Merger Agreement. The Board of
Directors of Jandel recommends adoption of the Merger Agreement and approval of
the Merger to its shareholders. This recommendation is based on a number of
factors discussed in this Proxy Statement/Prospectus. See "TERMS AND CONDITIONS
OF THE PROPOSED MERGER - Background and Reasons for the Merger - Jandel."
SECURITIES INVOLVED: For a comparative analysis of Jandel Common Stock and
SPSS Common Stock, see "DESCRIPTION OF CAPITAL STOCK" and "COMPARISON OF RIGHTS
OF SHAREHOLDERS."
MANAGEMENT OF JANDEL AFTER THE MERGER; EFFECTS OF THE MERGER: Jandel as
the Surviving Corporation will become a wholly owned subsidiary of SPSS upon
consummation of the Merger. The directors of Acquisition Subsidiary immediately
prior to the Effective Date will be the initial directors of the Surviving
Corporation, and the officers of Acquisition Subsidiary immediately prior to the
Effective Date will be the initial officers of the Surviving Corporation. See
"TERMS AND CONDITIONS OF THE PROPOSED MERGER - Interests of Certain Persons in
the Merger;" and "- Effects of Merger."
RESALES OF SPSS COMMON STOCK: The shares of SPSS Common Stock to be issued
to shareholders of Jandel in connection with the Merger have been registered
under the Securities Act. All shares of SPSS Common Stock received by holders
of Jandel Common Stock upon consummation of the Merger will be freely
transferable by those shareholders of Jandel not deemed to be "affiliates" of
Jandel or SPSS. Shares of SPSS Common Stock held by those Jandel shareholders
who are deemed to be "affiliates" will be subject to restrictions on
transferability. See "RESALE OF SPSS COMMON STOCK ISSUED IN THE MERGER."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES: The Merger is expected to be a
tax-free reorganization for federal income tax purposes, so that no gain or loss
will be recognized by the Jandel shareholders on the exchange of Jandel Common
Stock for SPSS Common Stock, except to the extent that Jandel shareholders
receive cash in lieu of fractional shares or upon exercise of dissenters'
rights. The Merger Agreement does not require the parties to obtain a ruling
from the Internal Revenue Service as to the tax consequences of the Merger. As
a condition to Jandel's obligation to consummate the Merger, Jandel is to
receive an opinion at the Closing Date from its special legal counsel that the
Merger will be treated as a tax-free reorganization for federal income tax
purposes. Jandel shareholders are urged to consult their own tax advisors
regarding such tax consequences. See "TERMS AND CONDITIONS OF THE PROPOSED
MERGER -- Certain Federal Income Tax Matters."
DISSENTERS' RIGHTS: Holders of Common Stock of Jandel who do not vote in
favor of the Merger may under certain circumstances, and by following procedures
prescribed by the California General Corporation Law, exercise dissenters'
rights and receive cash for their shares of Jandel Common Stock instead of
shares of SPSS Common Stock.
7
<PAGE> 14
The failure of a dissenting shareholder of Jandel to follow the appropriate
procedures may result in the termination or waiver of such rights. See "TERMS
AND CONDITIONS OF THE PROPOSED MERGER -Rights of Dissenting Shareholders."
REGULATORY MATTERS: SPSS and Jandel are aware of no governmental or
regulatory approvals required for consummation of the Merger other than
compliance with the federal securities laws and applicable securities laws of
the various states.
8
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table sets forth certain supplemental and historical per
share data of SPSS and Jandel and combined per share data on an unaudited pro
forma basis, based on the assumption that the Merger was accounted for by the
pooling of interests method of accounting. The combined pro forma per share
data is derived from the financial information in the Unaudited Pro Forma
Financial Statements. The number of shares used for calculating Jandel
equivalent per share amounts is based on the exchange ratio of .8751 for Jandel
Common Stock, which is based upon the number of shares of Jandel Common
Stock issued and outstanding and options outstanding as of June 30, 1996, as
though the Special Meeting date was October 30, 1996 and the price was
calculated as set forth in the Merger Agreement. The pro forma data is not
necessarily indicative of amounts which would have been achieved had the Merger
been consummated at the beginning of the periods presented and should not be
construed as representative of future operations. This data should be read in
conjunction with the Selected Historical Financial Data, the Selected
Supplemental Financial Data, the Selected Pro Forma Combined Financial Data,
the Pro Forma Condensed Consolidated Combining Financial Statements and the
respective supplemental and historical financial statements of SPSS and Jandel
included elsewhere herein.
<TABLE>
<CAPTION>
Equivalent
Jandel
SPSS Jandel Pro Forma Pro Forma
Supplemental Historical Combined Combined(3)
<S> <C> <C> <C> <C>
Net Income (Loss) Per Share
From Continuing Operations
For the Year Ended $ .65 $ 1.35 $ .70 $ .61
December 31, 1993
For the Year Ended .54 .98 .56 .49
December 31, 1994
For the Year Ended .56 (1.47) .48 .42
December 31, 1995
For the Six Months Ended .49 (.87) .44 .39
June 30, 1996
Book Value Per Share: (2)
December 31, 1995 2.42 2.31 2.43 2.13
June 30, 1996 2.96 1.50 2.91 2.55
Market Value Per Share 27.75
on October 7, 1996(1)
</TABLE>
(1) October 7, 1996 was the last day of trading preceding the public
announcement of the Merger.
(2) Book value per share is computed by dividing stockholders' equity
by the number of shares of common stock outstanding at the respective dates.
(3) The equivalent Jandel pro forma combined per share amounts are
calculated by multiplying the pro forma combined per share amounts by the
exchange ratio.
9
<PAGE> 16
MARKET PRICE AND DIVIDEND DATA
SPSS Common Stock is traded in the over-the-counter market and quoted on
the Nasdaq National Market. Jandel Common Stock is privately held, and,
therefore, does not have a market price. In the past five years, SPSS has not
declared or paid dividends on its common stock and Jandel has never declared or
paid dividends on its common stock. The following table sets forth (in per
share amounts), for the quarterly periods indicated, the high and low closing
sale prices of SPSS Common Stock.
<TABLE>
<CAPTION>
SPSS Common Stock
High Low
<S> <C> <C>
Year Ending December 31, 1994:
First Calendar Quarter 11 9-1/8
Second Calendar Quarter 10-1/2 8-3/8
Third Calendar Quarter 10-1/8 8-7/16
Fourth Calendar Quarter 14-1/4 9-1/2
Year Ending December 31, 1995:
First Calendar Quarter 13-1/2 11-3/8
Second Calendar Quarter 15-3/4 12-1/4
Third Calendar Quarter 17-1/4 14-5/8
Fourth Calendar Quarter 19-5/8 16-5/8
Year Ending December 31, 1996:
First Calendar Quarter 18-7/8 14
Second Calendar Quarter 26-1/8 18-1/4
Third Calendar Quarter 28-5/8 17-5/8
</TABLE>
SPSS Common Stock is traded in the over-the-counter market and quoted on
the Nasdaq National Market. On October 7, 1996, the date immediately preceding
the public announcement of the transaction, the Company's high and low sale
price were 28 1/4 and 27 3/4 respectively. On October 30, 1996, the most
recent date practicable, the company's high and low sale price were 31 1/4 and
29 3/4 respectively. On October 15, 1996, the Company had 207 shareholders of
record. Jandel is a privately held company with 96 shareholders of record. No
established trading market exists for Jandel Common Stock. See "DESCRIPTION OF
CAPITAL STOCK."
10
<PAGE> 17
SPSS INC.
SELECTED SUPPLEMENTAL, HISTORICAL, AND PRO FORMA FINANCIAL DATA
The following selected supplemental financial data of SPSS have been derived
from the supplemental consolidated financial statements and should be read in
conjunction with the supplemental consolidated financial statements and notes
thereto included elsewhere herein. The selected historical financial data of
SPSS have been derived from the consolidated financial statements and should be
read in conjunction with the consolidated financial statements and notes
thereto included elsewhere herein. The selected historical financial data of
Jandel have been derived from the consolidated financial statements and should
be read in conjunction with the consolidated financial statements and notes
thereto included elsewhere herein.
The SPSS and Jandel statement of operations data for the six months ended June
30, 1995 and 1996, and the balance sheet data as of June 30, 1996 are unaudited
but have been prepared on the same basis as the audited financial statements
and, in the opinion of management of the respective companies, contain all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the respective companies' financial position and results
of operations as of and for such periods.
The unaudited pro forma combined financial data are qualified in their entirety
by reference to, and should be read in conjunction with, the unaudited pro
forma condensed consolidated combining financial statements and notes thereto
that are included elsewhere in this Proxy Statement/Prospectus. The unaudited
pro forma combined financial data give effect to the Merger applying the
pooling-of-interests method of accounting. The pro forma combined financial
data is provided for illustrative purposes only and are not necessarily
indicative of the results that would have occurred if the Merger had been in
effect during the periods presented or which may be attained in the future.
11
<PAGE> 18
SPSS INC.
SELECTED SUPPLEMENTAL FINANCIAL DATA (1)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
-------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- ------- ------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues $36,143 $39,557 $44,591 $54,498 $65,784 $31,228 $35,876
Operating income 1,235 619 (2) 6,608 6,145 (3) 7,047 (4) 4,209 5,751
Net income (loss) (1,492) (3,488)(2) 3,210 3,596 (3) 4,382 (4) 2,944 3,940
Net income (loss) per share ($0.37) ($0.87)(2) $0.65 $0.54 (3) $0.56 (4) 0.39 0.49
Shares used in per share
calculation 4,013,325 4,013,325 4,958,089 6,696,604 7,768,740 7,587,850 8,001,963
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------------------------------------------- ---------
1991 1992 1993 1994 1995 1996
----------- -------- --------- -------- ------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ($11,647) ($14,104) ($10,083) ($9,502) $4,702 $8,319
Total assets 19,654 15,573 21,855 31,794 41,843 43,098
Acquisition-related payables 61 71 166 187 273 189
Total stockholders' equity (deficit) (15,666) (20,166) (892) 4,122 17,692 21,756
</TABLE>
1) The selected supplemental consolidated financial data gives retroactive
effect to the acquisition of Clear Software, Inc. as of September 26,
1996, which has been accounted for as a pooling of interests for financial
reporting purposes, and as a result, the financial position and results of
operations are presented as if the combining company had been consolidated
for all periods presented. The financial data as of and for the years
ended December 31, 1991 and 1992, as well as the balance sheet data as of
December 31, 1993 are derived from unaudited supplemental consolidated
financial statements and include in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the data for the periods. The selected supplemental
consolidated financial data should be read in conjunction with the other
financial information included or incorporated by reference in this Proxy
Statement/Prospectus.
(2) Includes pre-tax write-off of software purchased as part of the 1990
recapitalization of the Company amounting to $3,071.
(3) Includes pre-tax write-off of acquired in-process technology and other
acquisition-related charges amounting to $1,928.
(4) Includes pre-tax write-off of acquired in-process technology and other
acquisition-related charges amounting to $1,051 and write-off principally
of certain software assets capitalized more than two years ago amounting
to $2,466.
12
<PAGE> 19
SPSS INC.
SELECTED HISTORICAL FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
-------------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues $34,592 $37,863 $42,724 $51,757 $63,029 $29,786 $34,216
Operating income 1,042 605 (1) 6,603 6,042(2) 6,988(3) 3,981 5,496
Net income (loss) (1,687) (3,493)(1) 3,209 3,560(2) 4,369(3) 2,716 3,723
Net income (loss) per share ($0.44) ($0.91)(1) $0.67 $0.55(2) $0.57(3) $0.37 $0.48
Shares used in per share
calculation 3,847,871 3,847,871 4,792,635 6,531,150 7,598,739 7,422,396 7,818,397
<CAPTION>
December 31, June 30,
------------------------------------------------------ --------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ($11,890) ($14,238) ($10,221) ($9,670) $4,514 $7,919
Total assets 19,340 15,362 21,548 31,430 41,377 42,498
Total stockholders' equity (deficit) (15,919) (20,306) (1,033) 3,945 17,499 21,345
</TABLE>
(1) Includes pre-tax write-off of software purchased as part of the 1990
recapitalization of the Company amounting to $3,071.
(2) Includes pre-tax write-off of acquired in-process technology and other
acquisition-related charges amounting to $1,928.
(3) Includes pre-tax write-off of acquired in-process technology and other
acquisition-related charges amounting to $1,051 and write-off principally
of certain software assets capitalized more than two years ago amounting
to $2,466.
13
<PAGE> 20
JANDEL CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------------------- -------------------
1991 (1) 1992 (1) 1993 (1) 1994 1995 1995 1996
-------- -------- --------- ------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues $5,594 $6,649 $7,583 $8,096 $8,010 $3,735 $4,122
Operating income (loss) (265) (311) 541 360 (511) (168) (302)
Net income (loss) (91) (634) 510 360 (507) (164) (301)
Net income (loss) per share: ($0.29) ($1.98) $1.35 $0.98 ($1.47) (0.48) (0.87)
Shares used in per share
calculation 314,842 319,882 378,922 367,948 344,800 344,258 345,407
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------------------------------------- -------
1991 (1) 1992 (1) 1993 (1) 1994 1995 1996
-------- -------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $241 $121 $687 $826 $293 $6
Total assets 1,870 1,751 2,141 2,523 2,174 1,787
Total shareholders' equity 828 362 924 1,308 796 524
</TABLE>
(1) The financial data presented as of and for the years ended December
31, 1991, 1992, and 1993 has been derived from unaudited financial
statements.
14
<PAGE> 21
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ------------ ----------- -------------------------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Net revenues $52,174 $62,594 $73,794 $34,963 $39,998
Operating income 7,149 6,505 6,536 4,041 5,449
Net income 3,720 3,956 3,875 2,780 3,639
Net income per share $0.70 $0.56 $0.48 $0.35 $0.44
Shares used in per share
calculation 5,289,670 7,018,582 8,070,462 7,889,098 8,287,990
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
-------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital $8,325
Total assets 44,885
Acquisition-related payables 1,452
Total stockholders' equity 22,280
Book value per share (1) 2.91
</TABLE>
(1) Book value per share is computed by dividing pro forma stockholders'
equity by the pro forma number of shares of common stock outstanding at
June 30, 1996.
15
<PAGE> 22
RISK FACTORS
In addition to the other information in this Prospectus, the following Risk
Factors should be considered carefully in evaluating the proposals to be voted
on at the Special Meeting and the acquisition of the securities offered hereby.
For periods following the Merger, references to the products, business, results
of operations or financial condition of SPSS should be considered to refer to
SPSS and its subsidiaries, including Jandel, unless the context otherwise
requires.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results can be subject to fluctuation due
to several factors, including the number and timing of product updates and new
product introductions, delays in product development and introduction,
purchasing schedules of its customers, changes in foreign currency exchange
rates, product and market development expenditures, the timing of product
shipments, changes in product mix, timing and cost of acquisitions and general
economic conditions. Because the Company's expense levels are to a large extent
based on its forecasts of future revenues, operating results may be adversely
affected if such revenues fall below expectations. Accordingly, the Company
believes that quarter-to-quarter comparisons of its results of operations may
not be meaningful and should not be relied upon as an indication of future
performance. The Company has historically operated with very little backlog
because its products are generally shipped as orders are received. As a result,
revenues in any quarter are dependent on orders shipped and licenses renewed in
that quarter. The Company has experienced a seasonal pattern in its operating
results with the fourth quarter typically having the highest operating income.
For example, excluding acquisition and other non-recurring charges, the
percentage of the Company's operating income realized in the fourth quarter was
40% in 1993, 41% in 1994 and 41% in 1995. In addition, the timing and amount of
the Company's revenues are subject to a number of factors that make estimation
of operating results prior to the end of a quarter uncertain. A significant
portion of the Company's operating expenses are relatively fixed, and planned
expenditures are based primarily on revenue forecasts. More specifically, in
the fourth quarter, the variable profit margins on modest increases in sales
volume at the end of the quarter are significant. Should the Company fail to
achieve such fourth quarter revenue increases, net income for the fourth quarter
and the full year could be materially affected. Generally, if revenues do not
meet the Company's expectations in any given quarter, operating results will be
adversely affected. Although the Company had been profitable in each of the
seven quarters up to and including the quarter ending June 30, 1994, the Company
experienced a net loss of $137,000 in the third quarter of 1994 due to a
one-time write-off of $1,928,000 for acquired and in-process technology and
other acquisition-related charges recorded in connection with the Company's
acquisition of SYSTAT, Inc. ("SYSTAT"). The Company has been profitable in the
seven quarters ending December 31, 1994 through June 30, 1996. However, there
can be no assurance that profitability on a quarterly or annual basis can be
achieved or sustained in the future.
DEPENDENCE ON A SINGLE PRODUCT CATEGORY; DECLINING SALES OF CERTAIN PRODUCTS
The Company derives substantially all of its product revenues from licenses
of statistical software. Accordingly, any decline in revenues from licenses of
the Company's statistical software, or reduction in demand for statistical
software generally, could have a material adverse effect on the Company.
In recent years, SPSS has experienced a significant shift in the sources of
its revenues. Historically, the Company derived a large portion of its revenues
from licenses of its mainframe and minicomputer ("Large Systems") products. As
a result of the general shift by computer users from Large Systems to desktop
computers, the Company has experienced an ongoing decline in revenues from Large
Systems products in the last several years, although this decline has generally
lessened in recent quarters. Revenues from Large Systems licenses declined from
approximately $15.6 million in 1991 to $10.7 million in 1995, while sales of
desktop products increased from $14.7 million in 1991 to $46.1 million in 1995,
although revenues from Large Systems licenses only declined from $10.8 million
to $10.7 million from 1994 to 1995. Management is unable to predict the
continuing rate of decline on Large Systems licenses, if any. Revenues from the
Company's products for desktop computers ("Desktop products") now account for
nearly three-quarters of the Company's revenues and this percentage may continue
to increase, although there can be no assurance that any such increase may
occur.
16
<PAGE> 23
RAPID TECHNOLOGICAL CHANGE
The computer software industry is characterized by rapid technological
advances, changes in customer requirements, frequent product enhancements and
new product introductions. The Company's future success will depend upon its
ability to enhance its existing products and introduce new products that keep
pace with technological developments, respond to evolving customer requirements
and achieve market acceptance. In particular, the Company believes it must
continue to respond quickly to users' needs for greater functionality, improved
usability and support for new hardware and operating systems. Any failure by
the Company to respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could result in loss of revenues. In the past, the Company has, on occasion,
experienced delays in the introduction of new products and product enhancements,
primarily due to difficulties with particular operating environments and
problems with software provided by third parties. The extent of these delays
has varied depending upon the size and scope of the project and the nature of
the problems encountered. Such delays have most often resulted from "bugs"
encountered in working with new and/or beta-stage versions of operating systems
and other third party software, and bugs or unexpected difficulties in existing
third party software which complicate integration with the Company's software.
From time to time, the Company has discovered bugs in its products which are
resolved through maintenance releases or through periodic updates, depending
upon the seriousness of the defect. There can be no assurance that the Company
will be successful in developing and marketing new products or product
enhancements on a timely basis or that the Company will not experience
significant delays or defects in its products in the future, which could have a
material adverse effect on the Company. In addition, there can be no assurance
that new products or product enhancements developed by the Company will achieve
market acceptance or that developments by others will not render the Company's
products or technologies obsolete or noncompetitive.
INTERNATIONAL OPERATIONS
The Company's revenues from operations outside of North America accounted
for approximately 45%, 51% and 55% of the Company's net revenues in 1993, 1994
and 1995, respectively. The Company expects that revenues from international
operations will continue to represent a large percentage of its net revenues and
that this percentage may increase, particularly as the Company further
"localizes" the SPSS product line by translating its products into additional
languages. International revenues are subject to a number of risks, including
greater difficulties in accounts receivable collection, longer payment cycles,
exposure to currency fluctuations, political and economic instability and the
burdens of complying with a wide variety of foreign laws and regulatory
requirements. The Company also believes that it is exposed to greater levels of
software piracy in international markets because of the weaker protection
afforded to intellectual property in some foreign jurisdictions. As the Company
expands its international operations, the risks described above could increase
and, in any event, could have a material adverse effect on the Company.
POTENTIAL VOLATILITY OF STOCK PRICE
There has been significant volatility in the market prices of securities of
technology companies and in some instances, such volatility has been unrelated
to the operating performance of such companies. Market fluctuations may
adversely affect the price of SPSS Common Stock. The Company also believes
factors such as announcements of new products by the Company or its competitors,
quarterly variations in financial results, recommendations and reports of
analysts and other factors beyond the Company's control could cause the market
price of SPSS Common Stock to fluctuate substantially.
Jandel shareholders shall have no recourse against SPSS for declines in
the value of their investment in shares of SPSS Common Stock absent fraud or
violations of federal and state securities, blue sky and other similar laws on
the part of SPSS. The shares of SPSS Common Stock to be received by the Jandel
shareholders pursuant to the Merger represent an investment in the business of
SPSS and SPSS has made no representations or warranties with respect to the
future business performance of SPSS or the price of its Common Stock.
RELIANCE ON RELATIONSHIPS WITH THIRD PARTIES
The Company licenses certain software from third parties. Some of this
licensed software is embedded in the Company's products, and some is offered as
add-on products. If such licenses are discontinued, or become invalid or
unenforceable, there can be no assurance that the Company will be able to
develop substitutes for this software independently or to obtain alternative
sources in a timely manner. Any delays in obtaining or developing substitutes
for licensed software could have a material adverse effect on the Company.
17
<PAGE> 24
In February 1993, the Company entered into an exclusive, worldwide
agreement (the "Prentice Hall Agreement") with Prentice Hall, Inc. ("Prentice
Hall") under which Prentice Hall publishes and distributes the student version
of the Company's software and all of the Company's publications. As a result,
the Company is dependent on Prentice Hall for the development and support of the
markets for student software and its publications. The failure of Prentice Hall
to adequately perform its obligations under the Prentice Hall Agreement could
have a material adverse effect on the Company.
In February 1993, the Company entered into a Software Distribution
Agreement (the "IBM Software Distribution Agreement") with International
Business Machines Corporation ("IBM") under which IBM manufactures and packages
all of the Company's products and distributes them to the Company's domestic
customers and international subsidiaries. If IBM fails to adequately perform
its obligations under this agreement, or if the agreement is terminated, the
Company's operating results could be materially adversely effected.
CHANGES IN PUBLIC EXPENDITURES AND OVERALL ECONOMIC ACTIVITY LEVELS
A significant portion of the Company's revenues comes from licenses of its
products directly to foreign and domestic government entities. In addition,
significant amounts of the Company's revenues come from licenses to academic
institutions, healthcare organizations and private businesses which contract
with or are funded by government entities. Government appropriations processes
are often slow, unpredictable and subject to factors outside the Company's
control. In addition, proposals are currently being made in certain countries
to reduce government spending. Reductions in government expenditures and
termination or renegotiation of government-funded programs or contracts could
have a material adverse effect on the Company. In addition, declines in overall
levels of economic activity could also have a material adverse impact on the
Company.
COMPETITION
The market for statistical software is both highly competitive and
fragmented. The Company primarily competes with one general statistical
software provider which is larger and has greater resources than the Company, as
well as with numerous other companies offering statistical applications
software, many of which offer products focused on specific statistical
applications. The Company considers its primary worldwide competitor to be the
larger and better-financed SAS Institute ("SAS"), although the Company believes
that SAS's revenues are derived principally from products that are used for
purposes other than statistics and operate on large systems platforms. StatSoft
Inc., developers of the Statistica product ("Statistica"), Manugistics Group,
Inc., distributors of the Statgraphics Plus product ("Statgraphics"), and
Minitab, Inc. ("Minitab") are also competitors, although their annual revenues
from these statistical products are believed to be considerably less than the
revenues of SPSS.
In the future, SPSS may face competition from new entrants into the
statistical software market. The Company could also experience competition from
companies in other sectors of the broader market for data management, analysis
and presentation software, such as providers of spreadsheets, database
management systems, report writers and executive information systems. These
companies have added, or in the future may add, statistical analysis
capabilities to their products. Many of these companies have significant name
recognition, as well as substantially greater capital resources, marketing
experience and research and development capabilities than the Company. There
can be no assurance that the Company will have sufficient resources to make the
necessary investment in research and development and sales and marketing, or
that the Company will otherwise be able to make the technological advances
necessary to maintain or enhance its competitive position. The Company's future
success will also depend significantly upon its ability to continue to sell its
Desktop products, to attract new customers looking for more sophisticated or
powerful software and to introduce additional add-on products to existing
customers. There can be no assurance that the Company will be able to compete
successfully in the future.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of certain executives and key
employees, including its President and Chief Executive Officer, Jack Noonan. The
Company's continued success will depend in part on its ability to attract and
retain highly qualified technical, managerial, sales, marketing and other
personnel. Competition for such personnel is intense. There can be no
assurance that the Company will be able to continue to attract or retain such
highly qualified personnel. No life insurance policies are maintained on the
Company's key personnel.
18
<PAGE> 25
INTELLECTUAL PROPERTY; PROPRIETARY RIGHTS
The statistical algorithms incorporated in the Company's software are not
proprietary. The Company believes that the proprietary technology constituting
a portion of the Company's software determines the speed and quality of
displaying the results of computations, the connectivity of the Company's
products with third party software and the ease of use of its products. The
Company's success will depend, in part, on its ability to protect the
proprietary aspects of its products. The Company attempts to protect its
proprietary software with trade secret laws and internal nondisclosure
safeguards, as well as copyright and trademark laws and contractual restrictions
on copying, disclosure and transferability that are incorporated into its
software license agreements. The Company licenses its software only in the form
of executable code, with contractual restrictions on copying, disclosures and
transferability. Except for licenses of its products to users of Large System
products and annual licenses of its Desktop products, the Company licenses its
products to end-users by use of a "shrink-wrap" license that is not signed by
licensees, as is customary in the industry. It is uncertain whether such
license agreements are legally enforceable. The source code for all of the
Company's products is protected as a trade secret and as unpublished copyrighted
work. In addition, the Company has entered into confidentiality and
nondisclosure agreements with its key employees. Despite these restrictions, it
may be possible for competitors or users to copy aspects of the Company's
products or to obtain information which the Company regards as a trade secret.
The Company has no patents. Copyright, trade secret and trademark protection
for the Company's products may be unavailable or unreliable in certain foreign
countries. Preventing unauthorized use of computer software is difficult, and
software piracy is expected to be a persistent problem for the packaged software
industry. These problems may be particularly acute in international markets.
In addition, the laws of certain countries in which the Company's products are
or may be licensed do not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States. Despite
the precautions taken by the Company, it may be possible for unauthorized third
parties to reverse engineer or copy the Company's products or obtain and use
information that the Company regards as proprietary. There can be no assurance
that the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology.
Although the Company's products have never been the subject of an
infringement claim, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such assertion
will not result in costly litigation or require the Company to obtain a license
to use the intellectual property of third parties. There can be no assurance
that such licenses will be available on reasonable terms, or at all. There can
also be no assurance that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS
As of June 30, 1996, the Company's executive officers and directors owned
beneficially approximately 23.9% of the outstanding shares of Common Stock. The
Norman H. Nie Revocable Trust Dated March 15, 1991 (the "Nie Trust") and
affiliates of the Nie Trust, are entitled to nominate a director for inclusion
in the management slate for election to the Board so long as the Nie Trust
continues to own no less than 12.5% of the outstanding shares of Common Stock.
As of June 30, 1996, the Nie Trust and affiliates of the Nie Trust beneficially
owned approximately 18.6% of the outstanding shares of Common Stock. The
Company's Certificate of Incorporation and Bylaws contain a number of
provisions, including provisions requiring an 80% super majority stockholder
approval of certain actions and provisions for a classified Board of Directors,
which would make the acquisition of the Company, by means of an unsolicited
tender offer, a proxy contest or otherwise, more difficult or impossible.
SHARES ELIGIBLE FOR FUTURE SALE
As of June 30, 1996, there were vested options outstanding held by
management to purchase approximately an additional 621,598 shares of SPSS Common
Stock and unvested options to purchase approximately an additional 296,421
shares of SPSS Common Stock, with an average exercise price of $4.34 per share.
The Company has also established a stock purchase plan available to employees of
the Company, which permits employees to acquire shares of SPSS Common Stock at
the end of each quarter at 85% of the market price of SPSS Common Stock as of
such date.
19
<PAGE> 26
In addition to the Company's currently outstanding shares and those
issuable to employees as described above, the Company will issue approximately
357,000 shares of SPSS Common Stock to Jandel's current shareholders. Such
shares of SPSS Common Stock will generally be available for resale.
No prediction can be made as to the effect, if any, that future sales, or
the availability of shares of Common Stock for future sales, will have on the
market price prevailing from time to time. Sales of substantial amounts of SPSS
Common Stock by the Company or by shareholders, or the perception that such
sales may occur, could adversely affect prevailing market prices for SPSS Common
Stock.
ACCUMULATED DEFICIT
The Company had an accumulated deficit of $18,999,000 as of December 31,
1995.
INTEGRATION OF OPERATIONS
The management of SPSS and Jandel anticipate that the Merger will create
synergies by allowing the surviving corporation to market an enhanced product
line, eliminate overlapping costs and broaden distribution channels. No
assurance can be given that the Merger will result in such synergies.
VOTING AND PROXIES
Date, time and place of the Special Meeting. The Special Meeting will be
held at 2591 Kerner Boulevard, San Rafael, California 94901, on __________, 1996
at 10:00 a.m. local time.
RECORD DATE AND OUTSTANDING SHARES
Shareholders of record of Jandel Common Stock at the close of business on
the Record Date are entitled to notice of and to vote at the Special Meeting.
As of the Record Date, there were approximately 96 shareholders of record of
Jandel Common Stock. As of the Record Date there were 351,034 shares of Jandel
Common Stock outstanding. Except for the shareholders identified below under
"JANDEL CORPORATION - Principal Shareholders of Jandel" there were no persons
known to the management of Jandel to be the beneficial owners of more than 5% of
the outstanding shares of Jandel Common Stock.
VOTING AND REVOCABILITY OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Special Meeting, and any postponement or adjournment thereof, in accordance with
the instructions contained therein. Proxies containing no instructions
regarding the proposals specified in the form of proxy will be voted for
approval of the Merger and the Merger Agreement at the Special Meeting. Each
record holder of Jandel Common Stock on the Record Date is entitled to cast one
vote per share, exercisable in person or by properly executed proxy, on each
matter properly submitted for a vote of the shareholders at the Special Meeting.
If an executed proxy card is returned and a shareholder has abstained from
voting on any matter, the shares represented by such proxy will be considered
present at the Special Meeting for purposes of determining a quorum and for
purposes of calculating the vote, but will have the same effect as negative
votes.
The presence of a shareholder at the Special Meeting for which such
shareholder has executed a proxy will not automatically revoke such
shareholder's proxy. A shareholder may, however, revoke a proxy at any time
prior to its exercise by filing a written notice of revocation with, or by
delivering a duly executed proxy bearing a later date to, the Secretary of
Jandel at the address of the principal executive offices of Jandel, or by
attending the Special Meeting and voting in person.
20
<PAGE> 27
SHAREHOLDER VOTES REQUIRED
Approval of the Merger and the Merger Agreement requires the affirmative
vote of holders of a majority of the shares of Jandel Common Stock outstanding
on the Record Date.
SOLICITATION OF PROXIES; EXPENSES
Jandel will bear the costs of soliciting proxies from its shareholders, and
will bear all printing and mailing costs in connection with the preparation and
mailing of this Proxy Statement/Prospectus to Jandel shareholders. In addition
to solicitation by mail, the directors, officers and employees of Jandel may
solicit proxies from shareholders by telephone, facsimile or letter or in
person. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.
TERMS AND CONDITIONS OF THE PROPOSED MERGER
The following description contains, among other information, a summary of
certain provisions of the Merger Agreement and is qualified in its entirety by
reference to the full text thereof, a copy of which is appended as Annex A to
this Proxy Statement/Prospectus and is incorporated herein by reference.
BACKGROUND AND REASONS FOR THE MERGER
SPSS
SPSS Inc. acquired SYSTAT, INC. in September 1994 and BMDP Statistical
Software Inc. in December 1995 as part of its strategy to establish a separate
line of software products for scientific research. This strategy enables the
company to direct its SPSS product line towards the growing market for data
mining software and QI Analyst product line towards real-time quality
improvements applications. The company's acquisition of Jandel is a
continuation of this strategy of product differentiation, and SPSS believes that
the Merger will offer a number of benefits, including the following:
1. expansion of the SPSS scientific products business to a
critical mass, with annual revenues immediately growing from
approximately $3 million to over $11 million and from approximately 3%
to 12% of its overall business;
2. a position of leadership in the market for scientific data
analysis products, as Jandel is a leading vendor in this area;
3. a comprehensive set of software offerings to more effectively
address a wider range of scientific research applications;
4. an opportunity to further leverage the Company's worldwide
sales channels; and
5. after taking appropriate steps to integrate Jandel operations,
a positive contribution to company earnings.
The SPSS Board of Directors believes that the Merger is fair and in the
best interests of SPSS and its shareholders. The Board of Directors considered
the following additional factors in arriving at its decision:
1. the terms of the acquisition, including the number of SPSS
shares to be used in the Merger, were reasonable relative to other
acquisitions the Company had done and other acquisition opportunities
of which it was aware;
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2. Jandel annual revenues represent a material increment to those
of SPSS, enabling the Company to achieve immediately the benefits of a
larger market presence;
3. the complementary nature of Jandel's products and business to
those of SPSS; and
4. Jandel established itself in a market niche in which SPSS desired a
presence, and SPSS determined that the Merger was the most effective
way of accomplishing this goal.
JANDEL
Jandel believes that the Merger will offer a number of benefits to Jandel,
including the following:
1. Jandel expects to benefit from SPSS' well established distribution
channels, including strong overseas distribution with a number of overseas sales
offices.
2. Jandel expects to benefit from SPSS' greater financial resources in
product development and in sales and marketing for Jandel products.
3. Jandel expects to benefit from the longer experience of SPSS' senior
management in the software market.
4. Jandel's Board of Directors also concluded that SPSS' and Jandel's
products and businesses were complementary. Jandel has established itself in
the market of scientific data software, a significant but limited niche market.
Jandel believes that the businesses of Jandel and SPSS are complementary and
that the Merger will make available greater resources to Jandel and allow Jandel
to apply its expertise to a broader range of markets.
5. Jandel expects that its shareholders will benefit because the SPSS
stock they will receive is publicly traded and therefore much more liquid than
current Jandel stock.
Jandel's Board of Directors believes that the Merger is fair and in the
best interests of Jandel and its shareholders and therefore unanimously
recommends that shareholders vote in favor of the Merger. In addition to the
above, the Board of Directors considered the following factors in arriving at
its decision.
Jandel's Board of Directors viewed the Merger as the best means to obtain
liquidity for the shareholders' investment in Jandel. Jandel's Board of
Directors considered a number of alternatives to provide liquidity, including an
initial public offering and periodic repurchases of Jandel shares by an Employee
Stock Ownership Plan ("ESOP") funded by Jandel. Because it operates in a niche
market and due to other factors, Jandel's Board of Directors determined that the
prospects for an advantageous initial public offering were not favorable.
Jandel's Board of Directors established an ESOP in 1993, but ESOP purchases have
achieved only a limited improvement in liquidity.
Jandel's Board of Directors believes that the Merger is the best
alternative because Jandel shareholders will have a ready market available for
sale of their SPSS shares should they wish to do so. Moreover, under the
Merger, Jandel shareholders will acquire a significant portion of the stock
representing ownership of the combined business of Jandel and SPSS.
The Jandel Board of Directors believes that the receipt of approximately
$9,000,000 of SPSS stock (valued in accordance with the Merger Agreement) to be
received by Jandel shareholders represents an attractive return on shareholders'
investment in Jandel. Jandel's Board of Directors considered the fact that the
value of SPSS stock may fluctuate substantially.
MATERIAL CONTACTS
On March 27, 1995, Mark Battaglia, Vice President, Corporate Marketing of
SPSS telephoned Joseph Osborn, President of Jandel, to express interest in
possible collaboration of the parties. On April 5, 1995, Mark Battaglia and
Joseph Osborn again talked by telephone and Joseph Osborn sent Mark Battaglia
background material on Jandel. Subsequently, Mr. Osborn informed Mr. Battaglia
that Jandel was not currently interested in working toward a relationship, but
that Mr. Battaglia should stay in touch.
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On March 4, 1996, Joseph Osborn and Mark Battaglia spoke again by telephone
about a possible relationship between the two companies. Subsequent to the last
contact between Messrs. Battaglia and Osborn, the Jandel Board of Directors had
become more interested in exploring possible acquisitions. On March 28, 1996,
Edward Hamburg, Chief Financial Officer of SPSS, Mark Battaglia, and Jack
Noonan, President of SPSS, visited Jandel, toured Jandel's facilities and
discussed a possible merger.
On April 1, 1996, Joseph Osborn and Mark Battaglia arranged for Joseph
Osborn and Dr. John Osborn to visit Chicago on April 15, 1996. During this
visit, Mr. Osborn and Dr. Osborn met with senior SPSS management, toured SPSS'
facilities and discussed a possible merger with Jack Noonan of SPSS. On May 1,
1996, the Jandel Board of Directors met and engaged in lengthy discussions of a
possible acquisition by SPSS.
On June 10, 1996, Oliver King-Smith and Fred Ross-Perry of Jandel met with
Louise Rehling and Richard Marcell of SPSS to review product and development
issues.
On June 12 and 13, 1996, Joseph Osborn and Ross Garofalo, Chief Financial
Officer of Jandel, met with Edward Hamburg to continue discussions of merger
with SPSS and negotiate terms.
On June 27, 1996, Jandel's Board of Directors met to review the current
status of the merger negotiations. Following a thorough discussion of the
proposed merger, the Jandel Board of Directors approved the basic terms of the
Merger and established guidelines for Jandel's management to attempt to complete
the negotiations of the terms of the Merger.
From June 28 through July 15, 1996, Ross Garofalo and Joseph Osborn engaged
in lengthy negotiations with Edward Hamburg and Jack Noonan to agree on the
terms of the Merger. On July 15, 1996, the talks culminated in a letter
summarizing principal terms of the proposed Merger. From July 15, 1996 through
the signing of the Merger Agreement, the parties have engaged in extensive
discussions to negotiate the complete and final terms of the Merger Agreement
and have conducted extensive due diligence of one another's business.
On October 31, 1996, the SPSS Board of Directors unanimously approved the
Merger and the Merger Agreement. On October 31, 1996, the Jandel Board of
Directors unanimously approved the Merger and Merger Agreement, and as of
October 30, 1996, the Merger Agreement was executed.
EFFECTIVE DATE
The Merger Agreement provides that the Merger will become effective at such
time as an agreement of merger between Jandel and Acquisition Subsidiary is
accepted for filing with the Secretary of State of the State of California and
the Secretary of State of the State of Delaware (the "Effective Date"). It is
anticipated that if all conditions to the Merger have been fulfilled or waived,
the Effective Date will occur on or about November ___, 1996 or on a date as
soon as practicable thereafter.
CONVERSION OF SHARES OF JANDEL COMMON STOCK
Each share of Jandel Common Stock which is issued and outstanding
immediately prior to the Effective Date other than shares, if any, held by
shareholders who have exercised dissenters' rights under the California General
Corporation Law will be converted at the Effective Date into SPSS Common Stock
and cash in lieu of any fractional shares of SPSS Common Stock. On the
Effective Date, option holders who have exercised their options contingent upon
consummation of the Merger shall be deemed to have received the shares of Jandel
Common Stock to which they are entitled and such shares of Jandel Common Stock
shall be treated in the manner set forth above. Such exercising option holders
will hereinafter for all purposes be treated as Jandel shareholders. See
"Exchange Ratio" below. Option holders who do not exercise their options prior
to the Effective Date will not receive shares of SPSS Common Stock in the
Merger nor will they receive options for SPSS Common Stock in the Merger, and
Jandel option holders who do not exercise their options prior to the Effective
Date will not be able to exercise such options and receive shares of Jandel
Common Stock after the Effective Date of the Merger.
The Exchange Ratio will be adjusted so as to give Jandel shareholders the
economic benefit of any stock dividends, reclassifications,
recapitalizations, split-ups, exchanges of shares, distributions or
combinations or subdivisions of SPSS Common Stock or Jandel Common Stock
effective between the date of the Merger Agreement and the Effective Date.
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On March 4, 1996, Joseph Osborn and Mark Battaglia spoke again by telephone
about a possible relationship between the two companies. Subsequent to the last
contact between Messrs. Battaglia and Osborn, the Jandel Board of Directors had
become more interested in exploring possible acquisitions. On March 28, 1996,
Edward Hamburg, Chief Financial Officer of SPSS, Mark Battaglia, and Jack
Noonan, President of SPSS, visited Jandel, toured Jandel's facilities and
discussed a possible merger.
On April 1, 1996, Joseph Osborn and Mark Battaglia arranged for Joseph
Osborn and Dr. John Osborn to visit Chicago on April 15, 1996. During this
visit, Mr. Osborn and Dr. Osborn met with senior SPSS management, toured SPSS'
facilities and discussed a possible merger with Jack Noonan of SPSS. On May 1,
1996, the Jandel Board of Directors met and engaged in lengthy discussions of a
possible acquisition by SPSS.
On June 10, 1996, Oliver King-Smith and Fred Ross-Perry of Jandel met with
Louise Rehling and Richard Marcell of SPSS to review product and development
issues.
On June 12 and 13, 1996, Joseph Osborn and Ross Garofalo, Chief Financial
Officer of Jandel, met with Edward Hamburg to continue discussions of merger
with SPSS and negotiate terms.
On June 27, 1996, Jandel's Board of Directors met to review the current
status of the merger negotiations. Following a thorough discussion of the
proposed merger, the Jandel Board of Directors approved the basic terms of the
Merger and established guidelines for Jandel's management to attempt to complete
the negotiations of the terms of the Merger.
From June 28 through July 15, 1996, Ross Garofalo and Joseph Osborn engaged
in lengthy negotiations with Edward Hamburg and Jack Noonan to agree on the
terms of the Merger. On July 15, 1996, the talks culminated in a letter
summarizing principal terms of the proposed Merger. From July 15, 1996 through
the signing of the Merger Agreement, the parties have engaged in extensive
discussions to negotiate the complete and final terms of the Merger Agreement
and have conducted extensive due diligence of one another's business.
On October 31, 1996, the SPSS Board of Directors unanimously approved the
Merger and the Merger Agreement. On October 31, 1996, the Jandel Board of
Directors unanimously approved the Merger and Merger Agreement, and as of
October 30, 1996, the Merger Agreement was executed.
EFFECTIVE DATE
The Merger Agreement provides that the Merger will become effective at such
time as an agreement of merger between Jandel and Acquisition Subsidiary is
accepted for filing with the Secretary of State of the State of California and
the Secretary of State of the State of Delaware (the "Effective Date"). It is
anticipated that if all conditions to the Merger have been fulfilled or waived,
the Effective Date will occur on or about November ___, 1996 or on a date as
soon as practicable thereafter.
CONVERSION OF SHARES OF JANDEL COMMON STOCK
Each share of Jandel Common Stock which is issued and outstanding
immediately prior to the Effective Date other than shares, if any, held by
shareholders who have exercised dissenters' rights under the California General
Corporation Law will be converted at the Effective Date into SPSS Common Stock
and cash in lieu of any fractional shares of SPSS Common Stock. On the
Effective Date, option holders who have exercised their options contingent upon
consummation of the Merger shall be deemed to have received the shares of Jandel
Common Stock to which they are entitled and such shares of Jandel Common Stock
shall be treated in the manner set forth above. Such exercising option holders
will hereinafter for all purposes be treated as Jandel shareholders. See
"Exchange Ratio" below. Option holders who do not exercise their options prior
to the Effective Date will not receive shares of SPSS Common Stock in the
Merger nor will they receive options for SPSS Common Stock in the Merger, and
Jandel option holders who do not exercise their options prior to the Effective
Date will not be able to exercise such options and receive shares of Jandel
Common Stock after the Effective Date of the Merger.
The Exchange Ratio will be adjusted so as to give Jandel shareholders the
economic benefit of any stock dividends, reclassifications,
recapitalizations, split-ups, exchanges of shares, distributions or
combinations or subdivisions of SPSS Common Stock or Jandel Common Stock
effective between the date of the Merger Agreement and the Effective Date.
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As of October 31, 1996, there were exercisable options to purchase
46,956 shares of Jandel Common Stock issued and outstanding (the "Jandel
Options"). Jandel Options to purchase 49,554 shares of Jandel Common Stock
were granted and outstanding under Jandel's 1989 Employee Nonqualified Stock
Option Plan (the "1989 Option Plan"). Of such options, Jandel Options to
purchase 11,202 shares of Jandel Common Stock had not yet vested as of October
31, 1996. Under the terms of the 1989 Option Plan, such options will be
accelerated to permit exercise immediately prior to the Effective Date of the
Merger. The 1989 Option Plan also provides that with regard to Jandel Options
granted after September 28, 1990 all of such Jandel Options held by current
employees, consultants or directors of Jandel that are not exercised will be
automatically terminated at the Effective Date of the Merger.
EXCHANGE RATIO
At the Effective Date of the Merger, all of the shares of Jandel Common
Stock that are issued and outstanding immediately prior to the Effective Date
will be converted by virtue of the Merger and without further action into that
number of shares of SPSS Common Stock determined by dividing $9,000,000 (or such
lower figure as is obtained by subtracting the amount to be paid to any
dissenting shareholders), less the expenses of Jandel in respect of the Merger,
by the average closing market price of SPSS Common Stock, as reported on the
Nasdaq National Market, for the trading days between June 3, 1996 until the
earlier of (a) November 25, 1996 or (b) three (3) trading days immediately prior
to the date of the Special Meeting (the "Share Price"). Each Jandel shareholder
will receive that number of shares of SPSS Common Stock to be issued in the
Merger which represents each shareholder's pro rata percentage of the Jandel
Common Stock owned immediately prior to the Merger. Certificates representing
shares of SPSS Common Stock will be distributed to Jandel shareholders upon the
surrender of their certificates for shares of Jandel Common Stock to SPSS. See
"Exchange of Certificates" herein.
NO FRACTIONAL SHARES
Only whole shares of SPSS Common Stock will be issued in connection with
the Merger. In lieu of fractional shares, each shareholder of Jandel Common
Stock otherwise entitled to a fractional share of SPSS Common Stock will be paid
in cash an amount equal to the amount of such fraction multiplied by the Share
Price. No such shareholder will be entitled to dividends, voting rights or
other rights in respect of any such fractional share.
EXCHANGE OF CERTIFICATES
After the Effective Date, holders of certificates previously representing
shares of Jandel Common Stock as well as the holders of options exercised
contingent on the Merger will cease to have any rights as shareholders of
Jandel and their sole rights will pertain to the shares of SPSS Common Stock
into which their shares of Jandel Common Stock will have been converted
pursuant to the Merger Agreement. As soon as practicable after the Closing,
Jandel shall deliver to SPSS the certificates previously representing shares of
Jandel Common Stock, representing the shares for cancellation, and such other
documents as may be reasonably required by SPSS. At such time, SPSS shall
cause to be issued, in the name of each former Jandel shareholder who delivered
such a certificate, newly issued shares of SPSS Common Stock (and, to the
extent applicable, cash in lieu of fractional shares of SPSS Common Stock).
SPSS will hold in escrow, for the account of the former Jandel shareholders,
10% of the total shares (the "Escrowed Shares") together with stock powers.
Shareholders who become holders of SPSS Common Stock in the Merger will not be
entitled to receive any dividends or other distributions which may be payable
to holders of record of SPSS Common Stock following the Effective Date until
they have surrendered and exchanged their certificates evidencing ownership of
shares of Jandel Common Stock. Upon receipt of the certificates representing
shares of Jandel Common Stock, SPSS will forward to Jandel shareholders (i)
certificates representing their shares of SPSS Common Stock, (ii) dividends
declared thereon subsequent to the Effective Date (without interest) and (iii)
the cash value of any fractional shares (without interest).
At the Effective Date, the stock transfer books of Jandel will be closed
and no transfer of Jandel Common Stock will thereafter be made on such books.
If a certificate formerly representing shares of Jandel Common Stock is
presented to SPSS, it will be cancelled and exchanged for a certificate
representing shares of SPSS Common Stock.
ESCROW
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On the Effective Date, under the Escrow Agreement the former Jandel
shareholders shall pledge and grant a first priority security interest in
the Escrowed Shares to SPSS as collateral to satisfy any indemnification
obligations to SPSS under the Merger Agreement. The number of Escrowed Shares,
if any, remaining after any return of Escrowed Shares as made in accordance
with the Merger Agreement will be delivered to the former Jandel
shareholders, in amounts proportionate to such shareholders' interest in such
Escrowed Shares, promptly after the earlier of the first anniversary of the
Effective Date or the date of release of results of the first post-acquisition
financial statement audit of the combined company (the "Escrow Termination
Date"), except for the number of such Escrowed Shares then subject to a bona
fide dispute in connection with a claim for indemnification made prior to the
Escrow Termination Date. Any of such shares that are not delivered in
connection with such indemnification claim, shall be delivered to the
shareholders entitled to same promptly after resolution of such dispute.
By approving the Merger Agreement, Jandel stockholders will be deemed to
have approved the Escrow Agreement attached as an exhibit to the Merger
Agreement (the "Escrow Agreement"), the security interest in the Escrowed
Shares to SPSS, and the appointment of Joseph H. K. Osborn as Representative
to the shareholders (the "Shareholders Representative") as set forth in the
Escrow Agreement. Any fees, costs and expenses of the Shareholders
Representative will be paid out of the Escrowed Shares before distribution of
the Escrowed Shares to the former Jandel shareholders on the Escrow Termination
Date.
STOCK EXCHANGE LISTING
SPSS has agreed that the SPSS Common Stock to be issued pursuant to the
Merger will be approved for listing on the Nasdaq National Market, subject to
official notice of issuance. An application will be made for listing such SPSS
Common Stock on the Nasdaq National Market.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Jandel Common Stock who do not vote in favor of the Merger may,
under certain circumstances and by following certain procedures, exercise
dissenters' rights and receive cash for their shares. The rights of dissenting
shareholders of Jandel Common Stock are governed by Section 1300 through Section
1312 of the California General Corporation Law.
The following is a summary of the statutory procedures to be followed by
holders of Jandel Common Stock in order to dissent from the Merger and perfect
dissenters' rights under California law. These summaries are not intended to be
a complete statement of such procedures and are qualified in their entirety by
reference to the full texts of such statute, a copy of which is attached hereto
as Annex B.
Within ten days after approval of the Merger by Jandel's shareholders,
Jandel must mail a notice of such approval (the "Approval Notice") to all
shareholders who held shares as of the Record Date and who do not vote in favor
of the Merger. The Approval Notice must include a copy of Sections 1300, 1301,
1302, 1303, and 1304 of the California General Corporation Law; a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
Sections. The statement of price constitutes an offer by the corporation to
purchase any dissenting shares at the price stated.
A shareholder electing to exercise dissenters' rights must make written
demand upon Jandel for the purchase of such shares and payment to the
shareholder in cash of their fair market value within 30 days after the date on
which the Approval Notice was mailed to such shareholders. The demand must
state the number and class of the shares held of record by the shareholder which
the shareholder demands that Jandel purchase and must contain a statement of
what such shareholder claims to be the fair market value of those shares as of
the day before the announcement of the proposed Merger. The statement of fair
market value constitutes an offer by the shareholder to sell the shares at such
price. Notices of dissent should be addressed to the Secretary of Jandel at the
address of the executive office of Jandel set forth above.
In addition, within 30 days after the date the Approval Notice was mailed
to the shareholder, the shareholder must submit to Jandel at its principal
office or at the office of any transfer agent thereof the shareholder's
certificates representing any shares which the shareholder demands that Jandel
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed. Upon subsequent transfers of the
dissenting shares on the books of Jandel, the new certificates issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
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If Jandel and the shareholder agree that the shares are dissenting shares
and agree upon the price of the shares, the dissenting shareholder is entitled
to the agreed price with interest thereon at the legal rate on judgments from
the date of the agreement. Any agreements fixing the fair market value of any
dissenting shares as between Jandel and the holders thereof shall be filed with
the Secretary of Jandel. Payment of the fair market value of dissenting shares
shall be made within 30 days after the later of the date on which the amount
thereof has been agreed or the date on which all statutory and contractual
conditions to the Merger are satisfied, upon surrender of the certificates
therefor.
If Jandel denies that the shares are dissenting shares, or Jandel and the
shareholder fail to agree upon the fair market value of the shares, then the
shareholder demanding purchase of such shares as dissenting shares may, within
six months after the date on which the Approval Notice was mailed to the
shareholder, file a complaint in the superior court of the proper county
requesting the court to determine whether the shares are dissenting shares or
the fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint. In such a case, two or more dissenting
shareholders may join as plaintiffs or be joined as defendants. On the trial of
the action, the court shall determine the issues. If the status of the shares
as dissenting shares is in issue, the court shall first determine that issue.
If the fair market value of the dissenting shares is in issue, the court shall
determine, or appoint one or more impartial appraisers to determine, the fair
market value of the shares.
If the court appoints an appraiser or appraisers, they shall determine the
fair market value per share. Within the time fixed by the court, the appraisers
will make and file a report with the court, and that report will be considered
on such evidence as the court considers relevant. If the court finds the report
reasonable, the court may affirm it. If the appraisers do not file a report
within ten days or the time allotted by the court, the court shall determine the
fair market value of the shares.
Judgment shall be rendered against Jandel in an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares, with interest thereon. Any such judgment shall be payable only upon the
endorsement and delivery to Jandel of the certificates for the shares described
in the judgment. Costs of the action will be apportioned as the court considers
equitable, but if the appraisal exceeds the price offered by the Jandel, Jandel
shall pay the costs (including in the discretion of the court attorneys' fees,
fees of expert witnesses, and interest if the value awarded by the court for the
shares is more than 125% of the price offered by Jandel).
Cash dividends declared and paid by Jandel upon the dissenting shares after
the date of approval of the Merger shall be credited against the total amount to
be paid by Jandel therefor.
Holders of dissenting shares continue to have all the rights and privileges
incident to their shares until the fair market value of their shares is agreed
upon or determined. A dissenting shareholder may not withdraw a demand for
payment unless Jandel consents thereto.
Dissenting shares will lose their status if: (i) Jandel abandons the
reorganization; (ii) the shares are transferred prior to their submission for
endorsement; (iii) the dissenting shareholder and Jandel do not agree upon the
status as dissenting shares or upon the purchase price of the shares, and
neither files a complaint within six months after the date on which notice of
the approval by the outstanding shares was mailed to the shareholder; or (iv)
the dissenting shareholder, with Jandel's consent, withdraws the shareholder's
demand for purchase of the dissenting shares.
CONDUCT PENDING MERGER; REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain covenants of the parties which must
be performed as a condition to the parties' consummation of the Merger. Both
SPSS and Jandel have agreed to cooperate with each other; allow access to each
of their business operations, corporate information and personnel; and use
reasonable efforts to cause the Merger to qualify for pooling of interests
accounting. Jandel has further agreed to use all reasonable efforts to obtain
any consents or approvals necessary for the consummation of the transaction and
that any payments made by SPSS for any taxes due and not reserved for in the
books and records after the Effective Date which are attributable to periods
ending on or before the Effective Date shall be satisfied from the Escrowed
Shares.
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In addition, SPSS has agreed: to use all reasonable efforts to obtain any
consents or approvals necessary for the consummation of the transaction; that
the Surviving Corporation will retain all of books of Jandel and Jandel's German
subsidiary, Jandel Scientific GmbH ("Jandel GmbH") and allow reasonable access
thereto; to allow Dr. John Osborn, Joseph Osborn, or Westing Software for a
reasonable price to use Jandel customer lists for certain approved mailings;
that within seven days of the Effective Date SPSS will terminate the employment
agreements with Dr. John Osborn and Mrs. Anne K. Osborn; and that SPSS will
provide Jandel employees not retained after the Effective Date with reasonable
severance packages.
SPSS, Acquisition Subsidiary and Jandel have also made numerous
representations and warranties to each other with respect to financial and other
matters. These include, without limitation, representations and warranties to
the effect that their respective financial statements which have been previously
delivered to the other are true, accurate and complete and that each company has
the corporate organization, qualification and authority required to effect the
transaction. Jandel further represents and warrants that its assets are in good
and merchantable condition and conform with all applicable laws and that it has
fully and accurately disclosed all material information regarding its employees,
employee benefits, employee litigation, employment contracts and consulting
contracts, and that no person or party has any claim or basis for claim against
Jandel or Jandel GmbH for discrimination, occupational hazards or employment
matters of any kind.
All representations or warranties made by any party to the Merger Agreement
will survive the Effective Date until the earlier of the first anniversary of
the Effective Date or the release of results of the first post-acquisition audit
of SPSS. Thereafter, no party to the Merger Agreement nor any officer or
director of any of them will have any liability or obligation with respect to
such representations or warranties, with certain exceptions, including of any
misrepresentations, breaches of warranties or violations of covenants that were
made with the intent to defraud.
CONDITIONS PRECEDENT
SPSS' and Acquisition Subsidiary's obligation to consummate the Merger is
conditioned upon the following:
(a) The representations and warranties of Jandel being materially true and
accurate on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date;
(b) Jandel having performed in all material respects all covenants and
agreements required by the Merger Agreement to be performed by it on or before
the Closing Date;
(c) All registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other actions of any
kind or otherwise required of any persons or governmental authorities or private
agencies in connection with the consummation of the transactions contemplated
by, and the performance by Jandel of its obligations under the Merger Agreement
having been made or obtained and all applicable waiting periods having expired
or terminated, in each case upon terms and conditions reasonably satisfactory to
SPSS;
(d) No action, suit or proceeding having been instituted by any person or
entity, or threatened by any governmental agency or body, before a court or
governmental body, to restrain or prevent the consummation of the transactions
contemplated by, or the performance by Jandel of its obligations under, the
Merger Agreement or which seeks other relief with respect to any of such
transactions or which could reasonably be expected to have a materially adverse
effect on the businesses, results of operations, assets, financial condition or
prospects of either Jandel or Jandel GmbH, and at the Closing Date, there being
no injunction, restraining order or decree of any nature of any court or
governmental agency or body in effect which restrains or prohibits the
consummation of the transactions contemplated by the Merger Agreement;
(e) SPSS having received the written opinion, dated the Closing Date, of
Johnston, Horton and Roberts, counsel to Jandel, or other counsel reasonably
acceptable to Jandel, covering the matters set forth on an exhibit to the Merger
Agreement;
(f) SPSS having completed a due diligence investigation of Jandel and
Jandel GmbH, the results of which shall have been satisfactory to SPSS in its
sole discretion;
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(g) SPSS having received from KPMG Peat Marwick LLP a letter dated as of
the Closing Date, in form and substance reasonably acceptable to SPSS, and
stating that based on their procedures, no conditions exist which would preclude
accounting for the transaction as a pooling of interests;
(h) No action having been taken by any government authority or any
statute, rule, regulation or order, promulgated or issued by any governmental
authority, or any proposal made for any such action by any governmental
authority which is reasonably likely to be put into effect, that would prevent
SPSS from accounting for the transactions contemplated under the Merger
Agreement as a pooling of interests;
(i) The Merger Agreement and the Merger having been approved and adopted
by the Shareholders in accordance with the California General Corporation Law
("CGCL") and the Articles of Incorporation and By-Laws of Jandel;
(j) Prior to the Closing Date, Jandel having delivered to SPSS and
Acquisition Subsidiary a letter identifying all persons who are "affiliates" of
Jandel for purposes of applicable interpretations regarding the
pooling-of-interests method of accounting and Jandel shall use its best efforts
to cause each such person to deliver to SPSS on or prior to the Closing Date an
Affiliate Letter;
(k) At the Closing, the closing documents to be delivered by Jandel shall
be delivered to SPSS;
(l) The Registration Statement having become effective and not being
subject to any stop order proceeding; and
(m) At the closing, Joseph Osborn shall have entered into a
Non-Competition Agreement with SPSS, substantially in the form attached as an
exhibit to the Merger Agreement.
Jandel's obligation to consummate the Merger is conditioned upon the
following:
(a) The representations and warranties of SPSS and Acquisition Subsidiary
being materially true and accurate on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date;
(b) SPSS and Acquisition Subsidiary having performed in all material
respects all covenants and agreements required by the Merger Agreement to be
performed by them on or before the Closing Date;
(c) All registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other actions listed in
the Merger Agreement or otherwise required of any persons or governmental
authorities or private agencies in connection with the consummation of the
transactions contemplated by and the performance of SPSS and Acquisition
Subsidiary of their respective obligations under the Merger Agreement having
been made or obtained and all applicable waiting periods having expired or been
terminated;
(d) Jandel having received an opinion of Cooley Godward LLP that the Merger
will be treated as a tax-free reorganization for federal income tax purposes;
(e) Jandel having received from KPMG Peat Marwick LLP a letter dated as of
the Closing Date, in form and substance reasonably acceptable to Jandel, stating
that, based on their procedures, no conditions exist which would preclude
accounting for the transaction as a pooling of interests;
(f) No action having been taken by any government authority or any
statute, rule, regulation or order, promulgated or issued by any governmental
authority, or any proposal made for any such action by any governmental
authority which is reasonably likely to be put into effect, that would prevent
SPSS from accounting for the transactions contemplated under the Merger
Agreement as a pooling of interests;
(g) No action, suit or proceeding having been instituted by any person or
entity, or threatened by any governmental agency or body, before a court or
governmental body, to restrain or prevent the consummation of the transactions
contemplated by, or the performance by SPSS or Acquisition Subsidiary of their
respective obligations under, the Merger Agreement or which seeks other relief
with respect to any of such transactions or which could reasonably be expected
to have a materially adverse effect on the businesses, results of operations,
assets, financial condition or prospects of either SPSS or Acquisition
Subsidiary, and at the Closing Date, there being no injunction,
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restraining order or decree of any nature of any court or governmental agency
or body in effect which restrains or prohibits the consummation of the
transactions contemplated by the Merger Agreement;
(h) At the Closing, the documents to be delivered by SPSS as referenced in
the Merger Agreement having been delivered to Jandel;
(i) The Merger Agreement having been adopted and the Merger having been
approved by the Shareholders in accordance with the CGCL and the Articles of
Incorporation and By-Laws of Jandel; and
(j) This Registration Statement having become effective and not being
subject to any stop order proceeding.
INDEMNIFICATION
Subject to the Cap (as defined in the Merger Agreement), SPSS and
Acquisition Subsidiary and their affiliates and Representatives (as defined in
the Merger Agreement) shall be indemnified and held harmless from and against
any and all Losses (as defined in the Merger Agreement) arising out of or
relating to (i) any breach of any representation or warranty set forth in the
Merger Agreement or in any related schedule, or set forth in any closing
certificate or other document entered into or delivered in connection with the
Merger Agreement; (ii) any breach of any covenant, obligation or agreement of
Jandel contained in the Merger Agreement, or set forth in any closing
certificate or other document entered into or delivered in connection with the
Merger Agreement; (iii) any fraudulent representation or intentional
misrepresentation on the part of Jandel; (iv) any claim or cause of action by
any shareholder or employee of Jandel arising out of or related to any act or
omission of Jandel prior to the Effective Date or the transactions contemplated
under the Merger Agreement; and (v) any tax liability or obligation asserted
against SPSS or Acquisition Subsidiary and arising out of or related to tax
periods ending on or prior to the Effective Date or Jandel's actions or
omissions.
Subject to the Cap, SPSS, Acquisition Subsidiary and their affiliates and
Representatives shall be indemnified and held harmless from and against (i) any
taxes of or incurred by either Jandel or Jandel GmbH for any taxable year or
other period the return for which was filed or due on or before the Effective
Date; (ii) any taxes incurred by either Jandel or Jandel GmbH for any taxable
year or other period ending on or prior to the Effective Date, the return for
which is filed or due after the Effective Date, to the extent in excess of the
reserve for tax liability (excluding any reserve for deferred taxes established
to reflect temporary differences between book and tax income) as set forth in
its most recent balance sheet contained in Jandel's financial statements; (iii)
the pro-rata share of any taxes incurred by either Jandel or Jandel GmbH for any
taxable year or other period beginning before and ending after the Effective
Date, to the extent in excess of the reserve for tax liability (excluding any
reserve for deferred taxes established to reflect temporary differences between
book and tax income) set forth or included in its most recent balance sheet
contained in Jandel's financial statements, as adjusted for the passage of time
through the Effective Date in accordance with either Jandel's or Jandel GmbH's
past practice and customs; and (iv) all taxes of any corporation other than
Jandel or Jandel GmbH which was at any time prior to the Effective Date a
member of an "affiliated group" of corporations that included either Jandel or
Jandel GmbH.
The indemnity provided in the Merger Agreement shall not exceed an amount
equal to 10% of the total shares of SPSS Common Stock to be issued to the Jandel
shareholders pursuant to the Merger (the "Cap") and any indemnification payment
to be made to SPSS and Acquisition Subsidiary shall be satisfied solely out of
the Escrowed Shares. The indemnity provided in the Merger Agreement shall not
apply until the cumulative amount of all claims for indemnity shall exceed
$50,000 in the aggregate (the "Basket"). If the Basket is exceeded, SPSS shall
be entitled to the excess, if any, of the full amount of all such claim over the
Basket, subject to the Cap. Notwithstanding the foregoing, the Basket shall not
apply to the indemnities in the Merger Agreement for breach of any
confidentiality obligation contained in the Merger Agreement or in any other
closing document, or any fraud, willful misconduct, gross negligence or criminal
action on the part of Jandel, and shall not apply to any liability related to
taxes and, notwithstanding anything contained or implied in the Merger
Agreement, these indemnity obligations in the prior sentence shall survive the
Closing without limitation, except as provided by the applicable statute of
limitations (including any extension thereof).
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Subject to the Cap, SPSS and Acquisition Subsidiary agree to indemnify
Jandel and its affiliates and the respective officers, directors, employees,
agents and representatives of each of the foregoing against any and all losses
relating to (i) any breach of any representation or warranty of either SPSS or
Acquisition Subsidiary set forth in the Merger Agreement or any related
schedule, or set forth in any closing certificate or other document entered into
or delivered by either SPSS or Acquisition Subsidiary in connection with the
Merger Agreement; (ii) any breach of any covenant, obligation or agreement of
either SPSS or Acquisition Subsidiary contained in the Merger Agreement or in
any other closing document; and (iii) any fraudulent representation or
intentional misrepresentation on the part of either SPSS or Acquisition
Subsidiary; unless the claim or cause of action with respect thereto arises out
of or is related to actions or omissions of Jandel prior to the Effective Date.
AMENDMENT; TERMINATION
The Merger Agreement may be amended, modified or supplemented by the
written agreement of each of the parties, upon the authorization of each
company's respective Board of Directors and without further approval of Jandel's
shareholders, except that no amendment, modification or supplement may be
effected without Jandel's shareholder approval if to do so would violate any
applicable provisions of law.
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date by written notice delivered by SPSS to Jandel or by
Jandel to SPSS in the following instances:
(a) by mutual consent of the Boards of Directors of SPSS, Jandel and the
Acquisition Subsidiary.
(b) by Jandel or SPSS if a material breach of any provision of the Merger
Agreement has been committed and such breach is not waived;
(c) by SPSS, if the conditions to SPSS' obligations to close the Merger
shall not have been complied with or performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated by
Jandel on or before December 31, 1996; or
(d) by Jandel, if the conditions to Jandel's obligations to close the
Merger shall not have been complied with or performed in any material respect
and such noncompliance or nonperformance shall not have been or cannot be cured
or eliminated by SPSS or before December 31, 1996; or
(e) by either SPSS or Jandel if the Merger shall not have been consummated
on or before December 31, 1996 or such later date as the parties may agree in
writing.
EFFECT ON JANDEL EMPLOYEES
Within seven days of the Effective Date, the employment agreements with Dr.
John Osborn and Anne K. Osborn will be terminated for total consideration of
$50,000. Within a reasonable time after the Effective Date, SPSS shall provide
reasonable severance packages to Jandel employees who are not retained for
employment with SPSS.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Board of Directors of Jandel was aware of the interests of certain
persons in the Merger described below and considered them, among other matters,
in approving the Merger Agreement and the transactions contemplated thereby.
As of the Record Date, the directors and executive officers of Jandel as a
group beneficially owned an aggregate of 150,873 shares of Jandel Common Stock
(including exercisable options). Those shares will be treated in the Merger in
the same manner as the shares of Jandel Common Stock held by other shareholders
of Jandel, and all of those options will be treated in the Merger in the same
manner as options to purchase Jandel Common Stock held by other employees of
Jandel.
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EMPLOYMENT AGREEMENT. Dr. John Osborn, Chairman of the Board Directors of
Jandel and his wife, Anne K. Osborn, Treasurer of Jandel, have a multi-year
employment and consulting agreement with Jandel. Dr. and Mrs. Osborn have
agreed to terminate the employment agreement in return for a payment of $50,000
by SPSS within seven days of the Effective Date.
SPSS and Joseph Osborn shall, as a condition to SPSS' obligations to
consummate the Merger, enter into a noncompetition agreement.
SEVERANCE ARRANGEMENT. Within a reasonable time after the Effective Date,
SPSS shall provide reasonable severance packages to Jandel employees who are not
retained for employment with SPSS. Such severance packages will grant one week
severance pay for every year of service with Jandel. However, in no event will
an employee who is not retained for service with SPSS receive less than one
month of severance pay.
EFFECTS OF MERGER
Upon consummation of the Merger, Acquisition Subsidiary will merge with and
into Jandel, with Jandel as the surviving corporation, and Acquisition
Subsidiary will cease to exist as a separate entity.
The Board of Directors and officers of SPSS will remain unchanged after the
Merger. The Board of Directors and officers of Surviving Corporation after the
Merger is consummated will consist of the Board of Directors and officers of
Acquisition Subsidiary immediately prior to the Merger.
CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of Jandel
Common Stock. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury Regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or
may not be retroactive, could alter the tax consequences to SPSS, Jandel or the
Jandel shareholders, as described herein.
Jandel shareholders should be aware that this discussion does not deal with
all federal income tax considerations that may be relevant to particular Jandel
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, who are subject to the alternative minimum tax
provisions of the Code, who are foreign persons or who acquired their shares in
connection with stock option or employee stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the Merger under foreign, state or local tax
laws or the tax consequences of transactions effectuated prior to or after the
Merger (whether or not such transactions are in connection with the Merger).
ACCORDINGLY, JANDEL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER IN THEIR
PARTICULAR CIRCUMSTANCES.
Neither SPSS nor Jandel has requested, or will request, a ruling from the
Internal Revenue Service (the "IRS") with regard to any of the federal income
tax consequences of the Merger. As a condition to consummation of the Merger,
Cooley Godward LLP, special counsel to Jandel, will render an opinion (the "Tax
Opinion") to the Jandel shareholders, that the Merger will constitute a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code (a
"Reorganization"). The Tax Opinion will be based on certain assumptions, as
well as representations received to and to be received from SPSS, Jandel, SPSS
Acquisition, and the shareholders of Jandel and will be subject to the
limitations discussed below. Moreover, the Tax Opinion will not be binding on
the IRS nor preclude the IRS from adopting a contrary position. The discussion
below assumes that the Merger will qualify as a Reorganization, based upon the
Tax Opinion.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the following federal
income tax consequences should, under currently applicable law, result:
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No gain or loss will be recognized for federal income tax purposes by
the holders of Jandel Common Stock upon the receipt of SPSS Common Stock solely
in exchange for such Jandel Common Stock in the Merger (except to the extent
that cash is received in lieu of fractional shares).
The aggregate tax basis of the SPSS Common Stock so received by Jandel
shareholders in the Merger (including any fractional shares of SPSS Common
Stock not actually received) will be the same as the aggregate tax basis of the
Jandel Common Stock surrendered in exchange therefor.
The holding period of the SPSS Common stock so received by each Jandel
shareholder in the Merger will include the period for which the Jandel Common
Stock surrendered in exchange therefor was held, provided that the Jandel
Common Stock so surrendered is held as a capital asset at the Effective Date
of the Merger.
Cash payments received by holders of Jandel Common Stock in lieu of
fractional shares will be treated as if such fractional shares of SPSS Common
Stock had been issued in the Merger and then redeemed by SPSS. A Jandel
shareholder receiving such cash will recognize gain or loss upon such payment,
measured by the difference (if any) between the amount of cash received and the
basis in such fractional shares. The gain or loss should be capital gain or
loss, provided that each such fractional share of SPSS Common Stock was held as
a capital asset at the Effective Date of the Merger.
A holder of Jandel Common Stock who exercises dissenters' rights with
respect to a share of Jandel Common Stock and receives a cash payment for such
share generally should recognize capital gain or loss (if such share was held
as a capital asset at the Effective Date of the Merger) measured by the
differences between the shareholder's basis in such share and the amount of
cash received, provided that such payment is not a Dividend Equivalent
Transaction. A sale of shares pursuant to an exercise of dissenters' rights
generally will not be a Dividend Equivalent Transaction if, as a result of such
exercise, the shareholder exercising dissenters' rights owns no shares of
capital stock of SPSS (either actually or constructively within the meaning of
Section 318 of the Code) immediately after the Merger.
The Tax Opinion will be subject to certain assumptions and qualifications
and will be based on the truth and accuracy of certain representations of SPSS,
Jandel, SPSS Acquisition and the shareholders of Jandel, including
representations in certain certificates delivered to counsel by the respective
managements of SPSS, Jandel and SPSS Acquisition and the shareholders of Jandel.
One key assumption is that the "continuity of interest" requirement will be
satisfied in the Merger. In order for this requirement to be met, shareholders
of Jandel must not, pursuant to a plan or intent existing at or prior to the
Effective Date of the Merger, dispose of so much of (i) their Jandel Common
Stock in anticipation of the Merger, plus (ii) the SPSS Common Stock received in
the Merger (collectively, the "Planned Dispositions") such that the Jandel
shareholders, as a group, would no longer have a "significant equity interest"
in the Jandel business being conducted by SPSS after the Merger. Jandel
shareholders will generally be regarded as having a significant equity interest
as long as the SPSS Common Stock received in the Merger (after taking into
account Planned Dispositions), in the aggregate, represents a "substantial
portion" of the entire consideration received by the Jandel shareholders in the
Merger. This requirement is frequently referred to as the "continuity of
interest" requirement. If the continuity of interest requirement is not
satisfied, the Merger would not be treated as a Reorganization. The law is
unclear as to what constitutes a "significant equity interest" or a "substantial
portion." The IRS ruling guidelines require 50% continuity (although such
guidelines do not purport to represent the applicable substantive law). The
Merger Agreement and the Continuity of Interest Certificates contemplate that
the 50% standard will be applied. No assurance, however, can be made that the
"continuity of interest" requirement will be satisfied, and if such requirement
is not satisfied, the Merger will not be treated as a Reorganization.
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A successful IRS challenger to the Reorganization status of the Merger
would result in significant tax consequences. A Jandel shareholder would
recognize gain or loss with respect to each share of Jandel Common Stock
surrendered equal to the difference between the shareholder's basis in such
share and the fair market value, as of the Effective Date, of the SPSS Common
Stock received in exchange therefor. In such event, a shareholder's aggregate
basis in the SPSS Common Stock so received would equal its fair market value,
and the shareholder's holding period for such stock would begin the day after
the Merger is consummated.
Even if the Merger qualifies as a Reorganization, a recipient of SPSS
Common Stock would recognize income to the extent that, for example, any such
shares were determined to have been received in exchange for services, to
satisfy obligations or in consideration for anything other than the Jandel
Common Stock surrendered. Generally, such income is taxable as ordinary income
upon receipt. In addition, to the extent that a Jandel shareholder were treated
as receiving (directly or indirectly) consideration other than SPSS Common Stock
in exchange for such shareholder's Jandel Common Stock, gain or loss would have
to be recognized.
The federal income tax discussion set forth above is based on current law
but may not be specific to the situation of a particular shareholder. Because
of the complexity of the tax laws, and because the tax consequences to any
particular shareholder may be affected by specific matters not common to all
shareholders, it is recommended that Jandel shareholders consult their personal
tax advisors concerning the consequences of the Merger to them, including the
consequences of the application of federal, state and local tax laws, if any.
ACCOUNTING TREATMENT
The Merger, if completed as proposed, is expected to qualify as a pooling
of interests for accounting and financial reporting purposes. Accordingly,
under generally accepted accounting principles, as of the Effective Date, the
assets and liabilities of Jandel will be combined with those of SPSS at their
recorded book values and the shareholders' equity account of Jandel will be
included as such in SPSS' consolidated balance sheet. The financial statements
of Jandel will be combined with the financial statements of SPSS on a
retroactive basis for all prior periods.
RESALE OF SPSS COMMON STOCK ISSUED IN THE MERGER
No restrictions on the sale, pledge, transfer or other disposition of the
shares of SPSS Common Stock issued pursuant to the Merger will be imposed solely
as a result of the Merger, other than restrictions on the transfer of such
shares issued to any Jandel shareholder who may be deemed to be an "affiliate"
of SPSS or Jandel for purposes of Rule 145 promulgated under the Securities Act.
Directors, executive officers or holders of 10% or more of the outstanding
shares of Jandel Common Stock may be deemed to be affiliates of Jandel for
purposes of Rule 145. Affiliates may not sell, pledge, transfer or otherwise
dispose of the shares of SPSS Common Stock issued to them in exchange for their
shares of Jandel Common Stock unless the requirements of Rule 145(d) are
satisfied or the sale, pledge, transfer or disposition is otherwise in
compliance with the Securities Act and the rules and regulations promulgated
thereunder. Generally, under Rule 145(d), an affiliate of Jandel will be
permitted to sell, pledge, transfer or otherwise dispose of his or her shares of
SPSS Common Stock received pursuant to the Merger if one of the following is
satisfied:
(1) The shares are sold in "broker's transactions" or in transactions
directly with a "market maker," the affiliate does not solicit or arrange for
the solicitation of purchase orders or make any payments in connection with the
sale to anyone other than the broker or market maker, and the number of shares
sold, together with all other sales of SPSS Common Stock by such affiliate
within the preceding three months, does not exceed one percent of the
outstanding shares of SPSS Common Stock; or
(2) The affiliate is not an affiliate of SPSS and has been the beneficial
owner of the SPSS Common Stock for at least two years, and there is certain
publicly available information regarding SPSS.
In addition, shares of SPSS Common Stock issued to affiliates in the Merger
may not be sold, pledged, transferred or otherwise disposed of until such time
as financial results covering at least 30 days of combined operations of SPSS
and Jandel have been published within the meaning of Section 201.01 of the
Commission's Codification of Financial Reporting Policies.
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Share certificates for SPSS Common Stock issued to affiliates of Jandel
will bear a legend as follows:
The shares of stock evidenced by this certificate are subject to
restrictions on transfer and may only be transferred pursuant to an
effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or after the Issuer has received an
opinion from its counsel or other written evidence in form and
substance satisfactory to the Issuer that the transfer will be in
compliance with the requirements of Rule 145(d) or an exemption from
the registration requirements of the Securities Act.
The foregoing is only a general statement of the restrictions on the
disposition of the shares of SPSS Common Stock to be issued in the Merger.
Accordingly, those shareholders of Jandel who may be affiliates of Jandel should
confer with legal counsel with respect to the resale restrictions.
SPSS INC.
DESCRIPTION OF BUSINESS
SPSS develops, markets and supports an integrated line of statistical
software products that enable users to effectively bring marketplace and
enterprise data to bear on decision-making. The primary users of the Company's
software are managers and data analysts in corporate settings, government
agencies and academic institutions. In addition to its widespread use in survey
analysis, SPSS software also performs other types of market research, as well as
quality improvement analyses, scientific and engineering applications and data
reporting. The current generation of SPSS Desktop products (as defined herein)
features a windows-based point-and-click graphical user interface, sophisticated
statistical procedures, data access and management capabilities, report writing
and integrated graphics. The Company's products provide extensive analytical
capabilities not found in spreadsheets, database management systems or graphics
packages.
In its 20 years of operation, SPSS has become a widely recognized name in
statistical software. The Company plans to leverage its current position to
take advantage of the increased demand for software applications that not only
provide ready access to the data that organizations collect and store, but also
enable users to systematically analyze, interpret and present such information
for use in decision-making. Management believes the ease-of-use of the
Company's current generation products, combined with the greater processing
speed and storage capacity of the latest desktop computers, has substantially
expanded the market for SPSS statistical software.
In the summer of 1993, the Company completed an initial public offering
(the "IPO") of common stock, $.01 par value (the "Common Stock"). The Common
Stock is listed on the Nasdaq National Market under the symbol "SPSS". In early
1995, the Company and certain selling stockholders (the "Selling Stockholders")
sold 1,865,203 shares of Common Stock in a public offering. See "SPSS INC. -
Recent Developments."
RECENT DEVELOPMENTS
In early 1995, the Company and certain selling stockholders completed an
offering of Common Stock in which the Company sold 908,287 shares of Common
Stock and the selling stockholders sold 956,916 shares of Common Stock, at a
public offering price of $11.375 per share. After the underwriters' discounts
and other offering expenses, the Company received approximately $9,127,000 in
net proceeds from its sale of 908,287 shares of Common Stock in the offering.
As of December 29, 1995, the Company purchased substantially all of the
assets of one of its competitors, BMDP Statistical Software, Inc. ("BMDP"), for
$850,000 in cash to BMDP and non-competition payments to the principal
shareholder of BMDP. In addition, the Company agreed to assume approximately
$1,400,000 of BMDP's liabilities, consisting of telephone equipment and office
machine lease obligations, accounts payable and advertising fees, accrued
employment-related expenses, professional fees and bank loan and line of credit
facilities. In the fourth quarter of 1995, the Company recorded charges of
approximately $1,051,000 representing a one-time write-off of acquired and in
process technology and other acquisition-related charges.
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On September 26, 1996, SPSS acquired Clear Software, Inc., a Massachusetts
corporation ("Clear Software"), for SPSS common stock valued at approximately
$4.5 million in a merger accounted for as a pooling of interests. Clear
Software is a developer and marketer of process management, analysis and
documentation software products, including allCLEAR, a software package used
primarily for describing complex business processes using flowcharts and other
types of diagrams. Clear Software has more than 120,000 users, and its 1995
revenues were approximately $2.8 million. SPSS will continue to operate the
Clear Software business from the Clear Software offices in Newton,
Massachusetts.
SPSS believes that the acquisition of Clear Software brings important
technology to the SPSS family of products, because unlike most flowcharting
packages, which are primarily drawing programs, allCLEAR is built on a database
which enables users to develop an initial diagram faster, make changes quickly
and easily and try different views with a touch of a button. Process diagrams
are often important precursors to statistical analysis as well as useful
presentation tools for business process re-engineering, quality improvement
analysis, process documentation and scientific research. Among the diagrams
that can be produced in allCLEAR are presentation-quality flowcharts, process
flow diagrams, organizational charts, network diagrams and fishbone diagrams.
SPSS has been selling Clear Software's software products since September
1995, when it became a value-added reseller of Clear Software's flagship
product, allCLEAR III for Windows. The two companies extended that agreement
in January 1996 to include CLEAR Process, a process management software tool
that gives users the ability to easily work with data, such as cost information,
as they explore process re-engineering alternatives. The Company believes that
the acquisition of Clear Software will enable SPSS to expand the reach of Clear
Software's products with its greater resources and established distribution
channels. Currently, less than five percent of Clear Software's revenues are
outside North America. SPSS has an extensive worldwide distribution network,
with 26 sales offices and more than 60 distributors around the globe. Last
year, approximately 55% of SPSS' revenues were from outside North America, and
SPSS offers its flagship product, SPSS for Windows, in eight languages: English,
German, French, Italian, Spanish, Japanese, Catalan and Traditional Chinese.
Clear Software recently unveiled versions of allCLEAR in Japanese and Czech. A
number of additional local-language versions of allCLEAR are currently under
development by Clear Software.
Net revenues for the quarter ended September 30 increased from $16,172,000
in 1995 to $18,998,000 in 1996, an increase of 17%. For the nine months ended
September 30, net revenues increased from $47,400,000 in 1995 to $54,874,000 in
1996, an increase of 16%. Operating income for the quarter increased from
$2,289,000 in 1995 to $3,279,000 in 1996, a 43% increase between the periods.
For the nine months, operating income increased from $6,498,000 in 1995 to
$8,993,000 to 1996, a 38% increase. Net income for the quarter decreased from
$1,568,000 in 1995 to $1,488,000 in 1996, a decrease of 5%. For the nine month
period, net income increased from $4,512,000 in 1995 to $5,428,000 in 1996, a
20% increase. The 1996 net income figures reflect a $980,000 pretax charge for
merger costs related to the September combination with CLEAR.
INDUSTRY BACKGROUND
Statistical analysis is a means of drawing reliable conclusions from
numerical information about a given subject. Such systematic analysis of
numbers goes back to the seventeenth century, when statistics were used in
determining insurance and annuity rates, as well as by political leaders in
developing more effective economic policies. The fundamental purposes and power
of statistical analysis remains the same today: to help decision makers
understand and resolve problems by uncovering the causes underlying events and
conditions. The Company believes that demand for statistical and other data
analysis capabilities will continue to grow as decision-making becomes more
complex and the consequences of decisions more significant. To meet this
demand, colleges and universities are training increasing numbers of people in
the use of statistics. In addition, more powerful desktop computers have made
the means of applying statistics to solve problems more available, usable and
affordable.
The market for statistical software is part of a much larger market for
data management, analysis and presentation software. The largest segment of
this market is comprised of persons examining data with spreadsheets, graphics
packages and the reporting programs provided by database management systems. The
widespread use of these tools is due to their effectiveness in answering the
what questions of data, such as what is the largest market for a product, or
what was the default rate on loans, or what defects occurred in a manufacturing
process and at what frequency.
Another smaller yet sizable and growing segment of this market uses
statistical software in addition to these other data analysis tools to answer
the why questions of data. These questions most often deal with issues of
causality and prediction, such as when a corporation wants to understand its
success in a market, or a bank needs to distinguish good and bad credit risks
prior to making loans, or a manufacturer seeks to reduce the number of defects
in production by identifying the causes proactively. Spreadsheet, graphics and
database packages lack the necessary range and depth of analytical functionality
to adequately address these types of questions.
The Company believes that the worldwide demand for statistical software
will grow for the following reasons:
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Organizations are demanding more useful information from the
increasing amount of data being collected, organized and stored;
Certain industries, such as manufacturing and healthcare, have a
particularly critical and growing need for statistical analysis with
their increased focus on quality improvement;
The number of people with a working knowledge of statistics
continues to grow significantly; and
The improved price and performance characteristics of desktop
computers, together with the greater ease-of-use of graphical user
interfaces, have eliminated many historical barriers to the use of
statistical software.
MARKETS
SPSS customers come from various industries requiring a wide range of
statistical applications. The Company focuses, however, on the following market
areas:
Market and Sales Analysis. Almost all of the top marketing research firms
in North America are SPSS customers, and corporations worldwide use SPSS
products to help target advertising and direct mail campaigns, test-market new
products, identify changing customer characteristics, measure customer
satisfaction and assess sales force productivity.
Government. SPSS software is used in almost every country of the world, at
all levels of government and in civilian as well as defense agencies. The
Company's products, for example, are used as part of the efforts of the Internal
Revenue Service of the United States to modernize its tracking systems, are used
by many municipal public safety agencies, have become the standard marketing
tools in the recruitment programs of the United States Armed Forces and are
employed as a statistical system for many national census programs.
Scientific Research and Education. SPSS software is used at virtually
every major college and university in the world, as well as a large number of
government and commercial research centers. In addition, academic
administrators use SPSS products to monitor aspects of their operations, such as
attrition rates, changes in demographic profile of student populations and the
success of fund-raising activities.
Manufacturing. Driven by rising costs, government regulation and
increasingly competitive global markets, more and more manufacturing companies
are implementing systems for statistical quality control and improvement. SPSS
software is currently used in a variety of manufacturing quality control
applications, both in laboratories and on the shop floor.
STATISTICAL SOFTWARE PRODUCTS
SPSS provides an integrated set of software products that enable end-users
to perform statistical analysis, including the generation of graphs and reports,
on a wide variety of computing platforms. The product line is:
comprehensive in function across computing platforms;
modular, allowing users to purchase only the functionality they
need;
tailored to desktop operating environments, where adherence to
platform standards directly translates into greater usability of
products; and
localized for use in France, Germany, Italy, Japan, China and
Spanish-speaking countries.
While there are some variations according to version and computing
platform, the typical SPSS configuration is a Base System and add-on products.
This Base System includes the user interface, data connectivity, data editing
and statistical procedures, as well as graphing and reporting. Add-on products
provide additional functionality specific to a particular type of data analysis,
such as facilitating certain types of data entry, providing a wide variety of
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<PAGE> 44
specialized statistical capabilities and offering additional presentation
capabilities. These add-on products are either developed by SPSS or by third
parties. See "SPSS INC. - Reliance on Third Parties."
CLEAR SOFTWARE PRODUCTS
The CLEAR products have received many favorable reviews and industry
awards. Clear Software's licensing and pricing alternatives varied by product
and quantity sold. allCLEAR accounts for most of the CLEAR products revenue,
followed by CLEAR Process and CLEAR OrgCharts. allCLEAR has a single user
license with a list price of $299 with discounts for volume purchases. Network
licenses are available for 5 to 50 users for a one-time fee of $995 to $7,549.
For all licenses, there are discounts for resellers and for government and
academic purchasers. CLEAR Process has a single user license price of $495 and
network licenses range from $1,975 to $13,529 with discounts for resellers,
distribution, government, academic, and volume purchases. CLEAR OrgCharts is a
low end product sold primarily through retail and OEM channels. The suggested
list price is $99 for a single user version; there is no network license
available. The Clear products are sold through distribution companies, Ingram
Micro and Micro Central; distribution companies buy at a significant discount
for sale to bona fide resellers. Approximately forty percent of Clear's
business comes through distribution companies, corporate resellers, catalog and
retain channels. Clear offered for an additional fee technical support beyond
the initial 60 days of free support and upgrades.
Clear Software had 20 distributors in markets outside the United States.
These distributors accounted for only about 5% of Clear's revenue. They
purchased products from Clear at a discount off the US price list. Two local
language versions of allCLEAR are currently available. Czech and Japanese;
several other local language versions are under development.
The following tables summarize the Company's software products:
<TABLE>
<CAPTION>
SPSS Product Line Key Functions and Features
<S> <C>
SPSS Base STATISTICS: Comprehensive range of descriptive statistics; frequency counts and
(Release 7.0) percentages; cross tabulations (with tests of significance, chi-square residuals, and
measures of association); multiple response tabulations; exploratory data analysis
(EDA); analysis of variance; t-tests, correlations; regression; curve fitting;
nonparametric tests; statistical distribution functions.
PRESENTATION AND GRAPHICS: Drag-and-drop pivot tables, Report writer; business charts
(pie, bar, line, etc.), statistical charts (histograms, scatterplot, box plots, time
series plots, etc.), quality improvement charts (control, Pareto, etc.).
DATA MANAGEMENT: Spreadsheet data entry and editing; data transformation and
management routines; data connectivity (including database links); reads files of any
size (except under DOS). Includes context-sensitive Help and on-line statistical
glossary.
Professional Cluster analysis, factor analysis, discriminant analysis, reliability analysis;
Statistics multidimensional scaling, weighted and two-stage least squares.
(Release 7.0)
Advanced Logistic and nonlinear regression, prohibit analysis, general linear models, loglinear
Statistics models, survival/life tables analysis, repeated measures analysis of variance,
(Release 7.0) multivariate analysis of variance, matrix language and library.
Categories Conjoint analysis, optimal scaling procedures, correspondence analysis, perceptual
mapping.
Trends Time series forecasting routines, including ARIMA with Box-Jenkins models, efficient
smoothing and seasonality adjustments.
AMOS Comprehensive linear structural models, with fit causal paths.
Tables High-quality, complex stub-and-banner tables. Easily handles multiple response items.
</TABLE>
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<PAGE> 45
DBMS/COPY Plus Transparently converts data for use between databases,
spreadsheets and statistics packages.
Data Entry II Customized forms enabling the entry and labeling of data
for use with SPSS software. Available only on DOS.
SYSTAT PRODUCT LINE KEY FUNCTIONS AND FEATURES
SYSTAT Base STATISTICS: Comprehensive range of descriptive statistics;
(Release 6.0) cross tabulations; Multivariate general linear models;
analysis of variance and covariance; discriminant analysis;
canonical correlation; factor analysis; multi-dimensional
scaling; cluster analysis, time series analysis; non-linear
estimation. PRESENTATION AND GRAPHICS: Business charts
(pie, bar, line, etc.), comprehensive set of statistical
charts (histograms, scatterplot, box plots, math function
plots, fourier plots, contour plots 3-D data and function
plots, etc.), maps and geographic projections; overlaid and
multiple plots per page. DATA MANAGEMENT: Spreadsheet data
entry and editing; data transformation and management
routines; data import and export of certain file types;
macro-processor and programming language. Includes
comprehensive on-line Help system.
Testat Summary statistics, reliability coefficients, standard
errors of measures for selected score intervals, and item
analysis statistics for examining results from achievement
tests, psychological tests, etc.
Logit Binary, multinomial, and conditional logistic regression
with maximum likelihood estimation.
Survival Extensive set of methods for survival, reliability, and
life table analysis.
Design Estimates sample sizes required to obtain desired
statistical confidence levels.
QI ANALYST PRODUCT LINE KEY FUNCTIONS AND FEATURES
QI Analyst Comprehensive set of SPC statistics, 21 quality improvement
Version 2.0 chats and reporting.
Available only on Windows.
Gage R&R Implementation and systematic testing of measurement
Instruments. Available only on Windows.
CLEAR PRODUCT LINE KEY FUNCTIONS AND FEATURES
allCLEAR Flow charting and process documentation. Automatically
creates from simple text presentation quality flowcharts,
process flow diagrams, organizational charts, fishbone
diagrams, and other diagrams.
CLEAR Process Process management tool for graphing and analyzing
business and manufacturing process. Creates flowcharts,
simulates process flows, identifies critical and optimal
paths, performs what-if analysis, and creates presentation
graphics.
CLEAR OrgCharts Creates organizational charts from text automatically.
Also creates tournament grids, family trees and other tree
diagrams.
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<PAGE> 46
<TABLE>
<CAPTION>
OTHER PRODUCTS KEY FUNCTIONS AND FEATURES
<S><C>
Neural Neural network-based product with features for prediction,
Connection classification, time series analyst and data segmentation.
SPSS Diamond Explores complex relationships in multivariate data;
animated 3-D scatter plots; Parametric Snake plots;
quadwise plot for viewing relationships between four
variables; Ice, for simultaneously displaying up to nine
dimension of data.
MapInfo Display data geographically, from world to street levels.
CHAID Segmentation analysis, highly efficient analysis of
tabulations. Available only on Windows and DOS.
Teleform Automated forms creation, distribution, and data entry
using fax or scanner. Available only on Windows.
Office OMR Automated forms data collection using a scanner or fax
modem. Works with forms created in any software package.
Available on Windows.
</TABLE>
The Company's statistical software products have received numerous
favorable reviews from trade and other publications. SPSS and SYSTAT software
fares well in comparative assessments against competitors' products. In
December 1995, the Company introduced SPSS for Windows 7.0 offering significant
enhancements in usability and the display of results.
The Company's licensing and pricing alternatives vary widely depending upon
the product, platform and quantities licensed. List prices for perpetual
single-user licenses of products designed for desktop computers ("Desktop
products") in North America range from $295 to $895 for the SPSS Base System and
from $295 to $1,495 for each add-on product. Multi-user network and site
licenses typically require annual payments, and start from prices comparable to
those for perpetual single-user licenses and run up to $20,000. Perpetual
network licenses are available with or without annual maintenance contracts.
List prices of annual licenses designed for mainframes, minicomputers, and UNIX
workstations ("Large System products") range from $4,500 to $15,000, while
perpetual licenses for Large Systems products run from $9,000 to over $30,000.
Pricing of SPSS licenses outside of North America is typically higher than
domestic prices, and licenses outside of North America are more often annual
licenses. In addition to standard maintenance contracts for Large Systems
products, for an annual fee SPSS offers an optional service plan to users of
Desktop products that includes a toll-free number, free upgrades and discounts
on certain products and services.
The Company uses discounting primarily in connection with sales to
educational institutions. Because historically most of its customers were first
introduced to SPSS products in an academic setting, the Company believes that
maintaining a large share of the academic market is of strategic importance.
The Company also provides a discount from its usual commercial prices in
connection with sales to the United States Government as posted on the General
Services Administration Schedule. Other than these instances, SPSS does not
aggressively discount its products. The Company permits returns of its products
within 60 days, which it believes to be standard in the industry.
Desktop products licensed for use by SPSS in certain countries outside of
North America are secured with an external hardware device that is required for
operation. In North America, network versions of Desktop products are similarly
secured. The Company's Large Systems products, as well as multi-user versions
on UNIX platforms, have for many years been secured with internal codes that
enable product operation when annual licenses are renewed and license fee
payments have been received.
PUBLICATIONS AND STUDENT SOFTWARE
SPSS authors and regularly updates a number of publications that include
user manuals and instructional texts. The Company also develops student
versions of its DOS, Windows and Macintosh products which are subsets of the
SPSS Base System, designed for classroom use with SPSS textbooks or with other
statistics instructional materials.
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<PAGE> 47
Since February 1993, most SPSS publications and student software have been
distributed by the College Division of Prentice Hall under the terms of an
exclusive, worldwide agreement. See "SPSS INC. - Prentice Hall Agreement."
TRAINING AND CONSULTING
The Company offers a comprehensive training program with courses covering
product operations, statistical concepts and particular statistical
applications. These courses are regularly scheduled in cities around the world.
Organizations may also contract for on-site SPSS training tailored to their
specific requirements. SPSS offers consulting and customization services, where
an engagement may range from assisting a client in generating a single report to
performing a complex data analysis project to tailoring SPSS software for a
particular application. The Company plans to expand its training and consulting
activities during 1996.
SALES AND MARKETING
SPSS sells its products primarily through a well-developed, worldwide
telesales and direct response organization. Advertising, direct mail and
customer references have proven the most effective method of generating new
sales and sales leads. The Company's order-taking group processes orders or
directs leads to sales representatives. Sales representatives work closely with
technical sales personnel throughout the sales process. Although varying
widely, sales of SPSS Desktop products are typically completed within 30 days
and average about $1,200.
The Company's database of existing customers provides an effective means of
selling add-on products, upgrades, and training or consulting services.
Customers regularly receive direct mail from the Company on products and
services. For large sales opportunities, SPSS sales representatives and
technical sales personnel personally visit prospects to make presentations, to
give product demonstrations and to provide pre-sales consulting. The Company
also maintains an office in the Washington, D.C. area focused on sales to the
United States Government. The SPSS international sales operation consists of
ten sales offices, in Europe and the Pacific Rim, as well as over 30 licensed
distributors. Overall, the Company is represented in over 50 countries.
Transactions are customarily made in local currencies.
SPSS publications and SPSS student versions are published by Prentice Hall
and sold by more than 300 Prentice Hall sales representatives working directly
with faculty on college campuses worldwide. The arrangement also permits
Prentice Hall to bundle its various textbooks on statistics, market research and
quality improvement with SPSS student versions.
Current users of the Company's products comprise a significant source of
new sales leads. Also important are the expert reviews of SPSS software in
trade and market-specific publications. The Company's marketing communications
program includes exhibiting at trade shows, participating in professional
association meetings, sponsoring seminars for prospects and customers,
publishing its customer magazine and conducting user group meetings.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
The Company provides extensive customer service and technical support by
telephone, fax, mail and an electronic bulletin board, each of which promote
customer satisfaction and obtain feedback on new products and beta releases.
Technical support services provided to all licensees include assistance in
product installation and product operation, as well as limited consulting in the
selection of statistical methods and interpretation of results. Additional
technical support services are available on a fee basis.
PRODUCT DEVELOPMENT
The Company plans to continue expanding its product offerings through
internal development of new software products and enhancements, acquiring
products, technologies and businesses complementary to the Company's existing
product line, and forming partnerships with value-added resellers or other third
parties serving selected markets.
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<PAGE> 48
The Company's team of specialists in user interface design, software
engineering, quality improvement, product documentation and statistics is
responsible for developing, maintaining and enhancing the quality, usability and
statistical accuracy of all SPSS software. The product development organization
is also responsible for authoring and updating all user documentation and other
publications. In addition, the Company maintains ongoing relationships with
third-party software developers and publishers who provide software components
and programs used in building SPSS products.
Most statistical algorithms used by the Company in its products are
published for the convenience of its customers. SPSS employs full-time
statisticians who regularly evaluate new algorithms and statistical techniques
for inclusion in the Company's products. SPSS also employs
statistically-trained professionals in its documentation, quality assurance,
software design and software engineering groups.
The Company intends to continue to invest in product development. In
particular, the Company's 1996 development plan includes updates to SPSS for
Windows, updates to its SYSTAT and QI Analyst products, and new add-on products.
The SYSTAT update was released in the third quarter of 1996.
In the past, the Company has experienced delays in the introduction of new
products and product enhancements, primarily due to difficulties with particular
operating environments and problems with software provided by third parties.
These delays have varied depending upon the size and scope of the project and
the nature of the problems encountered. From time to time the Company discovers
"bugs" in its products which are resolved through maintenance releases or
periodic updates depending on the seriousness of the defect.
The SPSS product development staff currently includes approximately 90
professionals organized into groups for software design, statistical
development, software engineering, documentation, quality assurance and
computing services. In 1993, 1994 and 1995, the Company's expenditures for
product development, including capitalized software, were approximately $8.0,
$9.0 and $10.2 million, respectively.
The Company also uses independent contractors in its product development
efforts. Sometimes the Company uses such contractors to obtain technical
knowledge and capability that it lacks internally. For example, contractors are
engaged to perform conversions of SPSS products to computing platforms with
which the Company is unfamiliar or which are too costly to acquire for
development purposes. SPSS has also outsourced maintenance, conversion and new
programming for certain products to enable its internal development staff to
focus exclusively on products which are of greater strategic significance. The
Company sometimes uses independent contractors to augment its development
capacity at a lower cost. For example, the Company has found the cost of using
development centers in India to be significantly less than the cost of domestic
development work of comparable quality.
MANUFACTURING AND ORDER FULFILLMENT
To assure speed and efficiency in the manufacturing, order fulfillment and
delivery of its products, SPSS entered into the IBM Software Distribution
Agreement in February 1993. Since April 1993, all diskette duplication,
documentation printing, packaging, warehousing, fulfillment and shipping of SPSS
products in the Western Hemisphere has been performed for the Company by IBM
through Lotus, Inc. The Company uses these services worldwide. SPSS believes
that, because of the sizable capacity of the IBM distribution centers and their
around-the-clock operation, the Company can easily adapt to peak period demand,
quickly manufacture new products for distribution and effectively respond to
anticipated sales volumes.
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COMPETITION
The market for statistical software is both highly competitive and
fragmented. SPSS is among the largest companies in the statistical software
market, and, based upon sales and comparative assessments in trade
publications, the Company believes that it competes effectively against its
competitors, particularly on desktop computing platforms. The Company
considers its primary worldwide competitor to be the larger and better-financed
SAS Institute ("SAS"), although the Company believes that SAS's revenues are
derived principally from products that are used for purposes other than
statistics and operate on large systems platforms. StatSoft Inc., developers
of the Statistica product ("Statistica"), Manugistics Group, Inc., distributors
of the Statgraphics Plus product ("Statgraphics"), and Minitab, Inc.
("Minitab") are also competitors, although their annual revenues from these
statistical products are believed to be considerably less than the revenues of
SPSS. In addition to competition from other statistical software companies,
SPSS also faces competition from providers of software for specific statistical
applications.
The Company competes primarily on the basis of the usability,
functionality, performance, reliability and connectivity of its software
products. The significance of each of these factors varies depending upon the
anticipated use of the software and the statistical training and expertise of
the customer. To a lesser extent, the Company competes on the basis of price.
SPSS maintains pricing and licensing policies to meet market demand. The
Company believes it is able to compete successfully, especially with its
Desktop products, as a result of the graphical user interface, comprehensive
analytical capabilities, efficient performance characteristics, local language
versions, consistent quality and connectivity features of its software
products, as well as its worldwide distribution capabilities and widely
recognized name.
In the future, SPSS may face competition from new entrants into the
statistical software market. The Company could also experience competition
from companies in other sectors of the broader market for data management,
analysis and presentation software, such as providers of spreadsheets, database
management systems, report writers and executive information systems, who could
add enhanced statistical functionality to their existing products. Some of
these potential competitors have significantly more capital resources,
marketing experience and research and development capabilities than SPSS.
Competitive pressures from the introduction of new products by these companies
or other companies could have a material adverse effect on the Company.
INTELLECTUAL PROPERTY
The Company attempts to protect its proprietary software with trade
secret laws and internal nondisclosure safeguards, as well as copyrights and
contractual restrictions on copying, disclosure and transferability that are
incorporated into its software license agreements. The Company licenses its
software only in the form of executable code, with contractual restrictions on
copying, disclosures and transferability. Except for licenses of its products
to users of Large System products and annual or perpetual multi-user licenses
of its Desktop products, the Company licenses its products to end-users by use
of a "shrink-wrap" license, as is customary in the industry. It is uncertain
whether such license agreements are legally enforceable. The source code for
all of the Company's products is protected as a trade secret and as unpublished
copyrighted work. In addition, the Company has entered into confidentiality
and nondisclosure agreements with its key employees. Despite these
restrictions, it may be possible for competitors or users to copy aspects of
the Company's products or to obtain information which the Company regards as a
trade secret. The Company has no patents, and judicial enforcement of
copyright laws may be uncertain, particularly outside of North America.
Preventing unauthorized use of computer software is difficult, and software
piracy is expected to be a persistent problem for the packaged software
industry. These problems may be particularly acute in international markets.
The Company uses a variety of trademarks with its products.
Management believes there are currently ten trademarks in use which are
material to the Company's business: (i) SPSS; (ii) SPSS/PC+; (iii) Categories;
(iv) QI Analyst; (v) SPSS Real Stats, Real Easy.; (vi) SYSTAT; (vii) BMDP;
(viii) CHAID; (ix) Strategen and (x) CLEAR. SPSS is a registered trademark
used in connection with virtually all of the Company's products, other than
DOS-based products. SPSS/PC+ is an unregistered trademark used in connection
with the Company's DOS-based products. Categories is a registered trademark
used with the Company's correspondence analysis products on all platforms. QI
Analyst is the subject of a pending application for registration and is being
used with the Company's new statistical process control software for Windows.
SPSS Real Stats, Real Easy, is an unregistered trademark used in connection
with SPSS products generally. SYSTAT is a registered trademark used in
connection with the Company's SYSTAT
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products on all platforms. BMDP is a trademark used in connection with the
Company's BMDP products on all platforms. CLEAR is a trademark used in
connection with the Company's recently acquired CLEAR products on all
platforms. Many of the Company's other trademarks include one of the
trademarks described herein. The Company has registered certain of its
trademarks in the United States and certain of its trademarks in a number of
other countries, including the Benelux countries, France, Germany, the United
Kingdom, Japan, Singapore and Spain. Registration of a trademark confers a
number of advantages over reliance on common law rights. Registration of a
trademark generally constitutes prima facie evidence of the validity of the
mark and the registrant's ownership of and exclusive right to use the mark and,
in some jurisdictions, constitutes constructive notice of ownership sufficient
to eliminate any defense of good faith adoption or use after the date of
registration.
Due to the rapid pace of technological change in the software
industry, the Company believes that patent, trade secret and copyright
protection are less significant to its competitive position than factors such
as the knowledge, ability and experience of the Company's personnel, new
product development, frequent product enhancements, name recognition and
ongoing reliable product maintenance and support.
The Company believes that its products and trademarks and other
proprietary rights do not infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims in the future.
RELIANCE ON THIRD PARTIES
The Company has entered into a perpetual nonexclusive license
agreement (the "HOOPS Agreement") with Autodesk, Inc. ("Autodesk") that permits
the Company to incorporate a graphics software program known as the HOOPS
Graphics System into the Company's products. Under the terms of the HOOPS
Agreement, the Company is currently required to pay a maximum of $100,000 in
royalties to Autodesk based on the amount of revenues received by the Company
from products which incorporate the HOOPS Graphics System. The Company may
terminate the HOOPS Agreement at any time. Autodesk may terminate the HOOPS
Agreement on the occurrence of a material, uncured breach of the HOOPS
Agreement by SPSS.
The Company also licenses certain other software programs from
third-party developers and incorporates them into the Company's products. Many
of these are exclusive worldwide licenses which terminate upon varying dates.
The Company believes that it will be able to renew non-perpetual licenses or
that it will be able to obtain substitute products if needed.
IBM SOFTWARE DISTRIBUTION AGREEMENT
In February 1993, the Company entered into the IBM Software
Distribution Agreement (the "IBM Agreement"), under which IBM manufactures and
packages the Company's software products and distributes the Company's software
products to the Company's domestic and international customers and certain
international subsidiaries. The IBM Agreement has a five-year term, and the
Company may terminate it upon 90 days' written notice. IBM may terminate the
IBM Agreement only for cause, also upon 90 days' written notice. If IBM
discontinues its software manufacturing and distribution business during the
term of the IBM Agreement, IBM may, at its option, find a suitable replacement
vendor for the Company, or pay the Company liquidated damages. Beginning in
1996, Lotus, Inc. became responsible for distributing on IBM's behalf. If IBM
materially breaches the IBM Agreement, it is required to reimburse the Company
for certain amounts reasonably incurred by the Company to cure customer
satisfaction problems caused by the breach and to re-establish the Company's
software manufacturing and distribution capabilities.
PRENTICE HALL AGREEMENT
The Company entered into the Prentice Hall Agreement (the "Agreement")
in February 1993. Under this Agreement, the Company granted to Prentice Hall
the exclusive, worldwide right to publish and distribute all SPSS publications,
including student versions of SPSS for DOS and Windows. The Company received
advance royalty payments in the amount of $4.0 million, payable as follows: (i)
$1.6 million was paid upon execution of the Agreement, (ii) $1.6 million was
paid in January 1994, and (iii) $800,000 was paid in February 1995. The
Agreement also provides for reductions in advance royalties if operational
versions of the student software are not delivered to
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Prentice Hall by specified dates, and for additional advance royalties for new
types of student software developed by the Company. The Agreement has an
initial five-year term which ends in 1998, with an option to renew for an
additional five years under certain conditions.
COMPUTER SOFTWARE DEVELOPMENT COMPANY
In 1981, the Company entered into a software development agreement
with the Computer Software Development Company ("CSDC") to obtain funding of
approximately $2.0 million for development of software including two Large
Systems products, SPSS Graphics and SPSS Tables, and one Desktop product,
SPSS/PC+ Tables. The Company entered into two software purchase agreements
with CSDC, under which the Company is required to pay CSDC royalties through
the year 2001 based on a percentage of "net revenues" (as defined in the
agreements) from Large Systems software products developed with CSDC funds.
Under these agreements, the Company incurred to CSDC royalties of approximately
$265,000, $260,000 and $274,000 in 1993, 1994 and 1995, respectively. Norman
Nie, the Chairman of the Board of the Company, is a limited partner of CSDC.
SEASONALITY
The Company's quarterly operating results fluctuate due to several
factors, including the number and timing of product updates and new product
introductions, delays in product development and introduction, purchasing
schedules of its customers, changes in foreign currency exchange rates, product
and market development expenditures, the timing of product shipments, changes
in product mix, timing and cost of acquisitions and general economic
conditions. Because the Company's expense levels are to a large extent based
on its forecasts of future revenues, operating results may be adversely
affected if such revenues fall below expectations. Accordingly, the Company
believes that quarter-to-quarter comparisons of its results of operations may
not be meaningful and should not be relied upon as an indication of future
performance. The Company has historically operated with very little backlog
because its products are generally shipped as orders are received. As a
result, revenues in any quarter are dependent on orders shipped and licenses
renewed in that quarter. The Company has experienced a seasonal pattern in its
operating results with the fourth quarter typically having the highest
operating income. For example, excluding acquisition and other nonrecurring
charges, the percentage of the Company's operating income realized in the
fourth quarter was 40% in 1993, 41% in 1994 and 41% in 1995. In addition, the
timing and amount of the Company's revenues are subject to a number of factors
that make estimation of operating results prior to the end of a quarter
uncertain. A significant portion of the Company's operating expenses are
relatively fixed, and planned expenditures are based primarily on revenue
forecasts. More specifically, in the fourth quarter, the variable profit
margins on modest increases in sales volume at the end of the quarter are
significant. Should the Company fail to achieve such fourth quarter revenue
increases, net income for the fourth quarter and the full year could be
materially reduced. Generally, if revenues do not meet the Company's
expectations in any given quarter, operating results will be adversely
affected. Although the Company has been profitable in each of the eight
quarters up to and including the quarter ending June 30, 1994, the Company
experienced a net loss of $137,000 in the third quarter of 1994 due to a
one-time write-off of $1,928,000 for acquired and in-process technology and
other acquisition-related charges recorded in connection with the Company's
acquisition of SYSTAT. However, the Company has been profitable in the five
quarters ending December 31, 1994 through December 31, 1995. There can be no
assurance that profitability on a quarterly or annual basis can be achieved or
sustained in the future.
EMPLOYEES
The Company has approximately 452 employees (approximately 288
domestically and approximately 164 internationally), including approximately
269 in sales and marketing, approximately 119 in product development and
approximately 64 in general and administrative. The Company believes it has
generally good relationships with its employees. None of its employees are
members of labor unions.
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FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The following table sets forth financial information about foreign and
domestic operations. Such information may not necessarily be indicative of
trends for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Sales to unaffiliated
customers:
United States $ 25,172,000 $ 28,246,000 $ 31,210,000
Europe & India 16,539,000 18,983,000 23,789,000
Pacific Rim 2,880,000 7,269,000 10,785,000
------------- ------------- -------------
Total $ 44,591,000 $ 54,498,000 $ 65,784,000
============= ============= =============
Sales or transfers between
geographic areas:
United States $ 8,673,000 $ 11,506,000 $ 14,310,000
Europe & India (7,512,000) (8,508,000) (10,238,000)
Pacific Rim (1,161,000) (2,998,000) (4,072,000)
------------- ------------- -------------
Total $ 0 $ 0 $ 0
============= ============= =============
Operating income (loss):
United States $ 5,561,000 $ 5,676,000 $ 5,221,000
Europe & India 1,090,000 416,000 581,000
Pacific Rim (43,000) 53,000 1,245,000
------------- ------------- -------------
Total $ 6,608,000 $ 6,145,000 $ 7,047,000
============= ============= =============
<CAPTION>
DECEMBER 31,
1993 1994 1995
------------- ------------- ------------
<S> <C> <C> <C>
Identifiable assets:
United States $ 16,492,000 $ 22,364,000 $ 32,037,000
Europe & India 4,867,000 6,348,000 7,343,000
Pacific Rim 496,000 3,082,000 2,463,000
------------- ------------- -------------
Total $ 21,855,000 $ 31,794,000 $ 41,843,000
============= ============= =============
</TABLE>
The Company's revenues from operations outside of North America
accounted for approximately 45%, 51% and 55% of the Company's revenues in 1993,
1994 and 1995, respectively. The Company expects that revenues from
international operations will continue to represent a large percentage of its
net revenues and that this percentage may increase, particularly as the Company
further "localizes" the SPSS product line by translating its products into
additional languages. International operations are subject to various risks,
including greater difficulties in accounts receivable collection, longer
payment cycles, exposure to currency fluctuations, political and economic
instability and the burdens of complying with a wide variety of foreign laws
and regulatory requirements. The Company also believes that it is exposed to
greater levels of software piracy in international markets because of the
weaker protection afforded intellectual property in some foreign jurisdictions.
As the Company expands its international operations, the risks described above
could increase and, in any event, could have a material adverse effect on the
Company. See "SPSS INC. - Sales and Marketing," "Management's Discussion and
Analysis of SPSS' Financial Condition and Results of Operations," and Note 3,
International Subsidiaries, of the "Notes to Consolidated Financial
Statements."
45
<PAGE> 53
PROPERTIES
The Company's principal administrative, marketing, training and
product development and support facilities are located in Chicago, Illinois and
consist of an aggregate of approximately 64,000 square feet, subject to leases
terminating in October 1998. The aggregate annual gross rental payments on
these leases were approximately $1,634,000 in 1995.
In addition, the Company leases sales office space in Virginia,
Massachusetts, The Netherlands, The United Kingdom, Germany, Sweden, France,
Singapore, Australia and Japan.
Apart from its offices in Japan and Australia, which the Company plans
to move to larger facilities, SPSS believes its facilities are adequate for its
present needs.
LEGAL PROCEEDINGS
SPSS is not a party to any litigation other than ordinary routine
litigation incidental to its business.
During 1994 and 1995, SPSS carried $2,000,000 of primary directors
and officers coverage from the Lexington Insurance Company (AIG) and
$1,000,000 excess liability D&O coverage from the Agricultural Insurance
Company, Great American Insurance Group.
PRINCIPAL SHAREHOLDERS OF SPSS
The following table sets forth, as of October 15, 1996, the number and
percentage of shares of Common Stock beneficially owned by (i) each person
known by the Company to own beneficially more than 5% of the outstanding shares
of the Common Stock, (ii) each director of the Company, (iii) each named
executive officer of the Company and (iv) all directors and executive officers
of the Company as a group. Unless otherwise indicated in a footnote, each
person possesses sole voting and investment power with respect to the shares
indicated as beneficially owned.
The business address for MSVCF, Mr. de Chazal and Mr. Lutz is the
office of Morgan Stanley at 1221 Avenue of the Americas, New York, New York
10020. The business address of Geocapital II, L.P. ("Geocapital") is One
Bridge Plaza, Fort Lee, New Jersey 07024. The business address of Mr.
Goldstein is the office of Broadview Associates, L.P., One Bridge Plaza, Fort
Lee, New Jersey 07024. The business address of Fredric Harman is the office of
Oak Investment Partners, 525 University Avenue, Suite 1300, Palo Alto,
California 94301. The business address of each other person listed below is
444 North Michigan Avenue, Chicago, Illinois 60611.
<TABLE>
<CAPTION>
PERCENT OWNED
SHARES ---------------------
BENEFICIALLY PRE POST
NAME OWNED(1) MERGER MERGER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norman H. Nie, individually, as Trustee of the
Nie Trust and as a Director and President
of the Norman and Carol Nie Foundation(1) 1,361,577 18.3% 17.4%
Jack Noonan(2) 149,196 2.0% *
Bernard Goldstein(3) 74,689 1.0% *
Louise Rehling(4) 84,500 1.1% *
Edward Hamburg(5) 86,987 1.2% *
Mark Battaglia(6) 57,370 * *
Susan Phelan(7) 57,110 * *
Ian Durrell(8) 41,987 * *
Merritt M. Lutz 18,833 * *
Guy de Chazal 13,353 * *
Fredric Harman 48 * *
</TABLE>
46
<PAGE> 54
<TABLE>
<S> <C> <C>
All directors and executive officers as a group
(11 persons)(9) 1,945,650 23.6%
</TABLE>
* The percentage of shares beneficially owned does not exceed 1% of the Common
Stock.
(1) Includes 69,944 shares which are subject to currently exercisable
options; 110,433 shares held of record by the Norman and Carol Nie
Foundation (the "Nie Foundation"); and 1,181,200 shares held by the
Nie Trust. Professor Nie shares voting and investment power over the
110,433 shares held by the Nie Foundation with Carol Nie.
(2) Includes 145,771 shares subject to currently exercisable options.
(3) Includes 43,966 shares held beneficially and of record by Geocapital.
Mr. Goldstein is a managing partner of BVA Associates, one of the
general partners of Geocapital. Mr. Goldstein is also a limited
partner of Geocapital. Mr. Goldstein disclaims beneficial ownership
of these shares.
(4) Includes 70,320 shares subject to currently exercisable options.
(5) Includes 76,987 shares subject to currently exercisable options.
(6) Includes 56,987 shares subject to currently exercisable options.
(7) Includes 55,185 shares subject to currently exercisable options.
(8) Mr. Durrell is the beneficial owner of these shares, which consist
solely of 41,987 shares subject to currently exercisable options held
of record by Valletta.
(9) Includes 517,181 shares subject to currently exercisable options.
47
<PAGE> 55
MANAGEMENT OF SPSS
The following table sets forth certain information as of October 31,
1996, with respect to each person who is an executive officer or director of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Norman Nie 53 Chairman of the Board of Directors
Jack Noonan 49 Director, President and Chief Executive Officer
Edward Hamburg 45 Senior Vice President, Corporate Operations, Chief Financial Officer and
Secretary
Louise Rehling 52 Senior Vice President, Product Development
Mark Battaglia 36 Vice President, Corporate Marketing
Ian Durrell 54 Vice President, International
Susan Phelan 39 Vice President, Domestic Sales and Services
Guy de Chazal(1) 48 Director
Bernard Goldstein(1)(2) 65 Director
Fredric Harman (1)(2) 36 Director
Merritt Lutz(1)(2) 54 Director
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
SPSS' Board of Directors has met seven times thus far in fiscal year
1996. The Board of Directors has a standing Compensation Committee consisting
of Messrs. de Chazal, Goldstein, Harman and Lutz, each a non-employee director.
The Compensation Committee's primary functions are to make recommendations to
the Board of Directors concerning remuneration arrangements for senior
management and to review and make recommendations concerning the administration
of certain Company benefit plans. The Compensation Committee has not held any
meetings thus far in fiscal year 1996.
The Board of Directors has a standing Audit Committee consisting of
Messrs. Goldstein, Harman and Lutz, each a non-employee director. Among the
Audit Committee's functions are making recommendations to the Board of
Directors regarding the continued engagement of independent auditors, reviewing
with the independent auditors and the Company's financial management the
financial statements and results of the audit engagement, reviewing the
adequacy of the Company's system of internal accounting controls and reviewing
and approving audit and nonaudit fees. Although the Audit Committee did not
meet in 1995, the Board of Directors met as a whole with the Company's
independent auditors, KPMG Peat Marwick LLP, during 1995 to discuss audit and
accounting matters.
Non-employee directors of the Company are currently entitled to
receive an annual retainer of $30,000. Each director is also reimbursed by the
Company for reasonable expenses incurred in connection with services provided
as a director. The Company may substitute stock options for all or a portion
of the current annual retainer. Professor Nie receives compensation of
$100,000 per year for his services as Chairman of the Board and for product
development work on a part-time basis.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Jack Noonan on
January 14, 1992. This employment agreement provides for a one-year term with
automatic one-year extensions unless Mr. Noonan or the Company gives a written
termination notice at least 90 days prior to the expiration of the initial term
or any extension thereof. It also provides for a base salary of $225,000
during the initial term, together with the same benefits provided to other
employees of the Company. Mr. Noonan's base compensation is subject to annual
review by the Board of Directors and was increased to $235,000 for 1993, 1994
and 1995. If the Company terminates Mr. Noonan's employment without cause, the
Company must pay Mr. Noonan an amount equal to 50% of Mr. Noonan's annual base
salary in effect at the time of termination. This amount is payable in 12
equal monthly
48
<PAGE> 56
installments, and the obligation to make these payments ceases if Mr. Noonan
finds other employment at a comparable salary. The employment agreement
requires Mr. Noonan to refrain from disclosing confidential information of the
Company and to abstain from competing with the Company during his employment
and for a period of one year thereafter. Except for the employment agreements
with Mr. Noonan and Dr. Wilkinson, and a management services agreement with
Valletta described below (pursuant to which Ian Durrell has been engaged to act
as Vice President, International and to head the Company's non-Western
Hemisphere operations), none of the senior management or key technical
employees of the Company are subject to employment or similar agreements,
although the Company does have confidentiality and work-for-hire agreements
with many of its key management and technical personnel.
The Company entered into an employment agreement with Leland Wilkinson
on September 23, 1994 to be employed by SPSS as Senior Vice President, SYSTAT
Products. The employment agreement continues through December 31, 1999 and
provides for a base annual salary of $135,000 plus a bonus and other fringe
benefits customarily received by other SPSS senior executives. In addition, he
was granted options to purchase an aggregate of 135,000 shares of Common Stock
at a price of $9.00 per share. These options vest on the same schedule as
options granted under the Amended 1991 Stock Option Plan. The employment
agreement provides that Dr. Wilkinson's salary and bonus shall be reviewed
each year by the Board of Directors and that he shall participate in the
Company's bonus plan to the same extent as other comparable Company executives.
The employment agreement may be terminated prior to its expiration by Dr.
Wilkinson or the Company effective 45 days after written notice by either
party. If the employment agreement is terminated by Dr. Wilkinson, he shall
receive a pro-rata share of his salary and bonus earned through the date of
termination. In the event the employment agreement is terminated by the
Company without cause, Dr. Wilkinson is entitled to receive his annual base
salary and bonus until the expiration date of the employment agreement. The
employment agreement requires that Dr. Wilkinson refrain from disclosing any
confidential information of the Company and that he shall have no right, title
or interest in any of such confidential information, including any that Dr.
Wilkinson has developed or develops during his employment with SPSS. The
employment agreement also requires that Dr. Wilkinson abstain from competing
with the Company during his employment and for a period of six months
thereafter.
MANAGEMENT SERVICES AGREEMENT
The Company has entered into a management services agreement with
Valletta, pursuant to which Ian Durrell's services are provided to the Company.
Either Valletta or the Company may terminate the agreement at any time upon 30
days' written notice; provided that, if the Company terminates the agreement
under the 30-day notice provision without cause, Valletta is entitled to
termination payments equal to 50% of its annual compensation then in effect in
six equal monthly installments. The Agreement provides that Valletta is to
receive annual compensation at a rate established by the Board of Directors
plus incentive compensation if specified performance standards are satisfied.
For 1995, Valletta's aggregate compensation, including bonus, was $243,070.
The management services agreement requires Valletta to refrain from disclosing
confidential information about the Company and to abstain from competing with
the Company during the term of the management services agreement and for a
period of eighteen months thereafter. Mr. Durrell has agreed to be bound by
the terms and conditions of the management services agreement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
SPSS' FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis has been prepared
on the basis of the Supplemental Consolidated Financial Statements included
elsewhere herein.
OVERVIEW
The original Statistical Package for the Social Sciences was
introduced in 1969, and the Company was incorporated in 1975. The first SPSS
products were almost exclusively used by academic researchers working on
mainframe systems. The Company has subsequently transformed and enhanced its
core product technology, broadened its customer base into the corporate and
government sectors, significantly expanded its sales and marketing capabilities
and adapted its products to changing hardware and software technologies. SPSS
software was adapted to minicomputers in the late 1970s and to desktop
platforms, including high-end workstations and personal computers, in the
mid-1980s. In June 1992, the Company introduced its first windows-based
graphical user interface product,
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<PAGE> 57
SPSS for Windows, which it has since updated three times, and released versions
for Macintosh computers and major UNIX/Motif platforms. Approximately 52% of
the current SPSS customer base works in corporate settings, with another 31% in
academic institutions and 17% in government agencies. The SPSS sales and
marketing force now numbers more than 280 professionals in 10 Company offices
worldwide.
In recent years SPSS has experienced a significant shift in the
sources of its revenues. Between 1991 and 1995, Desktop product license
revenues increased from approximately 45% to 74% of total net revenues, while
Large Systems software license revenues declined from approximately 43% to 16%.
Gross margins associated with the Company's Desktop products are slightly lower
than those associated with its Large Systems products. Shifts in the product
mix may, as a result, cause fluctuations in gross margins. In addition, the
portion of the Company's net revenues derived from international operations
increased from 45% to 55% between 1991 and 1995. Management expects these
trends to continue in 1996. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
SPSS FINANCIAL CONDITION AND RESULTS OF OPERATIONS -International Operations."
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of net revenues for the years indicated.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------------------------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues:
Desktop products 62.7% 69.4% 74.3% 72.2% 76.0%
Large System products 26.4% 19.9% 16.2% 16.4% 15.3%
Other products and service 10.9% 10.7% 9.5% 11.4% 8.7%
---------- --------- --------- --------- ---------
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 12.1% 10.9% 9.7% 9.3% 9.5%
---------- --------- --------- --------- ---------
Gross profit 87.9% 89.1% 90.3% 90.7% 90.5%
---------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing 48.6% 52.5% 53.3% 55.9% 51.8%
Product development 15.4% 14.1% 13.6% 13.7% 15.2%
General administrative 9.0% 7.8% 7.4% 7.6% 7.5%
Nonrecurring items - - 3.7% - -
Acquisition-related charges - 3.5% 1.6% - -
------- --------- --------- -------- --------
Operating expenses 73.0% 77.9% 79.6% 77.2% 74.5%
----------- ---------- ---------- ---------- ---------
Operating income 14.9% 11.2% 10.7% 13.5% 16.0%
---------- --------- --------- ---------- ----------
Other income (expense):
Interest income 0.0% 0.2% 0.5% - 0.6%
Interest expense (3.8%) (0.6%) (0.2%) - -
Other (0.9%) (0.2%) 0.2% 0.5% (0.3%)
----------- ---------- --------- --------- ----------
Other income (expense) (4.7%) (0.6%) 0.5% 0.5% 0.3%
Income before income taxes 10.2% 10.6% 11.2% 14.0% 16.3%
Income tax expense 3.0% 4.0% 4.5% 4.6% 5.3%
---------- --------- --------- --------- ---------
Net income 7.2% 6.6% 6.7% 9.4% 11.0%
========== ========= ========= ========= ==========
</TABLE>
50
<PAGE> 58
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1993, 1994 AND 1995.
Net Revenues. Net revenues increased from $44,591,000 in 1993 to
$54,498,000 in 1994 and to $65,784,000 in 1995, increases of 22% and 21%,
respectively. These increases were primarily due to an increase in Desktop
revenues of 35% in 1994 and 29% in 1995, partially offset by a decline in Large
System revenues of 8% and 1%, respectively. In addition, in 1994 and 1995, the
increase in net revenues was due in part to the acquisition by the Company of
the remaining 50% portion of SPSS Japan, its Japanese joint venture, which was
effective in the first quarter of 1994, and the September 1994 acquisition of
SYSTAT. When compared to 1993, the SPSS Japan acquisition accounted for
approximately $3,758,000 of the Company's increase in sales in 1994 and
$6,898,000 in 1995. The Company's acquisition of SYSTAT accounted for
approximately $668,000 of the Company's increase in sales in the fourth quarter
of 1994 and $1,704,000 in 1995 when compared to 1993. The increase in Desktop
revenues reflected $24,032,000 in 1994 and $31,438,000 in 1995 of new revenues
from licenses of SPSS for Windows. In addition, revenues from annual license
renewals of Desktop products increased by $1,273,000 in 1994 and $3,223,000 in
1995, primarily reflecting a $1,692,000 and $3,203,000 increase in annual
license revenues for SPSS for Windows in 1994 and 1995, respectively. Revenues
from CLEAR products increased from $1,867,000 in 1993 to $2,741,000 in 1994,
but declined to $2,755,000 in 1995. The decline in Large Systems revenues was
primarily due to the nonrenewal of product licenses on mainframe platforms, as
well as the deferral into future periods of revenues from renewal licenses,
which exceeded the amount recognized from prior periods. Revenues from other
products and services increased by 20% in 1994 due to an increase of 60% in
revenues from training and consulting services, partially offset by a 34%
decrease in revenues from publications and student products due to the shift of
the sales of SPSS publications and student products under the Prentice Hall
Agreement. In 1995, revenues from other products and services increased by 7%
due to an increase of 30% in revenues from training and consulting services,
partially offset by a 49% decrease in revenues previously received from
publications and student products due to the end of the payment of guaranteed
royalties from the Prentice Hall Agreement in July 1995. The Company is no
longer entitled to such guaranteed royalties under the Agreement between the
Company and Prentice Hall and now only receives actual royalties under the
Prentice Hall Agreement. Revenues were aided by changes in foreign currency
exchange rates in 1994 and 1995.
Cost of Revenues. Cost of revenues consists of costs of goods sold,
amortization of capitalized software development costs and royalties paid to
third parties. Cost of revenues increased from $5,415,000 in 1993 to $5,923,000
in 1994, to $6,383,000 in 1995. Such costs increased 9% in 1994 and 8% in
1995 due to higher sales levels, higher amounts of capitalized software
amortized and, in 1994, higher royalties paid to third parties. As a percentage
of net revenues, cost of revenues decreased from 12% in 1993 to 11% in 1994 and
to 10% in 1995.
Sales and Marketing. Sales and marketing expenses increased from
$21,677,000 in 1993 to $28,564,000 in 1994 and to $35,059,000 in 1995, an
increase of 32% in 1994 and 23% in 1995. These increases were due to expansion
of the domestic and international sales organizations, salary and commission
increases, increased marketing expenses associated with SPSS for Windows, in
1994 the inclusion of all the sales and marketing expenses of SPSS Japan, in
the fourth quarter of 1994 and 1995 the incorporation of the SYSTAT sales
organization into the Company, and in 1995 the negative effects of changes in
foreign currency exchange rates. As a percentage of net revenues, sales and
marketing expenses increased from 49% in 1993 to 53% in 1994 and 1995.
Product Development. Product development expenses increased from
$6,887,000 in 1993 to $7,686,000 in 1994 and to $8,929,000 in 1995 (net of
capitalized software development costs of $1,341,000, $1,639,000 and
$1,630,000, respectively) an increase of 12% in 1994 and an increase of 16% in
1995. In the same periods, the Company's expense for amortization of
capitalized software and product translations, included in cost of revenues,
was $ 1,006,000, $1,239,000 and $ 1,592,000, respectively. The increases in
product development expenses were primarily due to salary increases, the
addition of technical personnel from the SYSTAT acquisition into the Company,
and higher depreciation expense related to the purchase of capital equipment
used in product development. As a
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<PAGE> 59
percentage of net revenues, product development expenses declined from 15% in
1993 to 14% in 1994 and 1995 primarily as a result of the increase in net
revenues.
General and Administrative. General and administrative expenses
increased from $4,004,000 in 1993 to $4,252,000 in 1994 and to $4,849,000 in
1995, an increase of 6% in 1994 and 14% in 1995. These increases were primarily
attributable to increases in general insurance as a result of being a
publicly-held company, higher professional fees and the amortization of
goodwill associated with the 1994 acquisitions of SPSS Japan and SYSTAT, and in
1995 higher professional fees and charges for bad debts. Such expense decreased
as a percentage of net revenues from 9% to 8% to 7% between the periods.
Acquisition-related Charges. Charges related to the acquisition of
SYSTAT in 1994 and BMDP in 1995 totaled $1,928,000 and $1,051,000,
respectively, and represented one-time write-offs of acquired and in process
technology and other acquisition-related charges.
Net Interest Income (Expense). Net interest income (expense) was
($1,659,000) in 1993 and ($230,000) in 1994, reflecting a decrease of 86% due
to the elimination of interest expense related to the Company's long-term debt,
which the Company prepaid through the use of net proceeds from the Company's
initial public offering of stock in August 1993. Net interest income was
$171,000 in 1995 due to interest earned on short-term investments as well as
the elimination of interest expense related to the Company's line of credit,
which the Company repaid with the net proceeds from the Company's February 1995
public offering of stock.
Other Income (Expense). Other income (expense) consists mainly of the
amortization of fees incurred in connection with the 1990 recapitalization of
the Company (the "Recapitalization"), expenses related to the stock appraisal
action, and foreign exchange transactions. Such other items were ($390,000) in
1993, ($128,000) in 1994 and $132,000 in 1995, representing (0.9%), (0.2%) and
0.2% of net revenues, respectively. The 1993 decrease was due to decreased
legal expenses resulting from the completion of the trial of the stock
appraisal action in December 1992, partially offset by the write-off of the
unamortized balance of fees incurred in connection with the Recapitalization
due to the elimination of the Company's long-term debt which had been incurred
in connection with the Recapitalization. The 1994 net amount consisted of
expenses of $248,000 related to foreign exchange transactions, offset by
$186,000 in proceeds from a Japanese insurance claim settlement. The 1995 net
amount was primarily foreign currency transaction gains.
Provision for Income Taxes. The provision for income taxes consisted of
$1,349,000 in 1993, $2,191,000 in 1994 and $2,968,000 in 1995. During 1993,
the provision for income taxes was the result of pretax income of $4,559,000,
which includes both domestic and international operations, reduced by a
one-time tax credit of $511,000 due to the recognition of a fully reserved (but
previously unrealized) deferred tax asset realized upon the payment of accrued
but previously unpaid ownership payments to the Company's founders. These
payments were made in 1993 through the use of a portion of the net proceeds
from the Company's August 1993 initial public offering. During 1994, the
provision for income taxes was the result of pretax income of $5,787,000 and
represented a tax rate of approximately 38% of pretax income. During 1995, the
provision for income taxes was the result of pre-tax income of $7,350,000,
reflecting a tax rate of approximately 36% of pre-tax income, excluding the
effect of Japanese withholding taxes of $336,000 on monies transferred out of
Japan in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had no long-term debt as of December 31, 1995 and held
approximately $10,924,000 of cash and short term investments. Funds in 1994 and
1995 were used in operations, for acquisitions and to finance capital
expenditures incurred in connection with staff additions, which required
additional office space, furniture and computers. Capital expenditures were
also made for additional computer hardware and software associated with
software development.
The Company currently has a $5,000,000 unsecured line of credit under a
Credit Agreement with Bank of America N.T.S.A. ("B of A") under which
borrowings bear interest at B of A's reference rate. As of December 31, 1995,
the Company had no borrowings under the Credit Agreement. The Company used the
net proceeds from the February 1995 public offering of common stock to repay
its borrowings under the Credit Agreement and $5 million of unused credit is
available thereunder. The Credit Agreement requires
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<PAGE> 60
the Company to comply with certain specified financial ratios and tests, and
restricts the Company's ability to, among other things: (i) pay dividends or
make distributions, (ii) incur additional indebtedness, (iii) create liens on
assets, (iv) make investments, (v) engage in mergers, acquisitions or
consolidations, (vi) sell assets, and (vii) engage in certain transactions with
affiliates.
The Company anticipates the amounts available from cash and short term
investments on hand, under its line of credit, and cash flows generated from
operations, will be sufficient to fund the Company's operations and capital
requirements for the foreseeable future. However, no assurance can be given
that changing business circumstances will not require additional capital for
reasons that are not currently anticipated or that the necessary additional
capital will then be available to the Company on favorable terms or at all.
The Company's capital expenditures, primarily for computer equipment,
totaled approximately $2,400,000 in 1995 and are projected to total
approximately $3,000,000 and $2,500,000 in 1996 and 1997, respectively. Capital
expenditures during 1995, included, among other things, new computer systems
for use in internal product development. Capital expenditures during 1996 will
include, among other things, new computers primarily for use in internal
product development, replacement of the customer information system software,
furnishings and other equipment related to the move of the Company's facility
in the United Kingdom. The Company does not believe that the implementation of
its business strategy will require substantial additional capital expenditures
in comparison with historical levels of product development costs and other
expenses.
INTERNATIONAL OPERATIONS
Significant growth in the Company's international operations also
occurred from 1991 to 1995. Revenues from international operations comprised
approximately 45% of total net revenues in 1991, whereas revenues from
international operations contributed 55% of total net revenues in 1995.
Following the reorganization of its international operations in 1990,
the Company has maintained substantially the same telesales and direct response
organization worldwide. The international sales organization uses more
independent distributors than the domestic sales organization, primarily in
countries without an SPSS sales office. Management believes the profit margins
associated with SPSS's domestic and international operations are essentially
the same.
As international revenues increase, the Company may experience
additional foreign currency exchange risk.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for Long-Lived Assets and for Long-Lived Assets to Be Disposed of," was issued
in 1995. Implementation of SFAS No. 121 is required in fiscal year 1996. SFAS
No. 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill relating to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is not expected to have a
significant impact on the Company's consolidated financial statements.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
1995. Implementation is required in fiscal year 1996. SFAS No. 123 established
financial accounting and reporting standards for stock based employee
compensation plans. The Company is currently evaluating the impact this
statement will have on the Company's consolidated financial statements, and
intends to provide pro forma disclosures of net income as if the fair
value-based method prescribed by SFAS No. 123 had been applied in measuring
compensation expense.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 TO SIX MONTHS ENDED JUNE 30, 1996.
Net Revenues: Net revenues were $31,228,000 and $35,876,000 in the six
months ended June 30, 1995 and 1996, respectively, an increase of 15%. This
increase in revenue was influenced, in part, by the acquisition of BMDP,
effective December 29, 1995. Net of BMDP revenue of approximately $496,000,
the Company's increase in sales was 13%. Revenues from Desktop products
increased 21% over the corresponding period in 1995 and revenues from Large
System products increased 7%. The increase in revenues from Desktop products
reflected
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<PAGE> 61
$2,925,000 in new revenues from SPSS for Windows. In addition, revenues from
annual license renewals of Desktop products resulted in a net increase of
$1,738,000, reflecting a $2,046,000 increase in annual license renewals of SPSS
for Windows. The increase in revenues from Large System products was primarily
due to an increase in revenues from new UNIX licenses as a result of the BMDP
acquisition. Other products and services revenues decreased 12% primarily due
to the decease in revenues previously received from publications and student
products due to the end of the payment of guaranteed royalty payments for the
Prentice Hall Agreement in July 1995. Revenues for the first six months of
1996 were adversely affected by changes in foreign currency exchange rates.
Cost of Revenues. Cost of revenues were $2,911,000 and $3,396,000 for
the six months ended June 30, 1995 and 1996, respectively. Such costs
increased due to higher sales levels and higher amortization amounts of
capitalized software and product translations. As a percentage of net
revenues, such expenses remained constant at 9%.
Sales and Marketing. Sales and marketing expenses were $17,452,000 and
$18,586,000 in the six months ended June 30, 1995 and 1996, respectively, an
increase of 6%. This increase was due to expansion of the domestic and
internal sales organizations, and salary and commission increases. As a
percentage of net revenues, such expenses decreased from 56% to 52%.
Product Development. Product development expenses were $4,291,000 and
$5,460,000 (net of capitalized software development costs of $942,000 and
$459,000) for the six months ended June 30, 1995 and 1996, respectively, an
increase of 27%. In the corresponding periods in 1995 and 1996, the Company's
expenses for amortization of capitalized software and product translations,
included in cost of revenues, was $718,000 and $694,000, respectively. The
increase in product development expenses was primarily due to lower
capitalization of developed software, salary and recruiting fee increases and
other additions to the product development staff. As a percentage of net
revenues, such expenses increased from 14% to 15%.
General and Administrative. General and administrative expenses were
$2,365,000 and $2,683,000 in the six months ended June 30, 1995 and 1996,
respectively. Such expenses increased primarily due to increases in bad debt
expense and temporary employment expenses. As a percentage of net revenues,
general and administrative expenses remained constant at 8%.
Nonrecurring Items. A nonrecurring charge of $2,466,000 was recorded
in 1995 primarily related to the revaluation of certain assets capitalized
prior to the Company's initial public offering in August 1993. Approximately
$1,343,000 of this charge related to the development of UNIX products,
approximately $178,000 to the initial development of QI Analyst, and
approximately $347,000 related to the Japanese translation of SPSS for DOS. In
addition, approximately $200,000 of the charge related to out-dated software
purchased for the Company's customer information system. The remainder related
primarily to shut down and moving costs at subsidiary locations.
Net Interest Income. Net interest income was $11,000 and $224,000 for
the six months ended June 30, 1995 and 1996, respectively. This favorable
variance can be attributed to the elimination of interest expense related to
the line of credit, which was repaid with the net proceeds from the Company's
follow-on public offering of common stock, in February 1995.
Other Income (Expense). Other income (expense) was $142,000 and
$(106,000) for the six months ended June 30, 1995 and 1996, respectively. In
1995, this amount represents foreign currency gains of $247,000 which are
partially offset by a $105,000 charge related to the final settlement of the
stock appraisal action; and in 1996, this amount is comprised of foreign
currency losses of $69,000 and a charge of $37,000 related to the Clear
settlement agreement.
Provision for Income Taxes. Provision for income taxes was $1,418,000
and $1,929,000 in the six months ended June 30, 1995 and 1996, respectively,
reflecting an approximate effective tax rate of 33%.
JANDEL CORPORATION
DESCRIPTION OF BUSINESS
Jandel develops, markets and supports microcomputer software for the
analysis and presentation of scientific data. Jandel's products are designed
specifically to meet the needs of research scientists and engineers. Jandel's
products enable the scientist or engineer to collect, analyze and present
scientific data. Among the tasks performed by Jandel's products are running
statistical tests on research data, automatically taking measurements from
photographs, maps or other visual images and analyzing and manipulating that
data, determining the mathematical formula that most closely matches a graphed
data curves and creating publication-quality graphs and charts for scientific
journal articles.
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Jandel was founded in 1982 by Dr. John Osborn, a medical doctor and
research scientist. For the last eleven years Jandel has focused upon
addressing the needs of the scientific data software market.
Modern scientific research is based upon the use of data. Observations
of phenomena are quantified. The data is analyzed to determine the
relationships between different variables and to test scientific hypotheses.
Statistical tests are applied to draw conclusions. Finally, data must be
presented as part of the publication or presentation of the research results.
The principal means for scientists to communicate and present their
research results is by publication in scientific journals. Usually graphs or
charts are an important part of the publication. Before the advent of
computers, production of publication-quality charts and graphs was an expensive
and time consuming process. Jandel believes it was one of the first companies
to offer a personal computer ("PC") program to automate this process --
SigmaPlot. SigmaPlot was first offered in 1985. Since then Jandel has
developed a number of other programs that complement SigmaPlot and address the
data collection analysis and presentation needs of research scientists.
All Jandel's products run on IBM PC and PC compatible microcomputers
running MS DOS, Windows, Windows 95 or Microsoft NT which are the predominant
microcomputer operating systems now in use by scientists. In addition, Jandel
markets a version of SigmaPlot for use on the Apple Macintosh.
PRODUCTS
Jandel markets eight software programs for research scientists. The
five top selling products are SigmaPlot, SigmaScan, SigmaStat, and
TableCurve 2D and 3D.
SIGMAPLOT. SigmaPlot automatically produces publication-quality plots
and graphs from numerical data. It is used to produce charts and graphs for
publication, poster session charts, overhead transparencies and distribution
materials. SigmaPlot is very flexible and customizable and includes many
features designed to meet the particular needs of research scientists and
engineers. In addition, SigmaPlot can test the fit of an equation to a graph of
research data -- an important tool of data analysis.
SIGMASCAN. SigmaScan is a program for taking measurements from visual
images. By clicking on objects with a mouse, researchers can obtain accurate
measurement data from images on their computer screen.
SIGMASCAN PRO. SigmaScan Pro is among the most highly integrated image
analysis programs available. It offers all the features of SigmaScan, plus
automated image processing, analysis and advanced counting features. It will
analyze color and gray scale images from video, disk or scanned images. Image
enhancement with gray filters, image splicing, image math, binary filters and
other image processing techniques are provided.
SIGMASTAT. SigmaStat provides automated guidance for statistical
analysis of research data. SigmaStat recommends the best statistical test to
use, checks to see if the assumptions required for a particular test have been
met, runs the appropriate test and prepares an explanation of the results.
TABLECURVE 2D AND 3D. The purpose of charts and graphs is to illustrate
the relationship of two or more variables. If a mathematical formula
containing the variable describes the same curve as the curve produced by
graphing the experimental data, then the formula expresses the relationship of
the variables. TableCurve 2D automatically fits and ranks over 3,600 equations
to a curve, enabling the scientist to quickly determine which equation best
fits the data. TableCurve 3D fits three dimensional curved surfaces,
evaluating the surface against over 450 million equations.
PEAKFIT. Spectroscopy, chromatography and electrophoresis are based
upon finding and evaluating the pattern of peaks in test results. Separate
peaks may be hidden because data from two or more peaks may be superimposed
on each other. Peakfit uses sophisticated nonlinear curve fitting
techniques to detect, quantify and analyze hidden peaks in research results.
SIGMAGEL. Using SigmaGel the scientist can perform quantitative
electrophoretic gel analysis in the lane, spot or molecular weight measurement
modes. Data is collected and stored in the SigmaGel spreadsheet.
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CUSTOMERS AND MARKETING
Jandel's principal customers are research scientists and engineers from
nearly all disciplines. Accordingly, Jandel markets directly to scientists and
engineers, principally through advertising in scientific and engineering
journals and by direct mail to Jandel's own database of research scientists and
engineers and to lists of prospective customers obtained from third parties.
Jandel also distributes its products through a limited number of specialty
distributors and software retailers. Jandel distributes its products in Europe
through its wholly-owned subsidiary, Jandel GmbH. At present approximately 66%
of the Company's sales are in North America, 29% in Europe, and 5% in the
Asia-Pacific area.
Jandel's marketing strategy is based upon: (1) careful identification
and addressing of the specific needs of research scientists and engineers, (2)
quality customer service and technical support, and (3) constant feedback and
suggestions from scientists regarding Jandel's products and the requirements of
customers. Jandel believes that these policies enable it to achieve a high
degree of loyalty from its customers, enabling it to increase its customer base
through referrals from existing customers and to anticipate new requirements in
the marketplace. In accordance with Jandel's emphasis on customer service,
Jandel maintains a number of customer programs, including regular customer
newsletters and mailings, seminars and trade show exhibits, customer response
cards and similar customer feedback mechanisms, an electronic bulletin board
and free technical support.
COMPETITION
The microcomputer software industry is intensely competitive and
rapidly changing. Jandel's products face competition from a number of other
companies, some of which are considerably larger and have greater financial
resources than Jandel. Moreover, competition often results in pressure to
lower sales prices. Jandel has lowered prices in recent years due to
competition, and may be forced to do so again in the future.
SIGMAPLOT. The current competition for SigmaPlot comes from three
sources. First, business graphics software products offer some graphing
capabilities. Several of these products are among the best-known microcomputer
software products, including Lotus 1-2-3 and Microsoft Excel. Although these
products are marketed by some of the largest microcomputer software companies,
they are designed for business, rather than scientific use, and therefore lack
a number of features sought by scientists.
Second, there are a number of software graphing products designed
specifically for research scientists which compete more directly with
SigmaPlot, including Origin from Microcal Software, Inc., Plot-It from
Scientific Programming Enterprises, SlideWrite from Advanced Graphics Software,
Inc., Prism from GraphPad Software, Inc. and Axum from MathSoft, Inc. Jandel
regards Origin and Axum as the most significant competitors in this group.
Third, there are a number of statistics programs with improved graphics
functions that may be competitive with SigmaPlot.
SIGMASTAT. There are many statistical analysis programs on the market.
Jandel believes that SigmaStat is particularly adapted for use by research
scientists and engineers.
SIGMASCAN AND SIGMASCAN PRO. A number of companies market software
for general purpose image analysis applications, including Data Translation,
Inc., Carl Zeiss, Inc., Media Cybernetics, L.P. and Optimas Corporation, which
compete with SigmaScan. In some cases, these companies provide hardware
products in combination with software, which Jandel does not offer. However,
Jandel believes that SigmaScan provides a more fully developed user interface
than most competing products, as well as connectivity with other Jandel
products. SigmaScan Pro provides all the functions for SigmaScan, plus a
greater degree of customized image analysis, such as object counting and
enhanced image analysis, such as binary math.
TABLECURVE 2D AND TABLECURVE 3D. Several general purpose curve fitting
programs compete with TableCurve 2D and 3D. These include Scientist from
MicroMath, Inc., GRAMS/32 from Galactic Industries Corp. and HiQ from National
Instruments Corporation. In addition, the curve fitting modules of several
scientific graphing and statistics packages also contain some general purpose
curve fitting functionality. These include Origin, JMP from SAS Institute Inc.,
Axum, SAS from SAS Institute Inc., Prism and others.
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PEAKFIT. PeakFit is designed to analyze peak oriented data in
spectroscopy, chromatography and electrophoresis applications. Competition
comes from two sources. One is the software provided with the
spectrophotometer, chromatographs or other laboratory equipment by the hardware
manufacturer. Jandel believes, however, that in most cases, this software is
substantially less sophisticated than PeakFit. Other competition exists from
software companies providing similar software to PeakFit. The most important
competitor is PeakSolve from Galactic Industries Corp.
SIGMAGEL. SigmaGel is designed for the acquisition and analysis of
data from gels, lanes and spots created through electrophoresis. The primary
competition for SigmaGel comes from software that is sometimes provided with
specialized electrophoresis hardware and which performs some of the acquisition
and analysis functions of SigmaGel. SigmaGel competes, in part, by making it
possible for the customer to use significantly less expensive equipment.
RESEARCH AND DEVELOPMENT
Jandel's research and development activities are primarily focused upon
developing enhanced versions of Jandel products. At present Jandel is
preparing an enhanced version of SigmaPlot that will include a more
sophisticated non-linear curve fitter containing a larger number of built-in
equations. In addition, a new release for SigmaScan Pro is being prepared.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Jandel relies on a combination of trade secret, copyright and trademark
laws and contractual provisions to protect its rights in its software products.
There can be no assurance that these protections will be adequate or that
Jandel's competitors will not independently develop technologies that are
substantially equivalent or superior to Jandel's technology. In addition,
copyright and trade secret protection for the Company's products may be
unavailable or unreliable in certain foreign countries. Registrations of
several Jandel trademarks in Germany have been or will be withdrawn based on an
opposition by a company with registration for "Sigma" for electronic cash
registers. Jandel believes that it will be able to use its trademarks on its
products in Germany.
Jandel's software products are generally licensed to end-users on a
"right to use" basis pursuant to a perpetual, nontransferable, nonexclusive
license that generally restricts use of the software to the customer's internal
purposes. Jandel relies on "shrink-wrap" licenses not signed by the licensee
for the protection of certain products. "Shrink wrap" licenses may be
unenforceable under the laws of certain jurisdictions.
EMPLOYEES AND FACILITIES
As of August 31, 1996, Jandel had 60 employees, including 22 in sales
and marketing positions, 16 in engineering and product development, 9 in
technical training and support and 13 in financial and administrative roles.
Competition in recruiting personnel in the software industry is intense.
Jandel believes that its future success will depend in part on its continued
ability to recruit and retain highly skilled management, marketing and
technical personnel. None of the Jandel employees is represented by a labor
union and Jandel believes that its employee relations are good.
Jandel's principal administrative, marketing and research and
development facilities are located in a 15,000 square foot business and
commercial building in San Rafael, California under a lease expiring in
November, 1999. Jandel Scientific leases approximately 3,000 square feet of
office space in Erkrath, Germany.
LEGAL PROCEEDINGS
Jandel is not a party to any litigation and is not aware of any pending
or threatened litigation.
PRINCIPAL SHAREHOLDERS OF JANDEL
The following table sets forth, as of October 15, 1996, certain
information with respect to the beneficial ownership of Jandel Common Stock by
(i) each person known by Jandel to be the beneficial owner of 5% or more
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of the outstanding shares of Jandel Common Stock, (ii) each director of Jandel,
(iii) each of the executive officers and (iv) by all directors and officers as
a group:
<TABLE>
<CAPTION>
PERCENT OWNED
SHARES ---------------------
BENEFICIALLY PRE POST
NAME OWNED(1) MERGER MERGER (2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dr. John J. Osborn(3)(4) 44,363 12.6% *
Joseph H.K. Osborn(3)(5) 36,322 10.3% *
Dr. Bernhard Votteri(6) 25,148 7.2% *
Dr. Richard Mitchell(3)(7) 20,161 5.6% *
Wilroth(8) 19,450 5.5% *
Newtek Ventures II(9) 17,808 5.1% *
Evangelos Iatridis(3)(10) 12,081 3.4% *
Earl D. Osborn(11) 9,534 2.7% *
Ross J. Garofalo(3)(11) 5,892 1.7% *
Anne K. Osborn(12) 5,807 1.7% *
Josef Karl Wieser(3)(13) 2,337 *% *
Dr. Oliver King-Smith(14)(15) 1,341 *% *
Martin Sacks(16) 1,307 * *
All current directors and executive officers
as a group (11 persons)(9) 164,293 44.5% 1.7%
--------- ----
</TABLE>
* The percentage of shares beneficially owned does not exceed 1% of the Common
Stock.
(1) Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, and includes generally sole
voting and investment power with respect to securities. Shares of Jandel
Common Stock subject to options or warrants currently exercisable or
exercisable within sixty (60) days of the date of determination are deemed
outstanding for purposes of computing the percentage of shares beneficially
owned by the person holding such options or warrants, but are not deemed to be
outstanding for purposes of computing such percentage for any other person.
Except as indicated by footnote, each person or group identified has sole
voting and investment power with respect to all shares of Jandel Common Stock
shown as beneficially owned.
(2) Assumes a conversion ratio of Jandel Common Stock to SPSS of
.8751. The actual ratio is affected by the price of SPSS Common Stock until
the later of shortly before the Special Meeting and November 25, 1996.
(3) All of Jandel's employees, directors and officers listed in
the foregoing table use Jandel's mailing address of 2591 Kerner Boulevard,
San Rafael, CA 94901.
(4) Includes options for 100 shares of Jandel Common Stock and
rights to 110 shares of Jandel Common Stock under the ESOP Plan.
(5) Includes option for 2,600 shares of Jandel Common Stock and
rights to 378 shares of Jandel Common Stock under the ESOP Plan.
(6) Dr. Votteri's address is 3260 Melendy Dr., San Carlos, CA
94070.
(7) Includes options to purchase 5,865 shares of Jandel Common
Stock and rights to 387 shares of Jandel Common Stock under the ESOP Plan.
(8) Wilroth's address is 57 Post Street #812, San Francisco, CA
94115.
(9) Newtek Ventures II's address is 500 Washington Street, San
Francisco, CA 94111.
(10) Includes 6,668 shares held by Corur Associates, a company
wholly owned by Evangelos Iatridis.
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(11) Earl D. Osborn's address is 14 Sunset Drive, Kensington, CA
94707.
(12) Includes option to purchase 3,100 shares of Jandel Common
Stock and rights to 292 shares under the ESOP Plan.
(13) Includes options to purchase 100 shares of Jandel Common
Stock.
(14) Includes options to acquire 2,100 shares of Jandel Common
Stock and rights to 237 shares of Jandel Common Stock.
(15) Dr. Oliver King-Smith's address is 288 Grove Avenue, Fremont,
CA 94539.
(16) Includes options to buy 1,067 shares of Jandel Common stock
and rights to 274 shares in the ESOP Plan.
(17) Includes options to buy 13.7 shares of Jandel Common Stock.
Martin Sacks' address is 1895 Francisco Blvd. East, San Rafael, CA 94901.
MANAGEMENT OF JANDEL
The executive officers and directors of Jandel as of October 31, 1996
were as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Dr. John J. Osborn 78 Chairman of the Board, Director
Joseph H.K. Osborn 38 President, Director
Anne K. Osborn 77 Treasurer, Director
Ross Garofalo 36 Vice President, Finance and Administration, Chief Financial
Officer
Josef Wieser 46 Secretary
Dr. Richard Mitchell 57 Vice President, Director
Martin Sacks 36 Director
Dr. Bernhard Votteri 56 Director
Earl D. Osborn 46 Director
Evangelos Iatridis 64 Director
Dr. Oliver King-Smith 28 Director
</TABLE>
The Board of Directors has a standing Compensation Committee composed
of Martin Sacks, Dr. Bernhard Votteri and Earl D. Osborn. The Compensation
Committee makes recommendations concerning certain executive salaries. The
Board has no standing audit or nominations committee.
Jandel's employee directors receive no supplemental cash compensation
for their services as directors but are reimbursed for expenses actually
incurred in attending Board and committee meetings. Jandel's non-employee
directors receive cash compensation of $500 for each Board meeting
attended, plus any travel and lodging expenses. Existing non-employee
directors have also been granted options to purchase Jandel common stock under
the stock option plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF JANDEL'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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<PAGE> 67
Jandel addresses the microcomputer software needs of the approximately
1.5 million research scientists and engineers in the United States, and a
similar number abroad. Jandel develops, markets and supports computer software
used by research scientists and engineers who use microcomputers to manage,
analyze and present scientific data.
Scientific research data may be collected or presented numerically (as
in tables), or visually (as in plots, graphs, photographs or other visual
images). Conversion of data from one form to the other is one of the
fundamental chores involved in scientific research. For example, numerical
data must often be represented in plots or graphs for analysis and
presentation. Conversely, scientists must often gather numerical data from
analog or visual images such as photographs, video images, or data tracings for
mathematical analysis. Data must also often be analyzed using standard
statistical tools and tests, or fitted to a formula which mathematically
expresses the relationship of the experimental variables.
Jandel seeks to provide comprehensive software solutions to these data
conversion and analysis requirements. Jandel believes that the design of its
products to meet the specific needs of research scientists sets its products
apart from many other software products that do not address these needs.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for the
years indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30
-------------------------------- -----------------
1993 1994 1995 1995 1996
---------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 16.5% 16.3% 16.6% 15.7% 16.4%
Gross margin 83.5% 83.7% 83.4% 84.3% 83.6%
Operating expenses:
Sales and marketing 40.4% 43.8% 47.9% 45.1% 52.0%
Research and development 19.0% 18.9% 24.1% 24.9% 20.6%
General and administrative 17.0% 16.6% 17.8% 18.8% 18.3%
Operating expenses 76.4% 79.3% 89.8% 88.8% 90.9%
(Loss) income from operations 7.1% 4.4% (6.4%) (4.5%) (7.3%)
Interest income 0.2% 0.2% 0.2% 0.2% 0.0%
Interest expense (0.5%) (0.2%) (0.1%) (0.1%) 0.0%
(Loss) income before income taxes 6.8% 4.4% (6.3%) (4.4%) (7.3%)
Income taxes 0.1% 0.0% 0.0% 0.0% 0.0%
Net (loss) income 6.7% 4.4% (6.3%) (4.4%) (7.3%)
</TABLE>
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1993, 1994 AND 1995
Net Revenues. Consolidated net revenues increased from $7,583,406 in
1993 to $8,096,030 in 1994 and declined to $8,009,552 in 1995, an increase of
7% in 1994 and a decrease of 1% in 1995. The increase in 1994 reflects strong
demand for the 16-bit Windows versions of Jandel's products which were
introduced beginning in late 1993. The decrease in 1995 was due primarily to
the later than expected release of the 32-bit Windows versions of Jandel's
products and the slower than expected customer migration to the 32-bit Windows
95 operating system. Revenues booked in the United States, which include
non-European international sales increased from $5,763,927 in 1993 to
$5,954,924 in 1994 and declined to $5,640,829 in 1995, an increase of 3% and a
decrease of 5%, respectively. European sales increased from $1,819,479 in 1993
to $2,141,106 in 1994 and to $2,368,723 in 1995, an increase of 18% and 11%,
respectively.
Cost of Sales. Cost of sales consists of costs of goods sold,
manufacturing/shipping department costs, and royalties paid to third parties.
Cost of sales increased from $1,248,466 in 1993 to $1,320,503 in 1994 and to
$1,325,781 in 1995. As a percentage of net revenues, cost of sales increased
from 16% in both 1993 and 1994 to 17% in 1995. The rise in these costs
reflects increases in manufacturing/shipping costs.
Sales and Marketing. Sales and marketing expenses increased from
$3,065,710 in 1993 to $3,544,821 in 1994 and to $3,833,425 in 1995, an increase
of 16% in 1994 and 8% in 1995. The rise in these costs was primarily due to
increased advertising expenses, increases in salaries and commissions, and in
1995, the establishment of a site license and major account program. The 1995
increase also reflects the development of a Dealer and International
Distributor group which focused on increasing dealer channel sales and
non-European export sales. As a percentage of net revenues, sales and
marketing expenses increased from 40% in 1993 to 44% in 1994 and to 48% in
1995.
Research and Development. Research and development expenses increased
from $1,443,442 in 1993 to $1,528,732 in 1994 and to $1,934,243 in 1995, an
increase of 6% and 27%, respectively. As a percentage of net revenues,
research and development increased from 19% of revenue in both 1993 and 1994 to
24% of revenue in 1995. The increase was mainly due to salary increases,
increased programming staff, and expenditures for independent contractors in
connection with the heavy development effort required to update the product
line from 16-bit to 32-bit Windows versions.
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General and Administrative. General and administrative expenses
increased from $1,284,582 in 1993 to $1,342,138 in 1994 and to $1,427,475 in
1995, an increase of 4% in 1994 and 6% in 1995. As a percentage of net
revenues, general & administrative expenses increased from 17% in both 1993 and
1994 to 18% in 1995. The increase was largely attributable to increased staff
in the management information systems department.
Net Interest Income (Expense). Net interest income (expense) was
($23,686) in 1993, $636 in 1994 and $4,907 in 1995, reflecting the reduction of
interest expense associated with long-term debt which was reduced by 69% during
1994 and eliminated by the end of 1995.
Provision for Income Taxes. The provision for income taxes was $7,800
in 1993 and $800 in 1994 and 1995. Jandel has accounted for income taxes in
accordance with the provisions of SFAS No. 109 for all periods presented.
Under SFAS No. 109, Jandel recognizes deferred tax assets and liabilities for
the expected future consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Jandel had available net
operating loss carryforwards of approximately $398,000 and $200,000 for federal
and state purposes, respectively, and federal and state research and
experimentation tax credit carryforwards of approximately $480,000 and
$198,000, respectively, as of December 31, 1995. Under current tax
legislation, Jandel's utilization of its operating loss carryforwards and
research and development credits may be limited or impaired in certain
circumstances resulting from a change in ownership. See Note 6 of Notes to
Jandel Corporation and Subsidiary Consolidated Financial Statements.
Jandel has provided a full valuation against its net deferred tax
assets as it has determined that it is more likely than not that the deferred
tax assets will not be realized. Jandel's accounting for deferred taxes under
SFAS No. 109 involves the evaluation of a number of factors concerning the
realizability of its deferred tax assets. To support the conclusion that a
100% valuation allowance was required, management primarily considered such
factors as Jandel's history of operating losses and expected near-term future
losses, the nature of the deferred tax assets, the lack of significant firm
sales backlog, no significant excess of appreciated asset value over the tax
basis of the net assets of Jandel, and the lack of taxable income in prior
carryback years. Although management's operating plans assume taxable and
operating income in future periods, management's evaluation of all the
available evidence in assessing the realizability of the deferred tax assets
indicates that such plans were not considered sufficient to overcome the
available negative evidence.
INTERNATIONAL OPERATIONS
Net revenues of Jandel's wholly owned subsidiary, Jandel GmbH
increased from $1,819,479 in 1993 to $2,141,106 in 1994 and to $2,368,723 in
1995, increases of 18% in 1994 and 11% in 1995. Revenues from Jandel GmbH
comprised 24%, 26%, and 30% of total net revenues for the years 1993, 1994 and
1995, respectively.
Reorganization of Jandel's sales department in the fall of 1995 led to
the development of a Dealer and International Distributor group, focused on
increasing international sales outside of Europe.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1996
Net Revenues. Consolidated net revenues were $3,735,427 and
$4,122,695 for the six months ended June 30, 1995 and 1996, respectively, an
increase of 10%. Revenues booked in the United States, which include
non-European international sales, were $2,638,674 and $2,993,929 for the six
months ended June 30, 1995 and 1996, respectively, an increase of 13%.
Upgrades to the 32-bit Windows versions of Jandel's products and increased
efforts in the area of site license and international dealer sales contributed
to the rise. European sales increased 3% from $1,096,753 to $1,128,766 for the
six months ended June 30, 1995 and 1996, respectively.
Cost of Sales. Cost of sales consists of costs of goods sold,
manufacturing/shipping department costs, and royalties paid to third parties.
Cost of sales were $588,299 and $677,492 for the six months ended June 30, 1995
and 1996, respectively, an increase of 15%. The increase in cost of sales
mainly reflects increased sales levels and higher royalties paid to third
parties. As a percentage of net revenues, cost of sales were 16% in the six
months ended June 30, 1995 and 1996.
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Sales and Marketing. Sales and marketing expenses were $1,683,059 and
$2,145,344 for the six months ended June 30, 1995 and 1996, respectively, an
increase of 27%. The rise in these costs was primarily due to increases in
advertising associated with promoting 32-bit Windows versions of the products,
salary increases, and increased outside services associated with an interim
management consultant. As a percentage of net revenues, sales and marketing
expenses increased from 45% to 52%.
Research and Development. Research and development expenses were
$929,984 and $850,126 for the six months ended June 30, 1995 and 1996,
respectively, a decrease of 9%. The decrease was due mainly to a reduction in
staff and associated departmental expenses. As a percentage of net revenues
research and development expenses declined from 25% to 21%.
General and Administrative. General and administrative expenses were
$702,436 and $751,619 for the six months ended June 30, 1995 and 1996,
respectively, an increase of 7%. The increase in such expenses was mainly due
to salary increases, and increased outside services and telecommunications
costs in the management information systems department as a result of internet
and database related projects. As a percentage of net revenues general and
administrative expenses declined from 19% to 18%.
Net Interest Income. Net interest income was $5,156 and $2,072 for
the six months ended June 30, 1995 and 1996, respectively, a decrease of 60%.
The decrease was due to a decline in interest income as a result of lower
interest bearing cash balances.
Provision for Income Taxes. The provision for income taxes was
unchanged at $800 for the six months ended June 30, 1995 and 1996, and is
comprised of the minimum California state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Jandel had no long-term debt as of June 30, 1996 and held $246,331 in
cash. Funds in 1995 were used in operations, to finance capital expenditures,
and to eliminate long-term debt. Capital expenditures of approximately
$190,000 were made to improve the network infrastructure, update computer
hardware and software, and replace tradeshow equipment. Funds in the six
months ended June 30, 1996 were used in operations, and to finance capital
expenditures to improve Jandel's databases and related systems, establish an
internet presence, and update computer hardware. The financial position of
Jandel, as measured by working capital (defined as current assets less current
liabilities), declined from $292,976 to $5,955 at December 31, 1995 and
June 30, 1996, respectively. The decrease was mainly due to operating
losses and the deferral of revenue into future periods as a result of increased
site license sales.
Jandel currently has a secured line of credit under an agreement with
a bank that provides for borrowings up to $300,000 bearing interest at the
bank's prime rate plus 1.25% per annum (9.5% as of June 30, 1996), expiring
January 15, 1997. The line of credit is collateralized by all of Jandel's
assets and requires the maintenance of certain specified ratios and a minimum
net worth, with which the Jandel was in compliance as of June 30, 1996. Jandel
had no borrowings under the credit line agreement as of June 30, 1996.
Jandel anticipates the amounts available from cash on hand, under its
line of credit, and cash flows generated from operations will be sufficient to
fund operations and capital requirements for the foreseeable future. However,
no assurance can be given that changing business circumstances will not require
additional capital for reasons that are not currently anticipated or that the
necessary additional capital will then be available to Jandel on favorable
terms, if at all.
Jandel's capital expenditures, primarily for computer hardware and
software, totaled approximately $190,000 in 1995 and $90,000 and $125,000 for
the six months ended June 30, 1995 and 1996, respectively. Capital expenditures
for the entire year of 1996 are projected to total approximately $175,000.
Further purchases will include primarily programming costs for database
enhancements and new computers and parts to replace outdated hardware. Jandel
does not believe that the implementation of its business strategy will require
substantial additional capital expenditures in comparison with historical
levels of product development costs and other expenses.
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INTERNATIONAL OPERATIONS
Net revenues of Jandel's wholly-owned subsidiary, Jandel GmbH,
increased 3% for the six months ended June 30, 1996 over the corresponding
period in 1995. Revenues from Jandel GmbH comprised 29% and 27% of total net
revenues for the six months ended June 30, 1995 and 1996, respectively.
The development of a Dealer and International Distributor group in the
fourth quarter of 1995 helped to increase international sales outside of Europe
by 29% in the six months ended June 30, 1996 as compared to the six months
ended June 30, 1995.
DESCRIPTION OF CAPITAL STOCK
SPSS CAPITAL STOCK
The Delaware Corporation Law ("DGCL") requires that a corporation's
certificate of incorporation set forth the total number of shares of all
classes of stock which the corporation has authority to issue and a statement
of the designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof. The SPSS charter provides
that SPSS is authorized to issue 50,000,000 shares of SPSS Common Stock, $.01
par value. As of October 15, 1996, SPSS had outstanding 7,379,858 shares of
SPSS Common Stock. Acquisition Subsidiary's authorized capital stock consists
of 1,000,000 shares of common stock, $.001 par value, of which 100 shares are
issued and outstanding.
JANDEL CAPITAL STOCK
In general, the CGCL requires that a corporation's articles of
incorporation set forth the total number or shares of each class the
corporation is authorized to issue, the designation of each class and the
rights, preferences, privileges and restrictions granted to or imposed upon
such classes or that the board may determine or alter the rights, preference,
privileges and restriction granted to or imposed upon such classes. The
authorized capital stock of Jandel consists of 600,000 shares of Common Stock,
having no par value. As of the Record Date, there were 357,034 shares of Jandel
Common Stock outstanding and held of record by 96 shareholders.
COMPARISON OF RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, the former shareholders of Jandel,
which is a corporation organized under California law, will become shareholders
of SPSS, a corporation governed by the laws of Delaware. There are many
similarities between California and Delaware law, as well as between the
corporate charters and bylaws of Jandel and SPSS; however a number of
differences do exist. The following is a summary of those differences that
might significantly affect the rights of Jandel shareholders. This description
and analysis are brief summaries of relevant provisions of the charters and
bylaws of SPSS and of Jandel and certain provisions of California and Delaware
law and are qualified in their entirety by reference to such documents, to the
parties' respective bylaws, and to the laws of the parties' respective states
of incorporation.
VOTING RIGHTS
In general, the CGCL states, that unless a corporation's articles of
incorporation specify otherwise: (i) each outstanding share of capital stock is
entitled to one vote, (ii) a majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at a shareholder's
meeting, and (iii) the affirmative vote of the majority of the shares
representing and voting at the meeting shall be the act of the shareholders.
The DGCL states that, unless a corporation's certificate of
incorporation or, with respect to clauses (ii) and (iii), the bylaws, specify
otherwise; (i) each share of its capital stock is entitled to one vote, (ii) a
majority of voting power of the shares entitled to vote, present in person or
represented by proxy, shall constitute a quorum at a stockholders' meeting, and
(iii) in all matters other than the election of directors, the affirmative vote
of the majority
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of the voting power of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter, shall be the action of the
stockholders.
Holders of both SPSS Common Stock and Jandel Common Stock are entitled
to one vote per share on all matters submitted to a vote of shareholders.
REMOVAL OF DIRECTORS
Under the CGCL, a director may be removed without cause by the
affirmative vote of a majority of the outstanding shares, provided that the
shares voted against removal would not be sufficient to elect the director by
cumulative voting. Under Delaware law, a director on a classified board of
directors can be removed from office during his term by shareholders only for
cause unless the certificate of incorporation provides otherwise. The term
"cause" with respect to the removal of directors is not defined in the Delaware
General Corporation Law. Jandel's bylaws provide that a director may be
removed with or without cause by an affirmative vote of a majority of the
outstanding shares, so long as the shares voting against such removal would not
be sufficient to elect the director by cumulative voting. SPSS' certificate of
incorporation provides that a director may be removed only for cause and only
by the affirmative vote of the holders of at least 80% of the voting stock.
CUMULATIVE VOTING FOR DIRECTORS
In general under the CGCL, cumulative voting in the election of
directors is mandatory upon notice given by a shareholder at a shareholders'
meeting at which directors are to be elected. To cumulate votes, a shareholder
must give notice at the meeting, prior to the voting, of the shareholder's
intention to vote cumulatively. If any one shareholder gives such a
notice, all shareholders may cumulate their votes. Cumulative voting is not
available under the DGCL unless so provided in the corporation's
certificate of incorporation. The elimination of cumulative voting limits the
ability of minority shareholders to obtain representation on the Board of
Directors. Jandel's bylaws provide for cumulative voting. SPSS' certificate
of incorporation does not provide for cumulative voting.
FILLING BOARD VACANCIES
Under the CGCL, if, after the filling of any vacancy by the directors
of a corporation, the directors then in office who have been elected by the
corporation's shareholders constitute less than a majority of the directors
then in office, then: (a) any holder or holders of at least 5% of the voting
power of the then outstanding shares of voting stock of the corporation,
entitled to vote in the election of directors may call a special meeting of
shareholders, or (b) the superior court of the appropriate county may order a
special meeting of the shareholders to elect the entire board of directors of
the corporation. The DGCL provides that if, at the time of filling any vacancy
or newly created directorship, the directors then in office constitute less
than a majority of the entire board of directors as constituted immediately
prior to any increase, the Delaware Court of Chancery may, upon application of
any holder or holders of at least 10% of the voting power of the
then-outstanding shares of voting stock of the corporation, entitled to vote in
the election of directors, summarily order an election to be held to fill any
such vacancies or newly created directorships or to replace the directors
chosen by the directors then in office.
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
Under the CGCL, a special meeting of shareholders may be called by the
board of directors, the Chairman of the board of directors, the President or
the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under the DGCL, a special meeting of shareholders may be called by the
board of directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. Jandel's bylaws provide that a
special shareholders' meeting may be called by anyone authorized to do so under
the CGCL. SPSS' bylaws provide that either the Chairman of the Board or a
majority of the total number of directors (including vacant seats) may call a
special meeting of the shareholders.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
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Under the CGCL and the DGCL, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Delaware law permits a
corporation to eliminate in its charter the ability of shareholders to
act by written consent. Jandel's bylaws allow any action which may be taken at
a regular, annual or special shareholder meeting to be taken without a meeting
and without prior notice, provided a consent in writing setting forth the
action taken is signed by the holders of stock sufficient to authorize such
action at a meeting where all shareholders entitled to vote were present.
SPSS' certificate of incorporation prohibits shareholder actions by written
consent.
ANTI-TAKEOVER STATUTE
While California has no comparable statute, the DGCL contains a
provision intended to limit coercive takeovers of companies incorporated in
that state. Section 203 of the DGCL provides that a corporation may not engage
in any business combination with any interested shareholder for a period of
three years following the date that such shareholder became an interested
shareholder, unless (a) prior to the date the shareholder became an interested
shareholder, the board of directors approved the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder, (b) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder
owned at least 85% of the outstanding stock of the corporation, or (c) the
business combination is approved by the board of directors and authorized by
66% of the outstanding stock which is not owned by the interested shareholder.
An interested shareholder means any person or group of persons that is the
owner of 15% or more of the outstanding stock; however, the statute provides
for certain exceptions to parties who otherwise would be designated interested
shareholders. Any corporation may decide to opt out of the statute in its
original certificate of incorporation or, at any time, by action of its
shareholders. SPSS has no present intention of opting out of the statute.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
The CGCL provides that any loan or guaranty (other than loans to
permit the purchase of shares under certain stock purchase plans) for the
benefit of any officer or director, or any employee benefit plan authorizing
such loan or guaranty (except certain employee stock purchase plans), must be
approved by the shareholders of a California corporation.
Under the DGCL, a corporation may make loans to, or guarantee the
obligations of, or otherwise assist the officers or employees of the
corporation or its subsidiaries (including directors who are also officers or
employees) without shareholder approval if such action, in the judgment of the
directors, may reasonably be expected to benefit the corporation. Both the
CGCL and the DGCL permit such loans or guaranties to be unsecured and without
interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, the CGCL requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved
by a majority vote of each class of shares outstanding. The DGCL generally
does not require class voting for such transactions, except in certain
situations involving an amendment to the certificate of incorporation which
adversely affects a specific class of shares.
The CGCL also requires that holders of a California corporation's
common stock receive nonredeemable common stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than 50% but less than
90% of its common stock, unless all of the holders of its common stock consent
to the merger or the merger has been approved by the California Commissioner of
Corporations at a "fairness" hearing. This provision of California law may
have the effect of making a cash "freezeout" merger by a majority shareholder
more difficult to accomplish. A cash freezeout merger is a transaction whereby
a minority shareholder is forced to relinquish his share ownership in a
corporation in exchange for cash, subject in certain instances to dissenters'
rights. Delaware law has no comparable provision.
APPRAISAL RIGHTS
Under both the CGCL and the DGCL, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
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(California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations
on such "appraisal rights" are somewhat different in California and Delaware.
Shareholders of a California corporation, the shares of which are
listed on a national securities exchange or on the OTC margin stock list,
generally do not have appraisal rights unless the holders of at least 5% of the
class of outstanding shares assert the appraisal right. In any reorganization
in which a corporation or the shareholders of one corporation own more than 5/6
of the voting power of the surviving or acquiring corporation, those
shareholders are denied appraisal rights under the CGCL.
Under the DGCL, appraisal rights are not available to shareholders
with respect to a merger or consolidation by a corporation the shares of which
are either listed on a national securities exchange or are held of record by
more than 2,000 holders if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
widely-held and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under the DGCL to shareholders of a corporation surviving a merger
if no vote of those shareholders is required to approve the merger because,
among other things, the number of shares to be issued in the merger does not
exceed 20% of the shares of the surviving corporation outstanding immediately
before the merger and certain other conditions are met.
Generally, the DGCL does not provide shareholders with voting or
appraisal rights when a corporation acquires another business through the
issuance of its stock, whether in exchange for assets or stock or in a merger
with a subsidiary. The CGCL treats these kinds of acquisitions in the same
manner as a merger of the corporation directly with the business to be acquired
and provides appraisal rights in the circumstances described in the preceding
section.
INSPECTION OF SHAREHOLDER LISTS
The CGCL provides for an absolute right of inspection of the
shareholder list for shareholders holding 5% or more of a corporation's
outstanding voting shares or shareholders holding 1% or more of such shares who
have filed a Schedule 14B with the Securities and Exchange Commission. The
DGCL provides no such absolute right of shareholder inspection. However, both
the CGCL and the DGCL permit any shareholder of record to inspect the
shareholder list for any purpose reasonably related to that person's interest
as a shareholder.
DIVIDENDS
Under the CGCL, any dividends or other distributions to shareholders,
such as redemptions, are limited to the greater of (a) retained earnings or (b)
an amount which would leave the corporation with assets (excluding certain
intangible assets) equal to at least 125% of its liabilities (excluding certain
deferred items) and current assets equal to at least 100% (or, in certain
circumstances, 125%) of its current liabilities. The DGCL allows the payment
of dividends and redemption of stock out of paid-in and earned surplus or out
of net profits for the current and preceding fiscal years. In the past five
years, SPSS has not paid a cash dividend on any class of SPSS capital stock.
Jandel has never paid cash dividends on Jandel Common Stock.
DIFFERENCES REGARDING AMENDMENT OF CHARTERS OR BYLAWS
Jandel's bylaws may be adopted, repealed or amended by the affirmative
vote of the outstanding shares entitled to vote or, subject to the
shareholders' rights, by the affirmative vote of the board of directors. SPSS'
bylaws may be altered, repealed or made by the affirmative vote of 80% of the
outstanding shares entitled to vote or by the affirmative vote of a majority of
the board of directors. Jandel's articles of incorporation do not set forth
the process of amendments to its articles of incorporation. SPSS' articles of
incorporation reserve to its shareholders and directors the right to amend its
articles in such methods allowed by the DGCL.
NUMBER OF DIRECTORS
The CGCL allows the number of persons constituting the board of
directors of a corporation to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors
may vary within a specified range, the exact number to be determined by the
board of directors. The CGCL further provides
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that, in the case of a variable board, the maximum number of directors may not
exceed two times the minimum number minus one. Jandel's bylaws allow a range
between five and nine directors. The CGCL also requires that any change in a
fixed number of directors and any change in the range of a variable board of
directors specified in the bylaws must be approved by a majority of the
outstanding shares entitled to vote; provided that a change reducing the
minimum number of directors to less than three cannot be adopted if votes cast
against its adoption are equal to more than 16% of the outstanding shares
entitled to vote. Jandel currently has nine directors.
The DGCL permits a board of directors to change the authorized number
of directors by amendment to the bylaws unless the number of directors or the
manner of fixing the number of directors is set forth in the certificate of
incorporation, in which case the number of directors may be changed only by
amendment of the certificate of incorporation or consistent with the manner
specified in the certificate of incorporation, as the case may be. SPSS'
certificate of incorporation allows a range between five and nine directors.
SPSS currently has six directors.
CLASSIFIED BOARD OF DIRECTORS
The CGCL generally requires that directors be elected annually but
does permit a "classified" board of directors if (a) a corporation is listed on
a national stock exchange or (b) the corporation's shares are traded on the
Nasdaq National Market and are held by at least 800 equity security holders.
The CGCL also allows the election of one or more directors by the holders of a
particular class or series of shares. Jandel's directors are elected annually.
The DGCL permits, but does not require, the adoption of a classified
board of directors with staggered terms. A maximum of three classes of
directors is permitted by the DGCL, with members of one class to be elected
each year for a maximum term of three years. Classification of the board of
directors might make it more difficult for a person acquiring shares to take
immediate control of the board of directors. SPSS' directors are elected in
staggered three-year terms, with one-third elected each year.
INDEMNIFICATION AND PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
The DGCL provides that a corporation may limit or eliminate a
director's personal liability for monetary damages to the corporation or its
stockholders for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to such corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for paying or
approving a stock repurchase in violation of Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The CGCL allows a corporation to limit or eliminate a director's
personal liability for monetary damages to the corporation or its shareholders
for breach of certain duties as director except where such liability is based
on: (a) intentional misconduct or knowing and culpable violation of law, (b)
acts or omissions that a director believes to be contrary to the best interests
of the corporation or its shareholders, or that involve the absence of good
faith on the part of the director, (c) receipt of an improper personal benefit,
(d) acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary course
of performing a director's duties should be aware of a risk of serious injury
to the corporation or its shareholders, (e) acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to the corporation and its shareholders, (f) interested
transactions between the corporation and a director in which a director has a
material financial interest, and (g) liability for improper distributions,
loans or guarantees.
In general, the DGCL and the CGCL both provide that directors and
officers as well as other employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation as a derivative action) if they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interest of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. There are, however, certain differences between the DGCL and the
CGCL.
The CGCL permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
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liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (b) no indemnification
may be made under the CGCL, without court approval in respect of amounts paid
or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. The DGCL allows
indemnification of such expenses without court approval.
Indemnification is permitted by both the CGCL and the DGCL provided
the requisite standards of conduct are met, as determined by a majority vote of
a disinterested quorum of the directors, independent legal counsel (if a quorum
of independent directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party) or the court
handling the action.
The CGCL requires indemnification when the individual has successfully
defended the action on merits (as opposed to the DGCL which requires
indemnification relating to a successful defense on the merits or otherwise).
The DGCL generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is
a determination by a disinterested quorum of the directors, by independent
legal counsel or by a majority vote of a quorum of the shareholders that the
person seeking indemnification acted in good faith and in a manner reasonably
believed to be in or (in contrast to the CGCL) not opposed to the best
interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of
his or her duty to the corporation. The DGCL requires indemnification of
expenses when the individual being indemnified has successfully defended the
action on the merits or otherwise.
Under the DGCL, rights to indemnification and expenses are
non-exclusive, in that they need not be limited to those expressly provided by
statute. The CGCL is similar in that it permits non-exclusive indemnification
if authorized in the corporation's charter.
Jandel's certificate of incorporation allows indemnification of the
board of directors to the maximum extent allowable under the CGCL.
SPSS' certificate of incorporation provides that a director will not
be personally liable for monetary damages to SPSS or its stockholders for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to SPSS or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for paying a dividend or approving a stock
repurchase or redemption in violation of Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal benefit.
SPSS' certificate of incorporation also provides that each current or former
director, officer, employee or agent of SPSS, or each such person who is or was
serving or who had agreed to serve at the request of SPSS as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise (including the heirs, executors, administrators or
estate of such person), will be indemnified by SPSS to the full extent
permitted by the DGCL as from time to time in effect. SPSS' certificate of
incorporation also provides that such indemnification provisions are not to be
deemed exclusive of any other rights to which those indemnified may be
entitled.
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LEGAL MATTERS
In connection with the Merger contemplated by the Merger Agreement,
Ross & Hardies, Chicago, Illinois, counsel for SPSS will render its opinion
that the shares of SPSS Common Stock to be issued to the shareholders of Jandel
in connection with the Merger have been duly authorized and, if issued pursuant
to the Merger Agreement, will be validly issued, fully paid and non-assessable
under the current laws of the State of Delaware.
EXPERTS
The supplemental consolidated financial statements of SPSS Inc. as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995, have been included herein in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of SPSS Inc. as of December 31,
1994 and 1995 and for each of the three years in the period ended
December 31, 1995, have been included herein and incorporated herein by
reference in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
With respect to SPSS Inc.'s unaudited interim financial
information for the periods ended June 30, 1995 and 1996, included herein, the
independent certified public accountants have reported that they applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report included herein and in
the Company's quarterly report on Form 10-Q for the quarter ended June 30,
1996, states that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited interim financial information because that report is
not a "report" or a "part" of the registration statement prepared or certified
by the accountants within the meaning of Sections 7 and 11 of the Act.
The consolidated financial statements of Jandel Corporation and
subsidiary as of December 31, 1994 and 1995 and for each of the years then
ended, have been included herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Clear Software, Inc. as of December 31,
1995 and for the year then ended, included herein, and incorporated herein by
reference, have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report, given the
authority of said firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combining Balance Sheet as of June 30, 1996................................... F-2
Unaudited Pro Forma Condensed Combining Statement of Operations for the year ended December 31, 1993........ F-3
Unaudited Pro Forma Condensed Combining Statement of Operations for the year ended December 31, 1994........ F-4
Unaudited Pro Forma Condensed Combining Statement of Operations for the year ended December 31, 1995........ F-5
Unaudited Pro Forma Condensed Combining Statement of Operations for the six months ended June 30, 1995...... F-6
Unaudited Pro Forma Condensed Combining Statement of Operations for the six months ended June 30, 1996...... F-7
Notes to Unaudited Pro Forma Condensed Combining Financial Statements....................................... F-8
SPSS INC. AND SUBSIDIARIES
Independent Auditors' Report................................................................................ F-9
Supplemental Consolidated Balance Sheets as of December 31, 1994 and 1995................................... F-10
Supplemental Consolidated Statements of Income for the years ended December 31, 1993, 1994, and 1995........ F-11
Supplemental Consolidated Statements of Stockholders' (Deficit) Equity for the years ended
December 31, 1993, 1994, and 1995................................................................... F-12
Supplemental Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994, and 1995.... F-14
Notes to 1995 Supplemental Consolidated Financial Statements................................................ F-14
Supplemental Consolidated Balance Sheet as of June 30, 1996 (unaudited)..................................... F-28
Supplemental Consolidated Statements of Income for the six months ended
June 30, 1995 (unaudited) and 1996 (unaudited)...................................................... F-29
Supplemental Consolidated Statements of Cash Flows for the six months ended
June 30, 1995 (unaudited) and 1996 (unaudited)...................................................... F-30
Notes to Supplemental Consolidated Financial Statements (unaudited)......................................... F-31
Independent Auditors' Report................................................................................ F-32
Consolidated Balance Sheets as of December 31, 1994 and 1995................................................ F-33
Consolidated Statements of Income for the years ended December 31, 1993,
1994, and 1995...................................................................................... F-34
Consolidated Statements of Stockholders' (Deficit) Equity for the years ended
December 31, 1993, 1994, and 1995................................................................... F-35
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994, and 1995................. F-36
Notes to 1995 Consolidated Financial Statements............................................................. F-37
Independent Auditors Review Report.......................................................................... F-48
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited)........................... F-49
Consolidated Statements of Income for the three-month and six-month periods ended
June 30, 1995 (unaudited) and 1996 (unaudited)...................................................... F-50
Consolidated Statements of Cash Flows for the six-month periods ended
June 30, 1995 (unaudited) and 1996 (unaudited)...................................................... F-51
Notes to the Unaudited Consolidated Financial Statement..................................................... F-52
JANDEL CORPORATION AND SUBSIDIARIES
Years ended December 31, 1994 and 1995 and six months ended June 30, 1995
(unaudited) and 1996 (unaudited):
Independent Auditors' Report................................................................................ F-53
Consolidated Balance Sheets................................................................................. F-54
Consolidated Statements of Operations....................................................................... F-55
Consolidated Statements of Shareholders' Equity............................................................. F-56
Consolidated Statements of Cash Flows....................................................................... F-57
Notes to Consolidated Financial Statements.................................................................. F-58
CLEAR SOFTWARE INC.
Independent Auditors' Report................................................................................ F-66
Balance Sheet as of December 31, 1995....................................................................... F-67
Statement of Income and Retained Earnings for the year ended December 31, 1995.............................. F-68
Statement of Cash Flows for the year ended December 31, 1995................................................ F-69
Notes to 1995 Financial Statements.......................................................................... F-70
Balance Sheet as of June 30, 1996 (unaudited)............................................................... F-73
Statement of Income and Retained Earnings for the six-month periods ended
June 30, 1995 (unaudited) and 1996 (unaudited)...................................................... F-74
Statement of Cash Flows for the six-month periods ended
June 30, 1995 (unaudited) and 1996 (unaudited)....................................................... F-75
Notes to the Unaudited Financial Statements................................................................. F-76
</TABLE>
70
<PAGE> 78
SPSS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINING
FINANCIAL STATEMENTS
<PAGE> 79
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINING FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated combining balance
sheet of SPSS combines the supplemental consolidated balance sheet of SPSS and
the balance sheet of Jandel applying the pooling-of-interests method of
accounting. The unaudited pro forma condensed consolidated combining
statements of operations for the years ended December 31, 1993, 1994, and 1995,
and for the six month periods ended June 30, 1995 and 1996 combines the
supplemental consolidated statements of operations of SPSS and the statements
of operations of Jandel applying the pooling-of-interests method of accounting.
The unaudited pro forma condensed consolidated combining financial statements
give effect to the issuance of SPSS Common Stock in exchange for the
outstanding shares of common stock of Jandel, and includes adjustments
described in the notes to unaudited pro forma condensed consolidated combining
financial statements.
The pro forma unaudited pro forma condensed consolidated combining financial
statements are presented for illustrative purposes only and do not purport to
represent what SPSS' results of operations or financial position would have
been had the Merger occurred on the dates indicated or for any future period or
date, and are therefore qualified in their entirety by reference to and should
be read in conjunction with the supplemental and historical consolidated
financial of SPSS and the consolidated financial statements of Jandel included
herein.
F-1
<PAGE> 80
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINING BALANCE SHEET
JUNE 30, 1996
(amounts in thousands)
<TABLE>
<CAPTION>
SPSS Inc. Pro Forma SPSS Inc.
Supplemental Jandel Adjustments Pro Forma
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $11,645 $ 246 $ - $11,891
Accounts receivable, net 12,494 712 - 13,206
Other current assets 3,345 285 - 3,630
------- ------ --- -------
Total current assets 27,484 1,243 - 28,727
------- ------ --- -------
Net equipment and leasehold improvements 4,988 410 - 5,398
Capitalized software development costs, net 6,748 - - 6,748
Other assets 3,878 134 - 4,012
------- ------ --- -------
Total assets $43,098 $1,787 $ - $44,885
======= ====== === =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals $13,817 $ 999 $ - $14,816
Deferred revenues 5,348 238 - 5,586
------- ------ --- -------
Total current liabilities 19,165 1,237 - 20,402
------- ------ --- -------
Other non-current liabilities 2,177 26 - 2,203
Stockholders' equity 21,756 524 - 22,280
Total liabilities and stockholders' equity $43,098 $1,787 $ - $44,885
======= ====== === =======
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
combining financial statements.
F-2
<PAGE> 81
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINING
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
SPSS Inc. Pro Forma SPSS Inc.
Supplemental Jandel Adjustments Pro Forma
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Desktop products $ 27,953 $ 7,583 $ - $ 35,536
Large System products 11,785 - - 11,785
Other products and service 4,853 - - 4,853
--------- ------- ---- ---------
Net revenues 44,591 7,583 - 52,174
Cost of revenues 5,415 1,248 - 6,663
--------- ------- ---- ---------
Gross profit 39,176 6,335 - 45,511
--------- ------- ---- ---------
Operating expenses:
Sales and marketing 21,677 3,066 - 24,743
Product development 6,887 1,443 - 8,330
General and administrative 4,004 1,285 - 5,289
--------- ------- ---- ---------
Operating expenses 32,568 5,794 - 38,362
--------- ------- ---- ---------
Operating income 6,608 541 - 7,149
--------- ------- ---- ---------
Other income (expense):
Interest income 30 14 - 44
Interest expense (1,689) (37) - (1,726)
Other (390) - - (390)
--------- ------- ---- ---------
Other income (expense) (2,049) (23) - (2,072)
--------- ------- ---- ---------
Income before income taxes 4,559 518 - 5,077
Income tax expense 1,349 8 - 1,357
--------- ------- ---- ---------
Net income $ 3,210 $ 510 $ - $ 3,720
========= ======= ==== =========
Net income per share $ 0.65 $ 1.35 $ - $ 0.70
========= ======= ==== =========
Shares used in computing per share amounts 4,958,089 378,922 - 5,289,670
========= ======= ==== =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
combining financial statements.
F-3
<PAGE> 82
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINING
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
SPSS Inc. Pro Forma SPSS Inc.
Supplemental Jandel Adjustments Pro Forma
------------ ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Desktop products $ 37,846 $ 8,096 $ - $ 45,942
Large System products 10,835 - - 10,835
Other products and service 5,817 - - 5,817
--------- ------- ---- ---------
Net revenues 54,498 8,096 - 62,594
Cost of revenues 5,923 1,320 - 7,243
--------- ------- ---- ---------
Gross profit 48,575 6,776 - 55,351
--------- ------- ---- ---------
Operating expenses:
Sales and marketing 28,564 3,545 - 32,109
Product development 7,686 1,529 - 9,215
General and administrative 4,252 1,342 - 5,594
Acquisition-related charges 1,928 - - 1,928
--------- ------- ---- ---------
Operating expenses 42,430 6,416 - 48,846
--------- ------- ---- ---------
Operating income 6,145 360 - 6,505
--------- ------- ---- ---------
Other income (expense):
Interest income 119 13 - 132
Interest expense (349) (12) - (361)
Other (128) - - (128)
--------- ------- ---- ---------
Other income (expense) (358) 1 - (357)
--------- ------- ---- ---------
Income before income taxes 5,787 361 - 6,148
Income tax expense 2,191 1 - 2,192
--------- ------- ---- ---------
Net income $ 3,596 $ 360 $ - $ 3,956
========= ======= ==== =========
Net income per share $ 0.54 $ 0.98 $ - $ 0.56
========= ======= ==== =========
Shares used in computing per share amounts 6,696,604 367,948 7,018,582
========= ======= ==== =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
combining financial statements.
F-4
<PAGE> 83
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINING
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
SPSS Inc. Pro Forma SPSS Inc.
Supplemental Jandel Adjustments Pro Forma
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Desktop products $ 48,856 $ 8,010 $ - $ 56,866
Large System products 10,694 - - 10,694
Other products and service 6,234 - - 6,234
--------- ------- ----- ---------
Net revenues 65,784 8,010 - 73,794
Cost of revenues 6,383 1,326 - 7,709
--------- ------- ----- ---------
Gross profit 59,401 6,684 - 66,085
--------- ------- ----- ---------
Operating expenses:
Sales and marketing 35,059 3,833 - 38,892
Product development 8,929 1,934 - 10,863
General and administrative 4,849 1,428 - 6,277
Nonrecurring items 2,466 - - 2,466
Acquisition-related charges 1,051 - - 1,051
--------- ------- ----- ---------
Operating expenses 52,354 7,195 - 59,549
--------- ------- ----- ---------
Operating income (loss) 7,047 (511) - 6,536
--------- ------- ----- ---------
Other income (expense):
Interest income 295 10 - 305
Interest expense (124) (5) - (129)
Other 132 - - 132
--------- ------- ----- ---------
Other income (expense) 303 5 - 308
--------- ------- ----- ---------
Income (loss) before income taxes 7,350 (506) - 6,844
Income tax expense 2,968 1 - 2,969
--------- ------- ----- ---------
Net income (loss) $ 4,382 $ (507) $ - $ 3,875
========= ======= ===== =========
Net income (loss) per share $ 0.56 $ (1.47) $ - $ 0.48
========= ======= ===== =========
Shares used in computing per share amounts 7,768,740 344,800 8,070,462
========= ======= ===== =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
combining financial statements.
F-5
<PAGE> 84
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINING
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
SPSS Inc. Pro Forma SPSS Inc.
Supplemental Jandel Adjustments Pro Forma
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Desktop products $ 22,560 $ 3,735 $ - $ 26,295
Large System products 5,110 - - 5,110
Other products and service 3,558 - - 3,558
--------- ------- ------- ---------
Net revenues 31,228 3,735 - 34,963
Cost of revenues 2,911 588 - 3,499
--------- ------- ------- ---------
Gross profit 28,317 3,147 - 31,464
--------- ------- ------- ---------
Operating expenses:
Sales and marketing 17,452 1,683 - 19,135
Product development 4,291 930 - 5,221
General and administrative 2,365 702 - 3,067
--------- ------- ------- ---------
Operating expenses 24,108 3,315 - 27,423
--------- ------- ------- ---------
Operating income (loss) 4,209 (168) - 4,041
--------- ------- ------- ---------
Other income (expense):
Interest income 12 8 - 20
Interest expense (1) (3) - (4)
Other 142 - - 142
--------- ------- ------- ---------
Other income (expense) 153 5 - 158
--------- ------- ------- ---------
Income (loss) before income taxes 4,362 (163) - 4,199
Income tax expense 1,418 1 - 1,419
--------- ------- ------- ---------
Net income (loss) $ 2,944 $ (164) $ - $ 2,780
========= ======= ======= =========
Net income (loss) per share $ 0.39 $ 0.48 $ - $ 0.35
========= ======= ======= =========
Shares used in computing per share
amounts 7,587,850 344,258 - 7,889,098
========= ======= ======= =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
combining financial statements.
F-6
<PAGE> 85
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINING
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
SPSS Inc. Pro Forma SPSS Inc.
Supplemental Jandel Adjustments Pro Forma
------------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Desktop products $ 27,279 $ 4,122 $ - $ 31,401
Large System products 5,467 - - 5,467
Other products and service 3,130 - - 3,130
---------- ------- ------ ----------
Net revenues 35,876 4,122 - 39,998
Cost of revenues 3,396 677 - 4,073
---------- ------- ------ ----------
Gross profit 32,480 3,445 - 35,925
---------- ------- ------ ----------
Operating expenses:
Sales and marketing 18,586 2,145 - 20,731
Product development 5,460 850 - 6,310
General and administrative 2,683 752 - 3,435
---------- ------- ------ ----------
Operating expenses 26,729 3,747 - 30,476
---------- ------- ------ ----------
Operating income (loss) 5,751 (302) - 5,449
---------- ------- ------ ----------
Other income (expense):
Interest income 225 3 - 228
Interest expense (1) (1) - (2)
Other (106) - - (106)
---------- ------- ------ ----------
Other income (expense) 118 2 - 120
---------- ------- ------ ----------
Income (loss) before income taxes 5,869 (300) - 5,569
Income tax expense 1,929 1 - 1,930
---------- ------- ------ ----------
Net income (loss) $ 3,940 $ (301) $ - $ 3,639
========== ======= ====== ==========
Net income (loss) per share $ 0.49 $ (0.87) $ - $ 0.44
========== ======= ====== ==========
Shares used in computing per share
amounts 8,001,963 345,407 8,287,990
========== ======= ====== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
combining financial statements.
F-7
<PAGE> 86
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
COMBINING FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS COMBINATION
On October 8, 1996, SPSS Inc. signed an agreement in principal to acquire
Jandel Corporation. SPSS Inc. has agreed to exchange approximately 357,000
shares of its common stock in exchange for all outstanding common stock of
Jandel Corporation, a developer and marketer of graphical and statistical
software products used mainly in scientific applications. The closing of the
definitive merger agreement is subject to approval by the shareholders of
Jandel Corporation and subject to the satisfaction of conditions customary in
such agreements. This business combination is anticipated to be accounted for
as a pooling-of-interests, and accordingly, the unaudited pro forma condensed
consolidated combining financial statements reflect the accounts and results of
operations of Jandel Corporation for all periods, assuming the business
combination will be approved by the shareholders of Jandel.
NOTE B - COSTS OF THE BUSINESS COMBINATION
The unaudited pro forma condensed consolidated combining financial statements
do not include any adjustments relating to costs associated with the business
combination.
F-8
<PAGE> 87
SPSS INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 88
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SPSS Inc.:
We have audited the accompanying supplemental consolidated balance
sheets of SPSS Inc. and subsidiaries as of December 31, 1994 and 1995,
and the related supplemental consolidated statements of income,
stockholders' (deficit) equity, and cash flows for each of the years in
the three-year period ended December 31, 1995. These supplemental
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive
effect to the merger of SPSS Inc. and Clear Software, Inc. on September
26, 1996, which has been accounted for as a pooling of interests as
described in note 6 to the supplemental consolidated financial
statements. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the
pooling-of-interests method in financial statements that do not include
the date of consummation. These financial statements do not extend
through the date of consummation. However, they will become the
historical consolidated financial statements of SPSS Inc. and
subsidiaries after financial statements covering the date of
consummation of the business combination are issued.
In our opinion, the supplemental consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of SPSS Inc. and subsidiaries as of December 31,
1994 and 1995, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles applicable
after financial statements are issued for a period which includes the
date of consummation of the business combination.
KPMG PEAT MARWICK LLP
Chicago, Illinois
September 26, 1996
F-9
<PAGE> 89
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Balance Sheets
December 31, 1994 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ASSETS 1994 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,780 10,924
Accounts receivable, net of allowances of $391 in 1994
and $682 in 1995 10,743 12,543
Inventories 1,447 1,614
Prepaid expenses and other current assets 1,459 1,469
- --------------------------------------------------------------------------------------------------------
Total current assets 15,429 26,550
- --------------------------------------------------------------------------------------------------------
Equipment and leasehold improvements, at cost:
Furniture, fixtures, and office equipment 3,234 3,501
Computer equipment and software 7,178 8,711
Leasehold improvements 1,326 1,413
- --------------------------------------------------------------------------------------------------------
11,738 13,625
Less accumulated depreciation and amortization 7,851 9,283
- --------------------------------------------------------------------------------------------------------
Net equipment and leasehold improvements 3,887 4,342
- --------------------------------------------------------------------------------------------------------
Capitalized software development costs, net of accumulated amortization 7,207 6,839
Goodwill, net of accumulated amortization 2,221 2,113
Other assets 3,050 1,999
- --------------------------------------------------------------------------------------------------------
$ 31,794 41,843
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------
Current liabilities:
Notes payable 2,881 -
Accounts payable 4,521 2,602
Accrued royalties 519 496
Accrued rent 1,202 921
Other accrued liabilities 6,384 8,787
Income taxes and value added taxes payable 2,599 2,262
Customer advances 504 295
Deferred revenues 6,321 6,485
- --------------------------------------------------------------------------------------------------------
Total current liabilities 24,931 21,848
- --------------------------------------------------------------------------------------------------------
Deferred income taxes 2,191 2,015
Other non-current liabilities 550 288
Stockholders' equity:
Common Stock, $.01 par value; 50,000,000 shares authorized;
6,375,559 and 7,316,230 shares issued and outstanding at
December 31, 1994 and 1995, respectively 64 73
Additional paid-in capital 27,889 37,317
Cumulative foreign currency translation adjustments (463) (699)
Accumulated deficit (23,368) (18,999)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 4,122 17,692
- --------------------------------------------------------------------------------------------------------
Commitments (note 7) - -
- --------------------------------------------------------------------------------------------------------
$ 31,794 41,843
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-10
<PAGE> 90
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Income
Years ended December 31, 1993, 1994 and 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1993 1994 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues:
Desktop products $ 27,953 37,846 48,856
Large System products 11,785 10,835 10,694
Other products and services 4,853 5,817 6,234
- -----------------------------------------------------------------------------------
Net revenues 44,591 54,498 65,784
Cost of revenues 5,415 5,923 6,383
- -----------------------------------------------------------------------------------
Gross profit 39,176 48,575 59,401
- -----------------------------------------------------------------------------------
Operating expenses:
Sales and marketing 21,677 28,564 35,059
Product development 6,887 7,686 8,929
General and administrative 4,004 4,252 4,849
Nonrecurring items - - 2,466
Acquisition-related charges - 1,928 1,051
- -----------------------------------------------------------------------------------
Operating expenses 32,568 42,430 52,354
- -----------------------------------------------------------------------------------
Operating income 6,608 6,145 7,047
- -----------------------------------------------------------------------------------
Other income (expense):
Interest income 30 119 295
Interest expense (1,689) (349) (124)
Other (390) (128) 132
- -----------------------------------------------------------------------------------
Other income (expense) (2,049) (358) 303
- -----------------------------------------------------------------------------------
Income before income taxes 4,559 5,787 7,350
Income tax expense 1,349 2,191 2,968
- -----------------------------------------------------------------------------------
Net income $ 3,210 3,596 4,382
- -----------------------------------------------------------------------------------
Net earnings per share $ 0.65 0.54 0.56
- -----------------------------------------------------------------------------------
Weighted average common stock and common
stock equivalent shares outstanding 4,958,089 6,696,604 7,768,740
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-11
<PAGE> 91
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Stockholders' (Deficit) Equity
Years ended December 31, 1993, 1994 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred stock Series A convertible, $.01 par value:
Balance at beginning of period $ 1 - -
Conversion of 52,650 shares of preferred stock
to common stock (1) - -
- ---------------------------------------------------------------------------------------------------------------
Balance at end of period - - -
- ---------------------------------------------------------------------------------------------------------------
Preferred stock Series B convertible, $.01 par value:
Balance at beginning of period 1 - -
Conversion of 60,000 shares of preferred stock
to common stock (1) - -
- ---------------------------------------------------------------------------------------------------------------
Balance at end of period - - -
- ---------------------------------------------------------------------------------------------------------------
Common stock, $.01 par value:
Balance at beginning of period 2 62 64
Conversion of 52,650 shares of Series A convertible
preferred stock to 1,755,000 shares of common
stock 18 - -
Conversion of 60,000 shares of Series B convertible
preferred stock to 2,000,000 shares of common
stock 20 - -
Initial public offering of 2,266,667 shares of common stock 22 - -
Issuance of 150,000 and 1,885 shares of common stock
in 1994 and 1995, respectively - 2 -
Public offering of 908,287 shares of common stock - - 9
- ---------------------------------------------------------------------------------------------------------------
Balance at end of period 62 64 73
- ---------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of period 10,772 26,306 27,889
Conversion of 52,650 shares of Series A convertible
preferred stock (17) - -
Conversion of 60,000 shares of Series B convertible
preferred stock (19) - -
Initial public offering of 2,266,667 shares of common stock 15,569 - -
Issuance of 150,000 and 1,885 shares of common stock
in 1994 and 1995, respectively - 1,226 -
Public offering of 908,287 shares of common stock - - 9,118
Sale of 30,330 and 9,892 shares of common stock to
the Employee Stock Purchase and 401(k) Plans
in 1994 and 1995, respectively - 265 141
Exercise of stock options and other - 12 51
Income tax benefit related to stock options and
Employee Stock Purchase Plan - 44 117
Undistributed earnings related to business combination 1 36 1
- ---------------------------------------------------------------------------------------------------------------
Balance at end of period $ 26,306 27,889 37,317
- ---------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment:
Balance at beginning of period $ (805) (332) (463)
Translation adjustment 473 (131) (236)
- ---------------------------------------------------------------------------------------------------------------
Balance at end of period (332) (463) (699)
- ---------------------------------------------------------------------------------------------------------------
Accumulated deficit:
Balance at beginning of period (30,137) (26,928) (23,368)
Net income 3,210 3,596 4,382
Undistributed earnings related to business combination (1) (36) (1)
Dividends declared - - (12)
- ---------------------------------------------------------------------------------------------------------------
Balance at end of period (26,928) (23,368) (18,999)
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' (deficit) equity $ (892) 4,122 17,692
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-12
<PAGE> 92
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1994 and 1995
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1993 1994 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,210 3,596 4,382
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,079 3,303 4,441
Stock option compensation expense - - 15
Deferred income taxes 62 612 (176)
Write-off of software development costs and
other assets - - 2,281
Write-off of acquired and in-process technology - 1,741 851
Write-off of deferred loan costs 277 - -
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable (661) (2,996) (1,416)
Inventories (218) 158 (236)
Accounts payable 2,909 (1,477) (2,087)
Accrued royalties 75 (5) (23)
Accrued expenses (1,127) (1,234) (319)
Other (1,007) 50 9
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,599 3,748 7,722
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures, net (1,570) (2,181) (2,648)
Capitalized software development costs (2,116) (3,219) (2,504)
Shareholder lawsuit appeal bond (1,184) - -
Net (payments) receipts related to acquisitions - (149) 46
- -------------------------------------------------------------------------------------------
Net cash used in investing activities (4,870) (5,549) (5,106)
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under line-of-credit agreements (639) 1,506 (2,874)
Proceeds from issuance of common stock 16,864 277 10,509
Costs of issuance of common stock (1,272) - (1,205)
Retired subordinated debt (7,167) - -
Retired term loan (7,000) - -
Income tax benefit from stock option exercises - 44 117
Other - - (19)
- -------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 786 1,827 6,528
- -------------------------------------------------------------------------------------------
Net change in cash and cash equivalents $ 1,515 26 9,144
Cash and cash equivalents at beginning of period 239 1,754 1,780
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 1,754 1,780 10,924
- -------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 3,069 224 137
Income taxes paid 50 749 3,458
- -------------------------------------------------------------------------------------------
Supplemental disclosures of non-cash activity:
Conversion of Series A convertible preferred stock $ (18) - -
Conversion of Series B convertible preferred stock (20) - -
Issuance of common stock for the purchase of
SYSTAT, Inc. - (2) -
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-13
<PAGE> 93
SPSS INC, AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
December 31, 1993, 1994 and 1995
________________________________________________________________________________
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
SPSS Inc. (the Company) develops, markets, and supports statistical
software products and services that enable the effective use of marketplace
and enterprise data in decision making. The primary users of the Company's
software are managers and data analysts in corporate settings, government
agencies and academic institutions. The Company markets its products and
services worldwide.
(B) PRINCIPLES OF CONSOLIDATION
The supplemental consolidated financial statements include the accounts of
SPSS Inc. and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
(C) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
(D) SOFTWARE REVENUE RECOGNITION
The Company recognizes revenue from Desktop product licenses, net of an
allowance for estimated returns and cancellations, at the time the software
is delivered. Revenue from Large System product license agreements is
recognized upon contract execution, product delivery, and customer
acceptance.
Revenue from postcontract customer support (PCS or maintenance) agreements,
including PCS bundled with Desktop product and Large System product
licenses, is recognized ratably over the term of the related PCS
agreements. Certain Desktop product licenses include commitments for
insignificant obligations, such as technical and other support, for which
an accrual is provided.
Revenue from consulting, publications, and other items included in other
revenue is recognized as the related products or services are delivered or
rendered.
(E) SOFTWARE DEVELOPMENT COSTS
Software development costs incurred by the Company in connection with the
Company's long-term development projects are capitalized in accordance with
Statement of Financial Accounting Standards No. 86. The Company has not
capitalized software development costs relating to development projects
where the net realizable value is of short duration, as the effect would be
immaterial. The Company reviews capitalized software development costs
each period and, if necessary, reduces the carrying value of each product
to its net realizable value.
(Continued)
F-14
<PAGE> 94
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
(F) COMPUTATION OF NET EARNINGS PER SHARE
The net earnings per common and common equivalent share for the years ended
December 31, 1993, 1994 and 1995 have been computed using the weighted
average number of common and dilutive common equivalent shares outstanding
for each year (4,958,089, 6,696,604 and 7,768,740 shares, respectively).
Common equivalent shares consist of the shares issuable upon exercise of
stock options (using the treasury stock method).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, options for common stock granted during the 12 months immediately
preceding the Company's initial public offering date (using the treasury
stock method and the public offering price of $8.00 per share) have been
included in the calculation of common and common equivalent shares as if
they were outstanding for all periods presented prior to the initial public
offering. In addition, the calculation also includes preferred stock as if
converted to Common Stock on the original date of issuance for all periods
presented prior to the initial public offering (see note 2).
(G) DEPRECIATION AND AMORTIZATION
Depreciation of furniture and equipment is provided using the straight-line
method over the estimated useful lives of the assets, which range from
three to eight years. Leasehold improvements are amortized on the
straight-line method over the remaining terms of the respective leases.
Capitalized software costs are amortized on a straight-line method over
three to five years based upon the expected life of each product. This
method results in greater amortization than the method based upon the ratio
of current year gross product revenue to current and anticipated future
gross product revenue.
(H) INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (Statement 109). Statement 109 requires the
asset and liability method of accounting for income taxes in which deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(I) INVENTORIES
Inventories, consisting of finished goods, are stated at the lower of cost
or market. Cost is determined using the first-in, first-out method.
(Continued)
F-15
<PAGE> 95
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
(J) GOODWILL
The excess of the cost over the fair value of net assets acquired is
recorded as goodwill and amortized on a straight-line basis over ten years.
Accumulated amortization was $143,000 and $353,000 as of December 31, 1994
and 1995, respectively.
(K) FOREIGN CURRENCY TRANSLATION
The translation of the applicable foreign currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using the
average exchange rate during the period. The gains or losses resulting
from such translation are included in stockholders' (deficit) equity.
Gains or losses resulting from foreign currency transactions are included
in "other income and expense" in the statement of income.
(L) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments were not materially different from
their carrying values.
(M) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of highly liquid investments with
initial maturity dates of less than three months.
(N) RECLASSIFICATIONS
Where appropriate, certain items relating to the prior years have been
reclassified to conform to the presentation in the current year.
(2) INITIAL PUBLIC OFFERING
In August 1993, the Company completed an initial public offering of Common
Stock. The primary purpose of the initial public offering was to repay the
note payable, term loan subordinated debt, and related accrued interest.
Upon the effective date of the initial public offering, the Series A and
Series B convertible preferred shares were converted into shares of Common
Stock and a reverse one-for-three Common Stock split was effected. All
common share and per share amounts in the accompanying supplemental
consolidated financial statement have been adjusted retroactively to give
effect to the reverse stock split.
(Continued)
F-16
<PAGE> 96
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
(3) INTERNATIONAL SUBSIDIARIES
The net assets, net revenues and net earnings of international subsidiaries
as of and for the years ended December 31, 1993, 1994 and 1995 included in
the supplemental consolidated financial statements are summarized as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
------------------------------
1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Working capital $(2,178,000) (5,534,000) (3,437,000)
- --------------------------------------------------------------------------------
Excess of noncurrent assets over
noncurrent liabilities $ 1,161,000 2,625,000 2,458,000
- --------------------------------------------------------------------------------
Net revenues $19,250,000 26,252,000 34,574,000
- --------------------------------------------------------------------------------
Net earnings $ 528,000 307,000 818,000
- --------------------------------------------------------------------------------
</TABLE>
Geographic information is disclosed elsewhere in this document.
(4) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE
Activity in capitalized software is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
December 31,
------------------------------
1993 1994 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, net - beginning of year $ 3,660,000 4,768,000 7,207,000
Additions 1,730,000 2,704,000 2,613,000
Product translations 384,000 516,000 508,000
Acquired Japan product translations - 458,000 -
Write-down to net realizable value - - (1,897,000)
Amortization expense charged to cost
of revenues (1,006,000) (1,239,000) (1,592,000)
- -------------------------------------------------------------------------------------
Balance, net - end of year $ 4,768,000 7,207,000 6,839,000
- -------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-17
<PAGE> 97
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
The components of capitalized software are summarized as follows:
- -------------------------------------------------------------------------------
December 31,
-----------------------
1994 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Product translations $802,000 1,096,000
Acquired Japan product translations 458,000 -
Acquired software technology 1,831,000 2,300,000
Capitalized software development costs 4,116,000 3,443,000
- -------------------------------------------------------------------------------
Balance, net - end of period $7,207,000 6,839,000
- -------------------------------------------------------------------------------
</TABLE>
Total software development costs, including amounts expensed as incurred,
amounted to approximately $9,001,000, $10,906,000 and $11,433,000, for the
years ended December 31, 1993, 1994 and 1995, respectively.
Included in acquired software technology at December 31, 1994 is $1,000,000
related to the purchase of CHAID for Windows. The future guaranteed
obligation related to this purchase, reflected in the supplemental
consolidated balance sheet as of December 31, 1995, amounting to $550,000
and is due through 1998.
Included in acquired software technology at December 31, 1995 is $618,000
of technology resulting from the acquisition of BMDP Statistical Software,
Inc. (see note 6).
(5) INVESTMENT IN JOINT VENTURE
In October 1988, the Company entered into a joint venture with Japan
Systems Engineering Corporation (JSE) and formed SPSS Japan, Inc., owned
equally by JSE and the Company. An executive of JSE, the joint venture
partner, was also a shareholder in SPSS Inc. The joint venture was created
for the purposes of adopting, marketing, selling, licensing and providing
technical support and assistance in Japan for the Company's products. The
investment in SPSS Japan, Inc. was being accounted for using the equity
method. As of January 1, 1994, SPSS Japan, Inc. became a wholly owned
subsidiary of SPSS Inc. (see note 6).
During the year ended December 31, 1993, the Company recorded $169,000 of
royalty revenue from SPSS Japan, Inc.
(Continued)
F-18
<PAGE> 98
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
(6) ACQUISITIONS
During the first quarter of 1994, the Company acquired the remaining
capital stock of SPSS Japan, Inc. from its joint venture partner, JSE.
Results of SPSS Japan, Inc. are consolidated in the Company's statements of
income from January 1, 1994. The purchase price for SPSS Japan, Inc. was
approximately $50,000 and approximately $1,600,000 in accrued royalties,
cash advances and interest was to be paid by SPSS Japan, Inc. to JSE over
the next four years.
The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities have been recorded at their estimated fair
values. The $961,000 excess of the purchase price over the fair market
value of the net assets acquired was recorded as goodwill.
During the third quarter of 1994, the Company acquired specific assets and
liabilities of SYSTAT, Inc. (SYSTAT). SYSTAT is engaged in the business of
statistical software. Results of SYSTAT are included in the Company's
statements of income from September 1, 1994. The purchase price for SYSTAT
was $1,828,000, consisting of $600,000 in cash and 150,000 shares of Common
Stock of the Company valued at $1,228,000. In addition, the Company
granted options at $9.00 per share to purchase 150,000 shares of Common
Stock to the principal owners of SYSTAT.
The SYSTAT acquisition was accounted for as a purchase and, accordingly,
the acquired assets and liabilities have been recorded at their estimated
fair values. The $1,403,000 excess of the purchase price over the fair
market value of the net assets acquired was recorded as goodwill in 1994.
During 1995 certain assumed liabilities were revalued, and consequently
SYSTAT goodwill was reduced to $1,203,000.
As of December 29, 1995, the Company acquired substantially all of the
assets of one of its competitors, BMDP Statistical Software, Inc. (BMDP),
for $850,000 in cash to BMDP and noncompetition payments to the principal
shareholder of BMDP. In addition, the Company agreed to assume
approximately $1,400,000 of BMDP's liabilities, consisting of telephone
equipment and office machine lease obligations, accounts payable and
advertising fees, accrued employment-related expenses, professional fees,
and bank loan and line of credit facilities. In the fourth quarter of
1995, the Company recorded charges of approximately $1,051,000 representing
a one-time write-off of acquired and in process technology and other
acquisition-related charges. The BMDP acquisition was accounted for as a
purchase and, accordingly, the acquired assets and liabilities have been
recorded at their estimated fair values. The $301,000 excess of the
purchase price over the fair market value of the net assets acquired was
recorded as goodwill.
The pro forma impact of these acquisitions on the 1993, 1994 and 1995
supplemental consolidated statements of income is not material.
On September 26, 1996, the Company acquired all of the outstanding capital
stock of Clear Software, Inc. (Clear), a developer and marketer of process
management, analysis and documentation software products, in exchange for
183,833 shares of Common Stock. The merger with Clear was accounted for as
a pooling of interests and, accordingly, the supplemental consolidated
financial statements have been restated as if the Company and Clear had
been combined for all periods presented.
(Continued)
F-19
<PAGE> 99
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
The following information reconciles net revenues and net income of SPSS as
previously reported with the amounts presented in the accompanying
supplemental consolidated statements of income for the three years ended
December 31, 1993, 1994, and 1995:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
1993 1994 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net revenues:
SPSS (1) $42,724,000 51,757,000 63,029,000
Clear 1,867,000 2,741,000 2,755,000
- ----------------------------------------------------------------
Total $44,591,000 54,498,000 65,784,000
- ----------------------------------------------------------------
Net income (loss):
SPSS (1) 3,209,000 3,560,000 4,369,000
Clear 1,000 36,000 13,000
- ----------------------------------------------------------------
Total $3,210,000 3,596,000 4,382,000
- ----------------------------------------------------------------
</TABLE>
(1) Represents the historical results of SPSS without considering
the effect of the pooling of interests transaction.
(7) LEASE COMMITMENTS
The Company leases its office facilities, storage space, and certain data
processing equipment under lease agreements expiring through the year 2000.
Minimum lease payments indicated below do not include costs such as
property taxes, maintenance, and insurance.
(Continued)
F-20
<PAGE> 100
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
The following is a schedule of future noncancelable minimum lease payments
required under operating leases as of December 31, 1995:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
ending
December 31, Amount
- ------------------------------------------------------
<S> <C>
1996 $3,183,000
1997 2,830,000
1998 2,162,000
1999 515,000
2000 197,000
Thereafter -
- ------------------------------------------------------
$8,887,000
- ------------------------------------------------------
</TABLE>
Rent expense related to operating leases was approximately $2,702,000,
$2,960,000 and $3,322,000 during the years ended December 31, 1993, 1994
and 1995, respectively.
(8) FINANCING ARRANGEMENTS
At December 31, 1994, the Company had borrowings totaling $2,874,000 under
a line of credit bearing interest at prime (8.5% at December 31, 1994 and
1995). As of December 31, 1995, the Company owed no amounts under the line
of credit. The line of credit is collateralized by all of the Company's
assets and does not require a compensating balance, however, the Company
pays a facility fee of one-half of one percent on the unused amount of the
line of credit. At December 31, 1995, the entire $5,000,000 of the line of
credit was unused.
At December 31, 1994, the Company had borrowings totaling $7,000 under a
line of credit bearing interest at 2% above the Bank's lending rate (9% at
December 31, 1995). As of December 31, 1995, the Company owed no amounts
under the line of credit. The $100,000 line of credit agreement is secured
by the assets of the Company. At December 31, 1995, the entire $100,000 of
the line of credit was unused.
Effective March 15, 1996, the Company established a $5,000,000 unsecured,
364-day revolving credit facility available for advances pursuant to a
definitive credit agreement. The Company pays a facility fee of 0.375% on
the unused portion of the facility. If the Company does borrow against the
facility, interest will be charged at the Bank of America reference rate
(8.25% at March 15, 1996).
(Continued)
F-21
<PAGE> 101
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
______________________________________________________________________________
(9) OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
December 31,
------------
1993 1994 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $30,000 119,000 295,000
Interest expense - subordinated debt to
related parties (676,000) - -
Other interest expense (1,013,000) (303,000) (124,000)
Amortization of deferred loan costs (409,000) - -
Exchange gain (loss) on foreign currency transactions (41,000) (248,000) 212,000
Stock appraisal action 60,000 (46,000) (105,000)
Japan insurance proceeds - 186,000 -
Payments to related parties - (66,000) (45,000)
Other - - 70,000
- ---------------------------------------------------------------------------------------------
Total other income (expense) $(2,049,000) (358,000) 303,000
- ---------------------------------------------------------------------------------------------
</TABLE>
(10) INCOME TAXES
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year ended December 31,
------------------------------------
1993 1994 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $3,521,000 5,176,000 5,526,000
Foreign 1,038,000 611,000 1,824,000
- -----------------------------------------------------------------------------------------------------
$4,559,000 5,787,000 7,350,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-22
<PAGE> 102
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Income tax expense consists of the following:
- -------------------------------------------------------------------------------------------------------
Current Deferred Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1993:
U.S. Federal $693,000 89,000 782,000
State 45,000 12,000 57,000
Foreign 549,000 (39,000) 510,000
- -------------------------------------------------------------------------------------------------------
$1,287,000 62,000 1,349,000
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 1994:
U.S. Federal 944,000 500,000 1,444,000
State 331,000 112,000 443,000
Foreign 304,000 - 304,000
- -------------------------------------------------------------------------------------------------------
$1,579,000 612,000 2,191,000
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 1995:
U.S. Federal 1,616,000 (144,000) 1,472,000
State 186,000 (32,000) 154,000
Foreign 1,342,000 - 1,342,000
- -------------------------------------------------------------------------------------------------------
$3,144,000 (176,000) 2,968,000
- -------------------------------------------------------------------------------------------------------
<CAPTION>
For the years ended December 31, 1993, 1994 and 1995, the reconciliation of statutory to effective
income taxes is as follows:
- -------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------
1993 1994 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes using the Federal statutory rate of 34% $1,550,000 1,955,000 2,495,000
State income taxes, net of Federal tax benefit 38,000 292,000 102,000
Change in valuation allowance and credit and net
operating loss utilization, net (277,000) (272,000) (132,000)
Foreign taxes at net rates different from U.S.
Federal rates 157,000 96,000 722,000
Foreign tax credit - - (336,000)
Other, net (119,000) 120,000 117,000
- -------------------------------------------------------------------------------------------------------
$1,349,000 2,191,000 2,968,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-23
<PAGE> 103
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1994 and 1995
are presented below:
- -----------------------------------------------------------------------------------------------------
1994 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to allowance for
doubtful accounts $ 40,000 123,000
Inventories, principally due to additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 59,000 47,000
Compensated absences, principally due to accrual for
financial reporting purposes 91,000 111,000
Research and experimentation credit carryforwards 178,000 -
Alternative minimum tax credit carryforwards 171,000 -
Deferred rent 390,000 299,000
Plant and equipment, principally due to differences in
depreciation and capitalized interest 153,000 192,000
Deferred revenues 1,706,000 1,657,000
Write-off of purchased software asset 207,000 -
Foreign currency loss 104,000 59,000
Acquisition-related items 132,000 287,000
State deferred tax assets 653,000 629,000
Non-U.S. net operating loss carryforwards 964,000 435,000
Other 22,000 21,000
- -----------------------------------------------------------------------------------------------------
Total gross deferred tax assets 4,870,000 3,860,000
Less valuation allowance (4,870,000) (3,860,000)
- -----------------------------------------------------------------------------------------------------
Net deferred tax assets - -
- -----------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Capitalized software costs 1,641,000 1,496,000
State deferred tax liability 402,000 370,000
Other 148,000 149,000
- -----------------------------------------------------------------------------------------------------
Net deferred tax liability $ 2,191,000 2,015,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
During the year ended December 31, 1995, the Company's research and
experimentation carryforwards were utilized to reduce current income taxes.
(Continued)
F-24
<PAGE> 104
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
The valuation allowance decreased $277,000, $796,000 and $1,010,000 in
1993, 1994 and 1995, respectively.
(11) CAPITAL STOCK
In conjunction with the August 1993 initial public offering, the Company
converted 52,650 shares of Series A convertible preferred stock and 60,000
shares of Series B convertible preferred stock into Common Stock at a rate
of 100 shares of Common Stock for each share of preferred stock and
effected a reverse one-for-three Common Stock split, resulting in 1,755,000
and 2,000,000 shares of Common Stock, respectively.
The Company issued 2,000,000 shares of Common Stock on the August 18, 1993
effective date of the initial public offering, with an additional 266,667
shares subsequently issued to the underwriters to cover overallotments, at
an initial offering price of $8.00 per share. The Company used the net
proceeds of $15,592,000 and part of the new line of credit to retire: (i)
term loan of $7,000,000 and accrued interest of $378,000, (ii) subordinated
notes of $1,000,000 and accrued interest of $212,000, (iii) subordinated
note of $4,367,000 and subordinated obligation of $1,300,000 and accrued
interest of $1,188,000, and (iv) subordinated obligation of $375,000 and
accrued interest of $61,000, and replaced the existing revolving line of
credit by repaying the outstanding balance of $3,671,000.
Three former holders of Class B Common Stock of the Company exercised their
statutory rights to dissent from the value at which their stock was
redeemed. During 1993, the court issued an order valuing the dissenting
shareholders' stock at $20.70 per share (or $520,025 for the total stock
value, before adjustment for the above one-for-three stock split), plus
interest at the rate of 9% per annum from October 10, 1990 until payment,
and awarded attorneys fees and costs incurred by the former shareholders.
The Company filed an appeal related to this matter to challenge the trial
procedure, the courts' valuation of the stock and the award of attorneys'
fees and costs. The Company had posted a bond of $1,184,000 during the
pendency of the appeal. On February 3, 1995, the Company's Petition for
Leave to Appeal was denied by the Illinois Supreme Court. Subsequently,
the Company paid the judgment and settled all remaining claims, and on
April 16, 1995, the court entered an Agreed order of Dismissal with
Prejudice of all pending claims, defenses and counterclaims.
In February 1995, the Company and certain Selling Stockholders completed an
offering of Common Stock in which the Company sold 700,000 shares of Common
Stock and the Selling Stockholders sold 921,916 shares of Common Stock, at
a public offering price of $11.375 per share, and each sold an additional
208,287 and 35,000 shares, respectively, when the underwriters exercised
their overallotment option in March 1995. After the underwriters'
discounts and other offering expenses, the Company received approximately
$9,127,000 in net proceeds from its sale of 908,287 shares of Common Stock
in the offering.
(Continued)
F-25
<PAGE> 105
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
(12) RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIP
The Company entered into agreements with limited partnerships in 1981, 1982
and 1985 to perform research and development for new and existing computer
software. Certain of the general and limited partners of these
partnerships are officers of the Company and under these agreements, the
Company incurred royalty expense to the partnerships of $342,000, $349,000
and $361,000 for the years ended December 31, 1993, 1994 and 1995.
(13) STOCK OPTIONS
On January 16, 1992, the Company adopted a Stock Option Plan for certain
key employees. Options vest either immediately or over a four-year period.
In September 1994, the Company granted options to purchase 150,000 shares
of Common Stock to the principal owners of SYSTAT. In addition, in June
1995, the Shareholders of the Company adopted the 1995 Equity Incentive
Plan which authorizes the Board of Directors, under certain conditions, to
grant stock options and shares of restricted stock to directors, officers,
other key executives, employees and independent contractors. Options for
251,371, 397,570 and 560,694, common shares are vested and exercisable at
December 31, 1993, 1994 and 1995, respectively.
Stock option transactions are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Outstanding options
--------------------------------------
Number of Price Aggregate
shares per share price
- --------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 358,042 $ 1.05 375,944
Options granted 206,902 1.05-8.00 912,247
Options terminated (1,000) 1.05 (1,050)
- --------------------------------------------------------------------
Balance, December 31, 1993 563,944 1.05-8.00 1,287,141
Options granted 227,500 8.625-9.125 2,053,438
Options terminated (1,224) 1.05-8.00 (5,921)
Options exercised (10,428) 1.05-8.00 (11,860)
- --------------------------------------------------------------------
Balance, December 31, 1994 779,792 1.05-9.125 3,322,798
Options granted 305,373 .314-14.75 3,925,591
Options terminated (4,951) 1.05-14.75 (54,325)
Options exercised (20,607) 1.05-8.625 (36,636)
- --------------------------------------------------------------------
Balance, December 31, 1995 1,059,607 $.314-14.75 7,157,428
- --------------------------------------------------------------------
</TABLE>
(Continued)
F-26
<PAGE> 106
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
________________________________________________________________________________
(14) SUBSEQUENT EVENT (UNAUDITED)
In October 1996, the Company announced that it had reached an agreement in
principle to acquire Jandel Scientific Software, Inc. The parties expect
to conclude the transaction by the end of November 1996.
F-27
<PAGE> 107
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Balance Sheet
June 30, 1996
(In thousands, except share data)
(Unaudited)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 11,645
Accounts receivable, net of allowances of $623 12,494
Inventories 1,408
Prepaid expenses and other current assets 1,937
- --------------------------------------------------------------------------------------------
Total current assets 27,484
- --------------------------------------------------------------------------------------------
Equipment and leasehold improvements, at cost:
Furniture, fixtures, and office equipment 3,641
Computer equipment and software 9,763
Leasehold improvements 1,483
- --------------------------------------------------------------------------------------------
14,887
Less accumulated depreciation and amortization 9,899
- --------------------------------------------------------------------------------------------
Net equipment and leasehold improvements 4,988
- --------------------------------------------------------------------------------------------
Capitalized software development costs, net of accumulated amortization 6,748
Goodwill, net of accumulated amortization 1,989
Other assets 1,889
- --------------------------------------------------------------------------------------------
$ 43,098
============================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 2,674
Accrued royalties 430
Accrued rent 793
Other accrued liabilities 6,737
Income taxes and value added taxes payable 2,988
Customer advances 195
Deferred revenues 5,348
- --------------------------------------------------------------------------------------------
Total current liabilities 19,165
- --------------------------------------------------------------------------------------------
Deferred income taxes 2,015
Other non-current liabilities 162
Stockholders' equity:
Common Stock, $.01 par value; 50,000,000 shares authorized;
7,341,820 shares issued and outstanding 74
Additional paid-in capital 37,825
Cumulative foreign currency translation adjustments (867)
Accumulated deficit (15,276)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 21,756
- --------------------------------------------------------------------------------------------
Commitments --
- --------------------------------------------------------------------------------------------
$ 43,098
============================================================================================
</TABLE>
See accompanying notes to the unaudited supplemental consolidated financial
statements.
F-28
<PAGE> 108
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Income
Six months ended June 30, 1995 and 1996
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1995 1996
<S> <C> <C>
- ----------------------------------------------------------------------
Net revenues:
Desktop products $ 22,560 27,279
Large System products 5,110 5,467
Other products and services 3,558 3,130
- ----------------------------------------------------------------------
Net revenues 31,228 35,876
Cost of revenues 2,911 3,396
- ----------------------------------------------------------------------
Gross profit 28,317 32,480
- ----------------------------------------------------------------------
Operating expenses:
Sales and marketing 17,452 18,586
Product development 4,291 5,460
General and administrative 2,365 2,683
Nonrecurring items -- --
Acquisition-related charges -- --
- ----------------------------------------------------------------------
Operating expenses 24,108 26,729
- ----------------------------------------------------------------------
Operating income 4,209 5,751
- ----------------------------------------------------------------------
Other income (expense):
Interest income 12 225
Interest expense (1) (1)
Other 142 (106)
- ----------------------------------------------------------------------
Other income (expense) 153 118
- ----------------------------------------------------------------------
Income before income taxes 4,362 5,869
Income tax expense 1,418 1,929
- ----------------------------------------------------------------------
Net income $ 2,944 3,940
======================================================================
Net earnings per share $ 0.39 0.49
======================================================================
Weighted average common stock and common
stock equivalent shares outstanding 7,587,850 8,001,963
======================================================================
</TABLE>
See accompanying notes to the unaudited supplemental consolidated financial
statements.
F-29
<PAGE> 109
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,944 3,940
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,024 2,210
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable 721 49
Inventories 363 206
Accounts payable (1,861) 72
Accrued royalties (90) (66)
Accrued expenses (1,041) (1,933)
Other (726) (1,545)
- ------------------------------------------------------------------------
Net cash provided by operating activities 2,334 2,933
- ------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures, net (1,463) (1,655)
Capitalized software development costs (1,441) (603)
Net (payments) receipts related to acquisitions -- (244)
- ------------------------------------------------------------------------
Net cash used in investing activities (2,904) (2,502)
- ------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under line-of-credit agreements (2,868) --
Proceeds from issuance of common stock 9,206 116
Income tax benefit from stock option exercises -- 174
Other (19) --
- ------------------------------------------------------------------------
Net cash provided by financing activities 6,319 290
- ------------------------------------------------------------------------
Net change in cash and cash equivalents 5,749 721
Cash and cash equivalents at beginning of period 1,780 10,924
- ------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,529 11,645
========================================================================
Supplemental disclosures of cash flow
information:
Interest paid $ 118 19
Income taxes paid 1,784 727
========================================================================
</TABLE>
See accompanying notes to the unaudited supplemental consolidated financial
statements.
F-30
<PAGE> 110
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(1) BASIS OF PRESENTATION
The accompanying unaudited interim supplemental consolidated financial
statements reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
presented. All such adjustments are of a normal recurring nature.
These supplemental consolidated financial statements should be read in
conjunction with the Company's audited supplemental consolidated financial
statements and notes thereto for the year ended December 31, 1995 included
elsewhere herein.
(2) BUSINESS COMBINATION
The unaudited supplemental consolidated financial statements give
retroactive effect to the merger of SPSS Inc. and Clear Software, Inc. on
September 26, 1996, which has been accounted for as a pooling of interests.
These financial statements do not extend through the date of consummation.
However, they will become the historical consolidated financial statements
of SPSS Inc. and subsidiaries after financial statements covering the date
of consummation of the business combination are issued.
F-31
<PAGE> 111
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 112
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SPSS Inc.:
We have audited the accompanying consolidated balance sheet of SPSS Inc. and
subsidiaries, as of December 31, 1994 and 1995 and the related consolidated
statements of income, stockholders' (deficit) equity, and cash flows for each of
the years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SPSS Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 21, 1996, except as to Note 14,
which is as of March 15, 1996
F-32
<PAGE> 113
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
--------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,714 $ 10,778
Accounts receivable, net of allowances of $391 in 1994 and $667 in 1995 10,457 12,252
Inventories 1,444 1,590
Prepaid expenses and other current assets 1,459 1,469
--------- --------
Total current assets 15,074 26,089
--------- --------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Furniture, fixtures, and office equipment 3,234 3,494
Computer equipment and software 7,087 8,609
Leasehold improvements 1,326 1,413
--------- --------
11,647 13,516
Less accumulated depreciation and amortization 7,769 9,179
--------- --------
Net equipment and leasehold improvements 3,878 4,337
--------- --------
Capitalized software development costs, net of accumulated amortization 7,207 6,839
Goodwill, net of accumulated amortization 2,221 2,113
Other assets 3,050 1,999
--------- --------
$ 31,430 $ 41,377
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 2,874 $ --
Accounts payable 4,349 2,331
Accrued royalties 519 496
Accrued rent 1,202 921
Other accrued liabilities 6,376 8,785
Income taxes and value added taxes payable 2,599 2,262
Customer advances 504 295
Deferred revenues 6,321 6,485
--------- --------
Total current liabilities 24,744 21,575
--------- --------
Deferred income taxes 2,191 2,015
Other non-current liabilities 550 288
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 50,000,000 shares authorized; 6,210,105
and 7,148,891 shares issued and outstanding at December 31, 1994 and
December 31, 1995, respectively 62 71
Additional paid-in capital 27,714 37,126
Cumulative foreign currency translation adjustments (463) (699)
Accumulated deficit (23,368) (18,999)
--------- --------
Total stockholders' equity 3,945 17,499
--------- --------
Commitments (note 7) $ 31,430 $ 41,377
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-33
<PAGE> 114
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net revenues:
Desktop products $ 26,086 $ 35,105 $ 46,101
Large System products 11,785 10,835 10,694
Other products and services 4,853 5,817 6,234
----------- ---------- ----------
Net revenues 42,724 51,757 63,029
Cost of revenues 5,142 5,575 6,177
----------- ---------- ----------
Gross profit 37,582 46,182 56,852
----------- ---------- ----------
Operating expenses:
Sales and marketing 20,522 26,928 33,287
Product development 6,671 7,341 8,614
General and administrative 3,786 3,943 4,446
Nonrecurring items -- -- 2,466
Acquisition-related charges -- 1,928 1,051
----------- ---------- ----------
Operating expenses 30,979 40,140 49,864
----------- ---------- ----------
Operating income 6,603 6,042 6,988
----------- ---------- ----------
Other income (expense):
Interest income 29 117 294
Interest expense (1,684) (346) (122)
Other (390) (62) 177
----------- ---------- ----------
Other income (expense) (2,045) (291) 349
----------- ---------- ----------
Income before income taxes 4,558 5,751 7,337
Income tax expense 1,349 2,191 2,968
----------- ---------- ----------
Net income $ 3,209 $ 3,560 $ 4,369
=========== ========== ==========
Net earnings per share $ 0.67 $ 0.55 $ 0.57
=========== ========== ==========
Weighted average common stock and common
stock equivalent shares outstanding 4,792,635 6,531,150 7,598,739
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-34
<PAGE> 115
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Preferred stock, Series A convertible, $.01 par value:
Balance at beginning of period $ 1 $ -- $ --
Conversion of 52,650 shares of preferred
stock to common stock (1) -- --
--------- ---------- ----------
Balance at end of period $ -- $ -- $ --
--------- ---------- ----------
Preferred stock, Series B convertible, $.01 par value:
Balance at beginning of period $ 1 $ -- $ --
Conversion of 60,000 shares of preferred stock to common stock (1) -- --
--------- ---------- ----------
Balance at end of period $ -- $ -- $ --
--------- ---------- ----------
Common stock, $.01 par value:
Balance at beginning of period $ -- $ 60 $ 62
Conversion of 52,650 shares of Series A convertible preferred
stock to 1,755,000 shares of common stock 18 -- --
Conversion of 60,000 shares of Series B convertible preferred
stock to 2,000,000 shares of common stock 20 -- --
Net proceeds from initial public offering of 2,266,667 shares of
common stock 22 -- --
Issuance of 150,000 shares of common stock for the
purchase of SYSTAT, Inc. -- 2 --
Net proceeds from public offering of 908,287 shares of
common stock -- -- 9
--------- ---------- ----------
Balance at end of period $ 60 $ 62 $ 71
--------- ---------- ----------
Additional paid in capital:
Balance at beginning of period $ 10,634 $ 26,167 $ 27,714
Conversion of 52,650 shares of Series A convertible preferred stock (17) -- --
Conversion of 60,000 shares of Series B convertible preferred stock (19) -- --
Net proceeds from initial public offering of 2,266,667 shares of
common stock 15,569 -- --
Issuance of 150,000 shares of common stock for the
purchase of SYSTAT, Inc. -- 1,226 --
Net proceeds from public offering of 908,287 shares of
common stock -- -- 9,118
Sale of 30,330 and 9,892 shares of common stock to the
Employee Stock Purchase and 401(k) Plans in 1994 and 1995,
respectively -- 265 141
Exercise of stock options for 10,428 and 20,607 shares of common
stock in 1994 and 1995, respectively -- 12 36
Income tax benefit related to stock options and Employee
Stock Purchase Plan -- 44 117
--------- ---------- ----------
Balance at end of period $ 26,167 $ 27,714 $ 37,126
--------- ---------- ----------
Foreign currency translation adjustment:
Balance at beginning of period $ (805) $ (332) $ (463)
Translation adjustment 473 (131) (236)
--------- ---------- ----------
Balance at end of period $ (332) $ (463) $ (699)
--------- ---------- ----------
Accumulated deficit:
Balance at beginning of period $ (30,137) $ (26,928) $ (23,368)
Net income 3,209 3,560 4,369
--------- ---------- ----------
Balance at end of period $ (26,928) $ (23,368) $ (18,999)
--------- ---------- ----------
Total stockholders' (deficit) equity $ (1,033) $ 3,945 $ 17,499
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-35
<PAGE> 116
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,209 $ 3,560 $ 4,369
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,070 3,283 4,419
Deferred income taxes 62 612 (176)
Write-off of software development costs and
other assets -- -- 2,281
Write-off of acquired and in-process technology -- 1,741 851
Write-off of deferred loan costs 277 -- --
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable (637) (2,894) (1,411)
Inventories (219) 158 (215)
Accounts payable 2,840 (1,515) (2,186)
Accrued royalties 75 (5) (23)
Accrued expenses (1,132) (1,231) (313)
Other (1,003) 46 9
-------- ------- -------
Net cash provided by operating activities 5,542 3,755 7,605
-------- ------- -------
Cash flows from investing activities:
Capital expenditures, net (1,564) (2,155) (2,630)
Capitalized software development costs (2,116) (3,219) (2,504)
Shareholder lawsuit appeal bond (1,184) -- --
Net (payments) receipts related to acquisitions -- (149) 46
-------- ------- -------
Net cash used in investing activities (4,864) (5,523) (5,088)
-------- ------- -------
Cash flows from financing activities:
Net borrowings under line-of-credit agreements (660) 1,520 (2,874)
Proceeds from issuance of common stock 16,864 277 10,509
Costs of issuance of common stock (1,272) -- (1,205)
Retired subordinated debt (7,167) -- --
Retired term loan (7,000) -- --
Income tax benefit from stock option exercises -- 44 117
-------- ------- -------
Net cash provided by financing activities 765 1,841 6,547
-------- ------- -------
Net change in cash 1,443 73 9,064
Cash at beginning of period 198 1,641 1,714
-------- ------- -------
Cash at end of period $ 1,641 $ 1,714 $ 10,778
======== ======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 3,055 $ 218 137
Income taxes paid 50 749 $ 3,458
======== ======= =======
Supplemental disclosures of non-cash activity:
Conversion of Series A convertible preferred stock $ (18) $ -- $ --
Conversion of Series B convertible preferred stock (20) -- --
Issuance of common stock for the purchase of
SYSTAT, Inc. -- (2) --
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 117
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
SPSS Inc. (the "Company") develops, markets, and supports statistical
software products and services that enable the effective use of marketplace and
enterprise data in decision making. Governmental and academic institutions
constitute a substantial portion of the Company's customers. The Company
markets its products and services worldwide.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of SPSS Inc.
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
(c) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(d) Software Revenue Recognition
The Company recognizes revenue from Desktop product licenses, net of an
allowance for estimated returns and cancellations, at the time the software is
delivered. Revenue from Large System product license agreements is recognized
upon contract execution, product delivery, and customer acceptance.
Revenue from postcontract customer support (PCS or maintenance)
agreements, including PCS bundled with Desktop product and Large System product
licenses, is recognized ratably over the term of the related PCS agreements.
Certain Desktop product licenses include commitments for insignificant
obligations, such as technical and other support, for which an accrual is
provided.
Revenue from consulting, publications, and other items included in other
revenue is recognized as the related products or services are delivered or
rendered.
(e) Software Development Costs
Software development costs incurred by the Company in connection with the
Company's long-term development projects are capitalized in accordance with
Statement of Financial Accounting Standards No. 86. The Company has not
capitalized software development costs relating to development projects where
the net realizable value is of short duration, as the effect would be
immaterial. The Company reviews capitalized software development costs each
period and, if necessary, reduces the carrying value of each product to its net
realizable value.
F-37
<PAGE> 118
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(f) Computation of Net Earnings per Share
The net earnings per common and common equivalent share for the years
ended December 31, 1993, 1994 and 1995 has been computed using the weighted
average number of common and dilutive common equivalent shares outstanding for
each year (4,792,635, 6,531,150 and 7,598,739 shares, respectively). Common
equivalent shares consist of the shares issuable upon conversion of preferred
stock and exercise of stock options (using the treasury stock method).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, options for common stock granted during the 12 months immediately
preceding the Company's initial public offering date (using the treasury stock
method and the public offering price of $8.00 per share) have been included in
the calculation of common and common equivalent shares as if they were
outstanding for all periods presented prior to the initial public offering. In
addition, the calculation also includes preferred stock as if converted to
Common Stock on the original date of issuance for all periods presented prior
to the initial public offering (note 2).
(g) Depreciation and Amortization
Depreciation of furniture and equipment is provided using the straight-
line method over the estimated useful lives of the assets, which range from
three to eight years. Leasehold improvements are amortized on the straight-line
method over the remaining terms of the respective leases. Capitalized software
costs are amortized on a straight-line method over three to five years based
upon the expected life of each product. This method results in greater
amortization than the method based upon the ratio of current year gross product
revenue to current and anticipated future gross product revenue.
(h) Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (Statement 109). Statement 109 requires the asset
and liability method of accounting for income taxes in which deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
(i) Inventories
Inventories, consisting of finished goods, are stated at the lower of cost
or market. Cost is determined using the first-in, first-out method.
(j) Goodwill
The excess of the cost over the fair value of net assets acquired is
recorded as goodwill and amortized on a straight-line basis over 10 years.
Accumulated amortization was $143,000 and $353,000 as of December 31, 1994 and
1995, respectively.
F-38
<PAGE> 119
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(k) Foreign Currency Translation
The translation of the applicable foreign currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using the average
exchange rate during the period. The gains or losses resulting from such
translation are included in stockholders' (deficit) equity. Gains or losses
resulting from foreign currency transactions are included in "other income and
expense" in the statements of income.
(l) Fair Value of Financial Instruments
The fair values of financial instruments were not materially different
from their carrying values.
(m) Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid investments with
maturity dates of less than three months.
(n) Reclassifications
Where appropriate, certain items relating to the prior years have been
reclassified to conform to the presentation in the current year.
(2) INITIAL PUBLIC OFFERING
In August 1993, the Company completed an initial public offering of Common
Stock. The primary purpose of the initial public offering was to repay the
note payable, term loan, subordinated debt, and related accrued interest.
Upon the effective date of the initial public offering, the Series A and
Series B convertible preferred shares were converted into shares of Common
Stock and a reverse one-for-three Common Stock split was effected. All common
share and per share amounts in the accompanying consolidated financial
statements have been adjusted retroactively to give effect to the reverse stock
split.
(3) INTERNATIONAL SUBSIDIARIES
The net assets, net revenues and net earnings of international
subsidiaries as of and for the years ended December 31, 1993, 1994 and 1995
included in the consolidated financial statements are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1993 1994 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Working capital $ (2,178,000) $ (5,534,000) $ (3,437,000)
============== ============== =============
Excess of noncurrent assets over
noncurrent liabilities $ 1,161,000 $ 2,625,000 $ 2,458,000
============== ============== =============
Net revenues $ 19,250,000 $ 26,252,000 $ 34,574,000
============== ============== =============
Net earnings $ 528,000 $ 307,000 $ 818,000
============== ============== =============
</TABLE>
Geographic information is disclosed elsewhere in this document.
F-39
<PAGE> 120
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE
Activity in capitalized software is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance, net - beginning of year $3,660,000 $4,768,000 $7,207,000
Additions 1,730,000 2,704,000 2,613,000
Product translations 384,000 516,000 508,000
Acquired Japan product translations -- 458,000 --
Write-down to net realizable value -- -- (1,897,000)
Amortization expense charged to
cost of revenues (1,006,000) (1,239,000) (1,592,000)
----------- ----------- -----------
Balance, net - end of year $4,768,000 $7,207,000 $6,839,000
=========== =========== ===========
</TABLE>
The components of capitalized software are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1995
---------------- ---------------
<S> <C> <C>
Product translations $ 802,000 $1,096,000
Acquired Japan product translations 458,000 -
Acquired software technology 1,831,000 2,300,000
Capitalized software development costs 4,116,000 3,443,000
---------------- ---------------
Balance, net - end of period $7,207,000 $6,839,000
================ ===============
</TABLE>
Total software development costs, including amounts expensed as incurred,
amounted to approximately $8,785,000, $10,561,000 and $11,118,000, for the
years ended December 31, 1993, 1994 and 1995, respectively.
Included in acquired software technology at December 31, 1994 is
$1,000,000 related to the purchase of CHAID for Windows. The future guaranteed
obligation related to this purchase, reflected in the consolidated balance
sheet as of December 31, 1995, amounted to $550,000 and is due through 1998.
Included in acquired software technology at December 31, 1995 is $618,000
of technology resulting from the acquisition of BMDP Statistical Software, Inc.
(See Note 6).
(5) INVESTMENT IN JOINT VENTURE
In October 1988, the Company entered into a joint venture with Japan
Systems Engineering Corporation ("JSE") and formed SPSS Japan, Inc., owned
equally by JSE and the Company. An executive of JSE, the joint venture partner,
was also a shareholder in SPSS Inc. The joint venture was created for the
purposes of adapting, marketing, selling, licensing and providing technical
support and assistance in Japan for the Company's products. The investment in
SPSS Japan, Inc. was being accounted for using the equity method. As of
January 1, 1994, SPSS Japan, Inc. became a wholly-owned subsidiary of SPSS Inc.
(See note 6.)
During the year ended December 31, 1993, the Company recorded $169,000 of
royalty revenue from SPSS Japan, Inc.
F-40
<PAGE> 121
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(6) ACQUISITIONS
During the first quarter of 1994, the Company acquired the remaining
capital stock of SPSS Japan, Inc. from its joint venture partner, JSE. Results
of SPSS Japan, Inc. are consolidated in the Company's statements of income from
January 1, 1994. The purchase price for SPSS Japan, Inc. was approximately
$50,000 and approximately $1,600,000 in accrued royalties, cash advances and
interest was to be paid by SPSS Japan, Inc. to JSE over the next four years.
This acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities have been recorded at their estimated fair
values. The $961,000 excess of the purchase price over the fair market value
of the net assets acquired was recorded as goodwill.
During the third quarter of 1994, the Company acquired specific assets and
liabilities of SYSTAT, Inc. ("SYSTAT"). SYSTAT is engaged in the business of
statistical software. Results of SYSTAT are included in the Company's
statements of income from September 1, 1994. The purchase price for SYSTAT was
$1,828,000, consisting of $600,000 in cash and 150,000 shares of Common Stock
of the Company valued at $1,228,000. In addition, the Company granted options
at $9.00 per share to purchase 150,000 shares of Common Stock to the principal
owners of SYSTAT.
The SYSTAT acquisition was accounted for as a purchase and, accordingly,
the acquired assets and liabilities have been recorded at their estimated fair
values. The $1,403,000 excess of the purchase price over the fair market value
of the net assets acquired was recorded as goodwill in 1994. During 1995
certain assumed liabilities were revalued, and consequently SYSTAT goodwill was
reduced to $1,203,000.
As of December 29, 1995, the Company acquired substantially all of the
assets of one of its competitors, BMDP Statistical Software, Inc. ("BMDP"), for
$850,000 in cash to BMDP and non-competition payments to the principal
shareholder of BMDP. In addition, the Company agreed to assume approximately
$1,400,000 of BMDP's liabilities, consisting of telephone equipment and office
machine lease obligations, accounts payable and advertising fees, accrued
employment-related expenses, professional fees, and bank loan and line of
credit facilities. In the fourth quarter of 1995, the Company recorded charges
of approximately $1,051,000 representing a one-time write-off of acquired and
in-process technology and other acquisition-related charges. The BMDP
acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities have been recorded at their estimated fair values. The
$301,000 excess of the purchase price over the fair market value of the net
assets acquired was recorded as goodwill.
The pro forma impact of these acquisitions on the 1993, 1994 and 1995
consolidated statements of income is not material.
(7) LEASE COMMITMENTS
The Company leases its office facilities, storage space, and certain data
processing equipment under lease agreements expiring through the year 2000.
Minimum lease payments indicated below do not include costs such as property
taxes, maintenance, and insurance.
F-41
<PAGE> 122
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following is a schedule of future noncancelable minimum lease payments
required under operating leases as of December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
1996 $3,080,000
1997 2,730,000
1998 2,159,000
1999 515,000
2000 197,000
Thereafter --
----------
$8,681,000
==========
</TABLE>
Rent expense related to operating leases was approximately $2,660,000,
$2,915,000 and $3,242,000 during the years ended December 31, 1993, 1994, and
1995, respectively.
(8) FINANCING ARRANGEMENTS
The note payable of $2,874,000 at December 31, 1994, represents a line of
credit bearing interest at prime (8.5% at December 31, 1994 and 1995). As of
December 31, 1995, the Company owed no amounts under the line of credit. The
line of credit is collateralized by all of the Company's assets and does not
require a compensating balance, however, the Company pays a facility fee of 1/2
of 1% on the unused amount of the line of credit. At December 31, 1995, the
entire $5,000,000 of the line of credit was unused. See note 14 for further
discussion.
(9) OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
<TABLE>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995
-------------- ------------ ------------
<S> <C> <C> <C>
Interest income $ 29,000 $ 117,000 $ 294,000
Interest expense -- subordinated
debt to related parties (676,000) -- --
Other interest expense (1,008,000) (300,000) (122,000)
Amortization of deferred loan cost (409,000) -- --
Exchange gain (loss) on foreign currency
transactions (41,000) (248,000) 212,000
Stock appraisal action 60,000 (46,000) (105,000)
Japan insurance proceeds -- 186,000 --
Other -- -- 70,000
-------------- ------------ ------------
Total other income (expense) $ (2,045,000) $ (291,000) $ 349,000
============== ============ ============
</TABLE>
F-42
<PAGE> 123
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(10) INCOME TAXES
Income before income tax consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Domestic $ 3,520,000 $ 5,140,000 $ 5,513,000
Foreign 1,038,000 611,000 1,824,000
------------ ------------ ------------
$ 4,558,000 $ 5,751,000 $ 7,337,000
============ ============ ============
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Year ended December 31, 1993:
U.S. Federal $ 693,000 $ 89,000 $ 782,000
State 45,000 12,000 57,000
Foreign 549,000 (39,000) 510,000
------------ ------------ ------------
$ 1,287,000 $ 62,000 $ 1,349,000
============ ============ ============
Year ended December 31, 1994:
U.S. Federal $ 944,000 $ 500,000 $ 1,444,000
State 331,000 112,000 443,000
Foreign 304,000 -- 304,000
------------ ------------ ------------
$ 1,579,000 $ 612,000 $ 2,191,000
============ ============ ============
Year ended December 31, 1995
U.S. Federal $ 1,616,000 $ (144,000) $ 1,472,000
State 186,000 (32,000) 154,000
Foreign 1,342,000 -- 1,342,000
------------ ------------ ------------
$ 3,144,000 $ (176,000) $ 2,968,000
============ ============ ============
</TABLE>
F-43
<PAGE> 124
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the years ended December 31, 1993, 1994 and 1995, the reconciliation
of statutory to effective income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1994 1995
------------- ------------ ------------
<S> <C> <C> <C>
Income taxes using the Federal
statutory rate of 34% $ 1,550,000 $ 1,955,000 $ 2,495,000
State income taxes, net of Federal tax
benefit 38,000 292,000 102,000
Change in valuation allowance and credit
and net operating loss utilization, net (277,000) (272,000) (132,000)
Foreign taxes at net rates different
from U.S. Federal rates 157,000 96,000 722,000
Foreign tax credit - - (336,000)
Other, net (119,000) 120,000 117,000
------------- ------------ ------------
$ 1,349,000 $ 2,191,000 $ 2,968,000
============= ============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994 and
1995, are presented below:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to allowance for doubtful accounts $ 40,000 $ 123,000
Inventories, principally due to additional costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 59,000 47,000
Compensated absences, principally due to accrual for financial reporting purposes 91,000 111,000
Research and experimentation credit carryforwards 178,000 --
Alternative minimum tax credit carryforwards 171,000 --
Deferred rent 390,000 299,000
Plant and equipment, principally due to differences in depreciation and
capitalized interest 153,000 192,000
Related party accruals -- --
Deferred revenues 1,706,000 1,657,000
Write off of purchased software asset 207,000 --
Foreign currency loss 104,000 59,000
Acquisition-related items 132,000 287,000
State deferred tax asset 653,000 629,000
Non-U.S. net operating loss carryforwards 964,000 435,000
Other 22,000 21,000
--------- ---------
Total gross deferred tax assets 4,870,000 3,860,000
Less valuation allowance (4,870,000) (3,860,000)
--------- ---------
Net deferred tax assets -- --
--------- ---------
Deferred tax liabilities:
Capitalized software costs 1,641,000 1,496,000
State deferred tax liability 402,000 370,000
Other 148,000 149,000
--------- ---------
Net deferred tax liability $ 2,191,000 $ 2,015,000
========= =========
</TABLE>
During the year ended December 31, 1995, the Company's research and
experimentation carryforwards were utilized to reduce current income taxes.
F-44
<PAGE> 125
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The valuation allowance decreased $277,000, $796,000 and $1,010,000 in
1993, 1994 and 1995, respectively.
(11) CAPITAL STOCK
In conjunction with the August 1993 initial public offering, the Company
converted 52,650 shares of Series A convertible preferred stock and 60,000
shares of Series B convertible preferred stock into Common Stock at a rate of
100 shares of Common Stock for each share of preferred stock and effected a
reverse one-for-three Common Stock split, resulting in 1,755,000 and 2,000,000
shares of Common Stock, respectively.
The Company issued 2,000,000 shares of Common Stock on the August 18, 1993
effective date of the initial public offering, with an additional 266,667
shares subsequently issued to the underwriters to cover overallotments, at an
initial offering price of $8.00 per share. The Company used the net proceeds
of $15,592,000 and part of the new line of credit to retire: (i) term loan of
$7,000,000 and accrued interest of $378,000, (ii) subordinated notes of
$1,000,000 and accrued interest of $212,000, (iii) subordinated note of
$4,367,000 and subordinated obligation of $1,300,000 and accrued interest of
$1,188,000, and (iv) subordinated obligation of $375,000 and accrued interest
of $61,000, and replaced the existing revolving line of credit by repaying the
outstanding balance of $3,671,000.
Three former holders of Class B Common Stock of the Company exercised
their statutory rights to dissent from the value at which their stock was
redeemed. During 1993, the court issued an order valuing the dissenting
shareholders' stock at $20.70 per share (or $520,025 for the total stock value,
before adjustment for the above one-for-three stock split), plus interest at
the rate of 9% per annum from October 10, 1990 until payment, and awarded
attorneys fees and costs incurred by the former shareholders.
The Company filed an appeal related to this matter to challenge the trial
procedure, the court's valuation of the stock and the award of attorneys' fees
and costs. The Company had posted a bond of $1,184,000 during the pendency of
the appeal. On February 3, 1995, the Company's Petition for Leave to Appeal
was denied by the Illinois Supreme Court. Subsequently, the Company paid the
judgment and settled all remaining claims, and on April 16, 1995, the court
entered an Agreed Order of Dismissal with Prejudice of all pending claims,
defenses and counterclaims.
In February 1995, the Company and certain Selling Stockholders completed
an offering of Common Stock in which the Company sold 700,000 shares of Common
Stock and the Selling Stockholders sold 921,916 shares of Common Stock, at a
public offering price of $11.375 per share, and each sold an additional 208,287
and 35,000 shares, respectively, when the underwriters exercised their
overallotment option in March 1995. After the underwriters' discounts and
other offering expenses, the Company received approximately $9,127,000 in net
proceeds from its sale of 908,287 shares of Common Stock in the offering.
F-45
<PAGE> 126
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(12) RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIPS
The Company entered into agreements with limited partnerships in 1981,
1982 and 1985 to perform research and development for new and existing computer
software. Certain of the general and limited partners of these partnerships are
officers of the Company and under these agreements, the Company incurred
royalty expense to the partnerships of $342,000, $349,000 and $361,000, for the
years ended December 31, 1993, 1994 and 1995.
(13) STOCK OPTIONS
On January 16, 1992, the Company adopted a Stock Option Plan for certain
key employees. Options vest either immediately or over a four year period. In
September 1994, the Company granted options to purchase 150,000 shares of
Common Stock to the principal owners of SYSTAT. In addition, in June 1995, the
Shareholders of the Company adopted the 1995 Equity Incentive Plan which
authorizes the Board of Directors, under certain conditions, to grant stock
options and shares of restricted stock to directors, officers, other key
executives, employees and independent contractors. Options for 251,371,
397,570 and 547,339 common shares are vested and exercisable at December 31,
1993, 1994 and 1995, respectively.
Stock option transactions are summarized below:
<TABLE>
<CAPTION>
NUMBER OF PRICE AGGREGATE
SHARES PER SHARE PRICE
--------- --------------------- ---------------
OUTSTANDING OPTIONS
--------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 358,042 $ 1.05 $ 375,944
Options granted 206,902 1.05-8.00 912,247
Options terminated (1,000) 1.05 (1,050)
--------- ------------------ -------------
Balance, December 31, 1993 563,944 $ 1.05-8.00 $ 1,287,141
Options granted 227,500 8.625-9.125 2,053,438
Options terminated (1,224) 1.05-8.00 (5,921)
Options exercised (10,428) 1.05-8.00 (11,860)
--------- ------------------ -------------
Balance, December 31, 1994 779,792 $ 1.05-9.125 $ 3,322,798
Options granted 288,875 11.75 - 14.75 3,920,406
Options terminated (4,951) 1.05 - 14.75 (54,325)
Options exercised (20,607) 1.05 - 8.625 (36,636)
--------- ------------------ -------------
Balance, December 31, 1995 1,043,109 $ 1.05 - 14.75 $ 7,152,243
========= ================== =============
</TABLE>
(14) SUBSEQUENT EVENTS
Effective March 15, 1996, the Company established a $5,000,000 unsecured,
364-day revolving credit facility available for advances pursuant to a
definitive credit agreement. The Company pays a facility fee of 0.375% on the
unused portion of the facility. If the Company does borrow against the
facility, interest will be charged at the Bank of America reference rate (8.25%
at March 15, 1996).
F-46
<PAGE> 127
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(15) UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of the unaudited interim results of operations for
each of the quarters ended in 1994 and 1995.
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1994 1994 1995 1995 1995 1995
-------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Desktop products $7,586 $7,958 $8,942 $10,619 $10,347 $10,771 $11,594 $13,389
Large System products 2,651 2,685 2,587 2,912 2,560 2,550 2,782 2,802
Other products and services 1,226 1,410 1,476 1,705 1,855 1,703 1,187 1,489
-------- -------- -------- -------- -------- -------- -------- -------
Net revenues 11,463 12,053 13,005 15,236 14,762 15,024 15,563 17,680
Cost of revenues 1,197 1,317 1,551 1,510 1,350 1,473 1,667 1,687
-------- -------- -------- -------- -------- -------- -------- -------
Gross profit 10,266 10,736 11,454 13,726 13,412 13,551 13,896 15,993
-------- -------- -------- -------- -------- -------- -------- -------
Operating expenses:
Sales and marketing 6,082 6,570 6,818 7,458 8,204 8,412 8,182 8,489
Product development 1,552 1,784 1,829 2,176 2,021 2,130 2,386 2,077
General and administrative 992 1,073 1,040 838 1,049 1,166 1,095 1,136
Nonrecurring items (a) - - - - - - - 2,466
Acquisition-related charges (b) - - 1,928 - - - - 1,051
-------- -------- -------- -------- -------- -------- -------- -------
Operating expenses 8,626 9,427 11,615 10,472 11,274 11,708 11,663 15,219
-------- -------- -------- -------- -------- -------- -------- -------
Operating income (loss) 1,640 1,309 (161) 3,254 2,138 1,843 2,233 774
Net interest income (expense) (49) (63) (59) (58) (4) 15 69 92
Other income (expenses) (29) (10) (39) 16 67 75 (1) 36
-------- -------- -------- -------- -------- -------- -------- -------
Income (loss) before income taxes 1,562 1,236 (259) 3,212 2,201 1,933 2,301 902
Income tax expense (benefit) 624 479 (122) 1,210 755 663 788 762
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss) $938 $757 $(137) $2,002 $1,446 $1,270 $1,513 $140
======== ======== ======== ======== ======== ======== ======== =======
Net earnings (loss) per share $0.15 $0.12 $(0.02) $0.30 $0.20 $0.17 $0.20 $0.02
======== ======== ======== ======== ======== ======== ======== =======
Shares used in per share calculation 6,461 6,468 6,173 6,710 7,164 7,685 7,746 7,796
======== ======== ======== ======== ======== ======== ======== =======
<CAPTION>
AS A PERCENTAGE OF NET REVENUES
-------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1994 1994 1995 1995 1995 1995
-------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Desktop products 66.2% 66.0% 68.8% 69.7% 70.1% 71.7% 74.5% 75.7%
Large System products 23.1% 22.3% 19.9% 19.1% 17.3% 17.0% 17.9% 15.9%
Other products and services 10.7% 11.7% 11.3% 11.2% 12.6% 11.3% 7.6% 8.4%
-------- -------- -------- -------- -------- -------- -------- -------
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 10.4% 10.9% 11.9% 9.9% 9.1% 9.8% 10.7% 9.5%
-------- -------- -------- -------- -------- -------- -------- -------
Gross profit 89.6% 89.1% 88.1% 90.1% 90.9% 90.2% 89.3% 90.5%
-------- -------- -------- -------- -------- -------- -------- -------
Operating expenses:
Sales and marketing 53.1% 54.5% 52.4% 48.9% 55.6% 56.0% 52.6% 48.0%
Product development 13.5% 14.8% 14.1% 14.3% 13.7% 14.2% 15.3% 11.8%
General and administrative 8.7% 8.9% 8.0% 5.5% 7.1% 7.7% 7.0% 6.4%
Nonrecurring items (a) - - - - - - - 14.0%
Acquisition-related charges (b) - - 14.8% - - - - 5.9%
-------- -------- -------- -------- -------- -------- -------- -------
Operating expenses 75.3% 78.2% 89.3% 68.7% 76.4% 77.9% 74.9% 86.1%
-------- -------- -------- -------- -------- -------- -------- -------
Operating income (loss) 14.3% 10.9% (1.2%) 21.4% 14.5% 12.3% 14.4% 4.4%
Net interest income (expense) (0.4%) (0.5%) (0.5%) (0.4%) - 0.1% 0.4% 0.5%
Other income (expense) (0.3%) (0.1%) (0.3%) 0.1% 0.4% 0.5% - 0.2%
-------- -------- -------- -------- -------- -------- -------- -------
Income (loss) before income taxes 13.6% 10.3% (2.0%) 21.1% 14.9% 12.9% 14.8% 5.1%
Income tax expense (benefit) 5.4% 4.0% (0.9%) 8.0% 5.1% 4.4% 5.1% 4.3%
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss) 8.2% 6.3% (1.1%) 13.1% 9.8% 8.5% 9.7% 0.8%
======== ======== ======== ======== ======== ======== ======== =======
</TABLE>
(a) Write-off in December 1995, principally of certain software assets
capitalized more than two years ago.
(b) Write-off in September 1994, principally of acquired and in-process
technology in conjunction with the acquisition of SYSTAT, Inc.
Write-off in December 1995, principally of acquired and in-process
technology in conjunction with the acquisition of BMDP Statistical
Software, Inc.
F-47
<PAGE> 128
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
SPSS Inc.:
We have reviewed the consolidated balance sheet of SPSS Inc. and subsidiaries
as of June 30, 1996, and the related consolidated statements of income for the
three-month and six-month periods ended June 30, 1995 and 1996 and cash flows
for the six-month periods ended June 30, 1995 and 1996. These consolidated
financial statements are the responsibility of SPSS Inc.'s management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above, for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of SPSS Inc. and subsidiaries as of
December 31, 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended and in our report
dated February 21, 1996, except as to Note 14 which is as of March 15, 1996,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1995, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
KPMG PEAT MARWICK LLP
Chicago, Illinois
August 2, 1996
F-48
<PAGE> 129
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,778 $ 11,511
Accounts receivable, net of allowances 12,252 12,083
Inventories 1,590 1,387
Prepaid expenses and other current assets 1,469 1,914
-------- --------
Total current assets 26,089 26,895
-------- --------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Furniture, fixtures and office equipment 3,494 3,641
Computer equipment and software 8,609 9,648
Leasehold improvements 1,413 1,483
-------- --------
13,516 14,772
Less: Accumulated depreciation and amortization 9,179 9,795
-------- --------
Net equipment and leasehold improvements 4,337 4,977
-------- --------
Capitalized software development costs, net of
accumulated amortization 6,839 6,748
Goodwill, net of accumulated amortization 2,113 1,989
Other assets 1,999 1,889
-------- --------
$ 41,377 $ 42,498
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 2,331 $ 2,487
Accrued royalties 496 430
Accrued rent 921 793
Other accrued liabilities 8,785 6,735
Income taxes and value added taxes payable 2,262 2,988
Customer advances 295 195
Deferred revenues 6,485 5,348
-------- --------
Total current liabilities 21,575 18,976
-------- --------
Deferred income taxes 2,015 2,015
Other noncurrent liabilities 288 162
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
authorized; 7,148,891 and 7,174,481 shares issued and 71 72
outstanding in 1995 and 1996, respectively
Additional paid-in-capital 37,126 37,416
Cumulative foreign currency translation adjustments (699) (867)
Accumulated deficit (18,999) (15,276)
-------- --------
Total stockholders' equity 17,499 21,345
-------- --------
$ 41,377 $ 42,498
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE> 130
<TABLE>
<CAPTION>
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- ---------------------------
1995 1996 1995 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Desktop products $ 10,771 $ 12,713 $ 21,118 $ 25,619
Large System products 2,550 2,612 5,110 5,467
Other products and services 1,703 1,828 3,558 3,130
------------ ----------- ----------- ------------
Net revenues 15,024 17,153 29,786 34,216
Cost of revenues 1,473 1,700 2,823 3,303
------------ ----------- ----------- ------------
Gross profit 13,551 15,453 26,963 30,913
------------ ----------- ----------- -------------
Operating expenses:
Sales and marketing 8,412 8,690 16,616 17,613
Product development 2,130 2,822 4,151 5,283
General and administrative 1,166 1,285 2,215 2,521
------------ ----------- ----------- ------------
Operating expenses 11,708 12,797 22,982 25,417
Operating income 1,843 2,656 3,981 5,496
Other income (expense):
Net interest income 15 103 11 225
Other 75 (19) 142 (69)
------------ ----------- ----------- -------------
Other income (expense) 90 84 153 156
------------ ----------- ----------- ------------
Income before income taxes 1,933 2,740 4,134 5,652
Income tax expense 663 930 1,418 1,929
------------ ----------- ----------- ------------
Net income $ 1,270 $ 1,810 2,716 $ 3,723
============ =========== =========== ============
Net income per share $ 0.17 0.23 0.37 $ 0.48
============ =========== =========== ============
Shares used in computing net income per share 7,685,380 7,863,790 7,422,396 7,818,397
============ =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE> 131
<TABLE>
<CAPTION>
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------------
1995 1996
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,716 $ 3,723
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,024 2,210
Changes in assets and liabilities, net of effects of
the purchase of BMDP Statistical Software, Inc.:
Accounts receivable 770 169
Inventories 381 203
Accounts payable (1,802) 156
Accrued royalties (90) (66)
Accrued expenses (1,035) (1,933)
Other (726) (1,523)
-------- ----------
Net cash provided by operating activities 2,238 2,939
Cash flows from investing activities: --------- ----------
Capital expenditures, net (1,458) (1,649)
Capitalized software development costs (1,441) (603)
Net payments for acquisitions -- (244)
-------- ----------
Net cash used in investing activities (2,899) (2,496)
Cash flows from financing activities: -------- ---------
Net repayments under line-of-credit agreement (2,868) --
Net proceeds from issuance of common stock 9,206 116
Income tax benefit from stock option exercises -- 174
--------- ----------
Net cash provided by financing activities 6,338 290
--------- ----------
Net change in cash 5,677 733
Cash and cash equivalents at beginning of period 1,714 10,778
--------- ----------
Cash and cash equivalents at end of period $ 7,391 $ 11,511
Supplemental disclosures of cash flow information: ========= ==========
Interest paid $ 116 $ 18
Income taxes paid 1,784 727
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-51
<PAGE> 132
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
THE ACCOMPANYING UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
REFLECT ALL ADJUSTMENTS WHICH, IN THE OPINION OF MANAGEMENT, ARE NECESSARY FOR
A FAIR PRESENTATION OF THE RESULTS OF THE INTERIM PERIODS PRESENTED. ALL SUCH
ADJUSTMENTS ARE OF A NORMAL RECURRING NATURE.
THESE CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO FOR
THE YEAR ENDED DECEMBER 31, 1995, INCLUDED IN THE COMPANY'S FORM 10-K FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION.
NOTE 2 - NET INCOME PER SHARE
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE HAS BEEN COMPUTED USING
THE WEIGHTED AVERAGE NUMBER OF COMMON AND DILUTIVE COMMON EQUIVALENT SHARES
OUTSTANDING FOR EACH PERIOD (7,863,790 SHARES FOR THE THREE MONTHS ENDED JUNE
30, 1996, 7,818,397 SHARES FOR THE SIX MONTHS ENDED JUNE 30, 1996, AND
7,685,380 AND 7,422,396 SHARES FOR THE COMPARABLE PERIODS IN 1995). COMMON
EQUIVALENT SHARES CONSIST OF THE SHARES ISSUABLE UPON EXERCISE OF STOCK OPTIONS
(USING THE TREASURY STOCK METHOD).
F-52
<PAGE> 133
Independent Auditors' Report
The Board of Directors
Jandel Corporation:
We have audited the accompanying consolidated balance sheets of Jandel
Corporation and subsidiary (the Company) as of December 31, 1994 and 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jandel
Corporation and subsidiary as of December 31, 1994 and 1995, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Jose, California
August 30, 1996
F-53
<PAGE> 134
JANDEL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
Assets 1994 1995 1996
------ ---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 630,056 $ 251,439 $ 246,331
Accounts receivable, less allowance for doubtful
accounts and sales returns of $175,000,
$229,000, and $225,000 in 1994, 1995, and
1996, respectively 988,948 1,150,969 711,912
Inventories 250,481 148,542 161,197
Prepaid expenses and other assets 61,366 89,029 124,175
----------- ---------- ----------
Total current assets 1,930,851 1,639,979 1,243,615
Property and equipment, net 425,285 391,291 409,723
Other assets 56,920 42,716 38,786
Goodwill, net of accumulated amortization of $40,160,
$50,200, and $55,220 in 1994, 1995, and 1996,
respectively 110,440 100,400 95,380
----------- ---------- ----------
Total assets $ 2,523,496 $2,174,386 $1,787,504
=========== ========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 368,142 $ 675,363 $ 479,911
Accrued liabilities 636,178 468,035 518,980
Deferred revenue 61,289 128,605 238,769
Notes payable and current portion of long-term debt 39,324 75,000 --
----------- ---------- ----------
Total current liabilities 1,104,933 1,347,003 1,237,660
Long-term debt, less current portion 51,667 -- --
Other liabilities 58,788 31,616 26,101
----------- --------- ----------
Total liabilities 1,215,388 1,378,619 1,263,761
Commitments
Shareholders's equity:
Common stock, no par value; 600,000 shares
authorized; 344,663, 344,998, and 348,634
shares issued and outstanding in 1994, 1995,
and 1996, respectively 3,043,290 3,038,214 3,066,804
Accumulated deficit (1,735,182) (2,242,447) (2,543,061)
----------- --------- ----------
Total shareholders' equity 1,308,108 795,767 523,743
----------- --------- ----------
Total liabilities and shareholders' equity $ 2,523,496 $2,174,386 $1,787,504
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-54
<PAGE> 135
JANDEL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
---------------------------------------- ------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues $7,583,406 $8,096,030 $8,009,552 $3,735,427 $4,122,695
Cost of sales 1,248,466 1,320,503 1,325,781 588,299 677,492
---------- ---------- ---------- ---------- ----------
Gross margin 6,334,940 6,775,527 6,683,771 3,147,128 3,445,203
Operating expenses:
Sales and marketing 3,065,710 3,544,821 3,833,425 1,683,059 2,145,344
Research and development 1,443,442 1,528,732 1,934,243 929,984 850,126
General and administrative 1,284,582 1,342,138 1,427,475 702,436 751,619
---------- ---------- ---------- ---------- ----------
Operating expenses 5,793,734 6,415,691 7,195,143 3,315,479 3,747,089
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations 541,206 359,836 (511,372) (168,351) (301,886)
Interest income (expense), net (23,686) 636 4,907 5,156 2,072
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes
517,520 360,472 (506,465) (163,195) (299,814)
Income taxes 7,800 800 800 800 800
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 509,720 $ 359,672 $ (507,265) $ (163,995) $ (300,614)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-55
<PAGE> 136
JANDEL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
------------------------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 509,720 $359,672 $(507,265) $(163,995) $(300,614)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 149,544 166,444 234,054 109,136 111,894
Compensation expense for issuance of
common stock -- -- 6,125 -- 24,500
Changes in operating assets and liabilities:
Accounts receivable (173,104) (125,768) (162,021) 180,056 439,057
Inventories 45,141 23,300 101,939 23,947 (12,655)
Prepaid expenses and other assets 6,408 (51,925) (27,663) (40,693) (35,146)
Accounts payable 100,217 (52,206) 307,221 98,461 (195,452)
Accrued liabilities 82,455 242,193 (168,143) (204,814) 50,945
Other liabilities 7,442 (82,799) (27,172) (22,023) (5,515)
Deferred revenue 45,720 (28,232) 67,316 23,863 110,164
--------- -------- ------- ------- -------
Net cash provided by (used in)
operating activities 773,543 450,679 (175,609) 3,938 187,178
--------- -------- ------- ------- -------
Cash flows from investing activities:
Additions to property and equipment (103,512) (254,738) (190,020) (89,692) (125,306)
(Increase) decrease in other assets (9,386) (31,522) 14,204 9,109 3,930
--------- -------- ------- ------- -------
Net cash used in investing
activities (112,898) (286,260) (175,816) (80,583) (121,376)
--------- -------- ------- ------- -------
Cash flows from financing activities:
Borrowings under notes payable and long-term
debt 50,000 -- 75,000 -- --
Payments on notes payable and long-term debt (333,718) (39,189) (90,991) (90,991) (75,000)
Principal repayments under capital lease obligations
(22,898) (3,660) -- -- --
Repayment of notes payable to related parties (100,064) (38,040) -- -- --
Proceeds from issuance of common stock upon
exercise of options 54,634 24,419 2,500 4,090
Repurchase of common stock (2,760) -- (13,701) (13,419) --
--------- -------- ------- ------- -------
Net cash used in financing
activities (354,806) (56,470) (27,192) (104,410) (70,910)
--------- -------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents 305,839 107,949 (378,617) (181,055) (5,108)
Cash and cash equivalents, beginning of year 216,268 522,107 630,056 630,056 251,439
--------- -------- ------- ------- -------
Cash and cash equivalents, end of year $ 522,107 $ 630,056 $251,439 $449,001 $246,331
========= ========= ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest $ 50,471 $ 12,515 $ 4,748 $ 2,989 $ 1,063
========= ======== ======= ======= =======
Income taxes $ 7,800 $ 800 $ 800 $ 800 $ 800
========= ======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-56
<PAGE> 137
JANDEL CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common stock Total
------------------------- Accumulated shareholders'
Shares Amount deficit equity
------ ------ ------- ------
<S> <C> <C> <C> <C>
Balances, December 31, 1992 (unaudited) 320,844 $ 2,966,997 $(2,604,574) $ 362,423
Exercise of stock options (unaudited) 19,650 54,634 - 54,634
Repurchase of common stock (unaudited) (184) (2,760) - (2,760)
Net income (unaudited) - - 509,720 509,720
---------- ----------- ----------- ----------
Balances, December 31, 1993 340,310 3,018,871 (2,094,854) 924,017
Exercise of stock options 4,353 24,419 - 24,419
Net income - - 359,672 359,672
---------- ----------- ----------- ----------
Balances, December 31, 1994 344,663 3,043,290 (1,735,182) 1,308,108
Issuance of common stock 500 6,125 6,125
Exercise of stock options 1,000 2,500 - 2,500
Repurchase of common stock (1,165) (13,701) - (13,701)
Net loss - - (507,265) (507,265)
---------- ----------- ----------- ----------
Balances, December 31, 1995 344,998 3,038,214 (2,242,447) 795,767
Issuance of common stock (unaudited) 2,000 24,500 - 24,500
Exercise of stock options
(unaudited) 1,636 4,090 - 4,090
Net loss (unaudited) - - (300,614) (300,614)
---------- ----------- ----------- ----------
Balances, June 30, 1996
(unaudited) 348,634 $ 3,066,804 $(2,543,061) $ 523,743
========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-57
<PAGE> 138
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
(Information for the year ended December 31, 1993 and as of
and for the six months ended June 30, 1995 and 1996 is unaudited.)
(1) BUSINESS OF THE COMPANY
Jandel Corporation (the Company) develops, markets, and supports a
line of graphical and statistical software products used mainly in
scientific applications. Academic and scientific institutions
constitute a substantial portion of the Company's customers. The
primary markets for the Company's products are in the United States
and Europe.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Jandel
Scientific GmbH. All material intercompany transactions and accounts
have been eliminated in consolidation.
The functional currency of the Company's foreign subsidiary is the
U.S. dollar. Adjustments arising from the translation of foreign
currency transactions at historical exchange rates are not significant
and have been charged to operations.
Unaudited Financial Information
The financial information for the year ended December 31, 1993, is
unaudited but includes all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a
fair presentation of the operating results and cash flows for the year
ended December 31, 1993.
Interim Financial Information
The interim financial information for the six months ended June 30,
1995 and 1996, is unaudited but includes all adjustments, consisting
only of normal recurring adjustments, which the Company considers
necessary for a fair presentation of the operating results and cash
flows for those periods and the financial position as of June 30, 1995
and 1996. Results for the six months ended June 30, 1996, are not
necessarily indicative of results for the entire year.
Cash and Cash Equivalents
Cash equivalents are highly liquid financial instruments with original
maturities of three months or less when purchased.
(Continued)
F-58
<PAGE> 139
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Information for the year ended December 31, 1993 and as of
and for the six months ended June 30, 1995 and 1996 is unaudited.)
Revenue Recognition
The Company recognizes software license revenues, net of an allowance
for estimated returns and cancellations, at the time the software is
delivered. Software licenses include commitments for insignificant
obligations, such as technical and other support, for which an accrual
is provided.
Deferred revenue from post contract support (PCS) agreements is
recognized ratably over the term of the related PCS agreements.
Software Development Costs
Costs incurred in the development of new software products and
enhancements to existing software products are expensed as incurred
until technological feasibility has been established. To date, the
Company's software development has been completed concurrent with the
establishment of technological feasibility, and, accordingly, no costs
have been capitalized.
Advertising
Advertising costs are expensed as incurred. Advertising expense for
the years ended December 31, 1993, 1994, and 1995, were approximately
$985,677, $1,082,000, and $1,158,000, respectively, and $410,876 and
$635,792 for the six months ended June 30, 1995 and 1996,
respectively.
Concentration of Credit Risk
The Company operates in one industry segment and sells its products
mainly to academic and scientific institutions worldwide. The Company
performs ongoing credit evaluations of its customers and does not
require collateral. The Company maintains reserves for potential
credit losses and such losses have been within management's
expectations. The majority of cash and cash equivalent balances,
which exceed federally insured limits, are held by a single financial
institution.
Inventories
Inventories, consisting primarily of finished goods and packaging
materials, are stated at the lower of cost (first-in, first-out
method) or net realizable value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
on a straight-line basis over the estimated useful lives of the
respective assets ranging from 3 to 5 years for machinery and
equipment and 10 years for furniture and fixtures. Leasehold
improvements are amortized on a straight-line basis over the lesser of
their estimated useful lives or the related lease terms.
(Continued)
F-59
<PAGE> 140
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Information for the year ended December 31, 1993 and as of
and for the six months ended June 30, 1995 and 1996 is unaudited.)
Goodwill
Goodwill, representing the excess of the purchase price over the fair
value of the net assets of the acquired entity, is being amortized on
a straight-line basis over 15 years. The Company periodically reviews
the carrying amount of this intangible asset and adjusts the carrying
amount when future undiscounted cash flows are not expected to recover
the carrying amount of the goodwill. Total amortization of goodwill
recorded was $10,040 in each of the years ended December 31, 1993,
1994, and 1995, and $5,020 in each of the six months ended June 30,
1995 and 1996.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes, which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Fair Value of Financial Instruments
For financial instruments included in the Company's consolidated
financial statements, which consisted of cash and cash equivalents,
trade accounts receivable, accounts payable, accrued liabilities, and
notes payable, the carrying amounts are a reasonable estimate of fair
value.
Stock-Based Compensation
The Company has not elected early adoption of SFAS No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 becomes effective
beginning in 1996, and will not have a material effect on the
Company's consolidated financial position or results of operations.
Upon adoption of SFAS No. 123, the Company will continue to measure
compensation expense for its stock-based employee compensation plan
using the intrinsic value method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees, and will provide pro forma
disclosures of net income as if the fair value-based method prescribed
by SFAS No. 123 had been applied in measuring compensation expense.
Uses of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates.
(Continued)
F-60
<PAGE> 141
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Information for the year ended December 31, 1993 and as of
and for the six months ended June 30, 1995 and 1996 is unaudited.)
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment $ 992,289 $ 1,159,260 $ 1,278,304
Furniture and fixtures 260,830 283,879 284,535
----------- ----------- -----------
1,253,119 1,443,139 1,562,839
Less accumulated depreciation and
amortization 827,834 1,051,848 1,153,116
----------- ----------- -----------
$ 425,285 $ 391,291 $ 409,723
=========== =========== ===========
</TABLE>
(4) ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Compensated absence accruals $ 148,893 $ 118,042 $ 124,172
Technical support 80,000 80,000 80,000
ESOP contribution (Note 7) 65,000 - -
Other 342,285 269,993 314,808
--------- --------- ---------
$ 636,178 $ 468,035 $ 518,980
========= ========= =========
</TABLE>
(5) NOTES PAYABLE AND LONG-TERM DEBT
As of December 31, 1994, long-term debt consisted of two term loans
aggregating $90,991 from a bank bearing interest at prime plus 1.75%
(10.5% as of December 31, 1994) and 9.5% per annum. On March 31,
1995, the Company fully repaid this long-term debt.
The Company has available a bank line of credit that provides for
borrowings up to $300,000, bearing interest at the bank's prime rate
plus 1.25% per annum (9.75% as of December 31, 1995), expiring January
15, 1997. The credit line is collateralized by the Company's accounts
receivable, inventory, and other assets and also requires the
maintenance of certain specified ratios and a minimum net worth, with
which the Company was in compliance as of December 31, 1995. Amounts
outstanding under this line of credit were $75,000 and $-0- as of
December 31, 1995, and June 30, 1996, respectively.
(Continued)
F-61
<PAGE> 142
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Information for the year ended December 31, 1993 and as of
and for the six months ended June 30, 1995 and 1996 is unaudited.)
(6) INCOME TAXES
The provision for income taxes for the year ended December 31, 1993 is
comprised of federal income taxes and the minimum California state
income taxes.
The provision for income taxes for 1994, and 1995, and the six months
ended June 30, 1995 and 1996, is comprised of alternative minimum
taxes and minimum California state income taxes.
The components of the deferred tax assets as of December 31, 1993,
1994, and 1995, are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Research and development credits $ 476,067 $ 563,613 $ 610,396
Accruals and reserves
256,317 201,402 203,248
Net operating loss carryforwards 132,651 29,375 164,849
State tax and other 272 19,317 6,632
---------- ---------- ----------
Total 865,307 813,707 985,125
Valuation allowance (829,123) (778,806) (968,484)
Deferred liability for property and equipment (36,184) (34,901) (16,641)
---------- ---------- ---------
Net deferred tax assets $ -- $ -- $ --
========== ========== ==========
</TABLE>
Total income tax expense differs from the amount computed by applying
the statutory federal income tax rate of 34% in 1993, 1994, and 1995
as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Computed expected tax expense $ 175,957 $ 122,560 $ (172,198)
Net operating loss carryforwards (175,957) (115,403) --
Tax credit carryforwards -- (7,157) --
Alternative minimum tax 7,000 --
Losses not utilized -- -- 172,198
Current state taxes 800 800 800
---------- ----------- ----------
$ 7,800 $ 800 $ 800
========== =========== ==========
</TABLE>
As of December 31, 1995, the Company had net operating loss
carryforwards of approximately $398,000 and $200,000 for federal and
state purposes, respectively, expiring in years 2000 through 2010. As
of December 31, 1995, the Company also had net operating loss
carryforwards for Jandel Scientific GmbH totaling approximately
$45,000.
The Company has available as of December 31, 1995, federal and state
research and experimentation tax credit carryforwards of approximately
$480,000 and $198,000, respectively, which expire in the years 2004
through 2010.
If the Company were to have an ownership change, as defined by the
Internal Revenue Code, its ability to utilize net operating loss and
credit carryforwards would be affected.
(Continued)
F-62
<PAGE> 143
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Information for the year ended December 31, 1993 and as of
and for the six months ended June 30, 1995 and 1996 is unaudited.)
(7) STOCK OPTION AND OWNERSHIP PLANS
Option Plans
The Company has reserved 82,026 shares of common stock for issuance to
employees and consultants under its Incentive Stock Option Plan and
the 1989 Employee Nonqualified Stock Option Plan. Shares available
for grant under these plans are 8,280, 5,114, 10,714, and 79 as of
December 31, 1993, 1994, and 1995 and June 30, 1996, respectively.
The Company also grants nonqualified stock options under individual
agreements with certain employees. No shares of common stock are
reserved for issuance of these option agreements.
The Company's Board of Directors has the authority to determine to
whom the options will be granted, the number of shares, the term and
the exercise price (which cannot be less than fair market value at the
date of grant in the use of incentive stock options, and 85% of fair
market value at date of grant in the case of nonqualified stock
options). Fair market value is determined annually by an independent
appraisal. The options are generally exercisable, cumulatively,
33-1/3%, 66-2/3%, and 100% one year, two years, and three years from
date of grant, respectively, and generally expire 10 years from date
of grant.
Stock option activity under the plans and individual stock option
agreements during 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
Options outstanding
------------------------
Price
Shares per share
------ ---------
<S> <C> <C>
Balances as of January 1, 1993 66,736 $ 2.50 - 13.00
Options granted 18,353 11.75
Options exercised (19,650) 2.50 - 6.25
-------
Balances as of December 31, 1993 65,439 $ 2.50 - 13.00
Options granted 4,300 11.75
Options exercised (4,353) 2.50 - 9.00
Options expired/canceled (7,334) 9.00
------
Balances as of December 31, 1994 58,052 $ 2.50 - 13.00
Options exercised (1,000) 2.50
Options expired/canceled (5,600) 9.00 - 13.00
------
Balances as of December 31, 1995 51,452 $ 2.50 - 13.00
Options granted 10,800 12.25
Options exercised (1,636) 2.50
Options expired/canceled (165) 11.75
------
Balances as of June 30, 1996 60,451 $ 2.50 - 13.00
======
Exercisable as of June 30, 1996 47,478 $ 2.50 - 13.00
======
</TABLE>
(Continued)
F-63
<PAGE> 144
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Information for the year ended December 31, 1993 and as of
and for the six months ended June 30, 1995 and 1996 is unaudited.)
Employee Stock Ownership Plan
Effective January 1, 1993, the Company adopted a nonleveraged Employee
Stock Ownership Plan (ESOP) covering employees who have met certain
eligibility requirements. Contributions to the ESOP are determined
annually by the Company's Board of Directors, based on the Company's
financial performance and condition. Contribution expense for the
years ended December 31, 1993, 1994, and 1995, was $43,240, $65,000,
and $2,000, respectively, and $-0- for each of the six months ended
June 30, 1995 and 1996. The contributions are allocated to the
participants based on compensation. Participants do not vest in their
benefits for three years and are 100% vested thereafter. There were
no shares of the Company's common stock purchased by the ESOP as of
December 31, 1993 and 1994. On July 31, 1995, the ESOP purchased
8,000 shares of common stock from existing shareholders at $12.25 per
share. Fair value of the Company's common stock is determined
annually by an independent appraisal.
(8) EMPLOYEE BENEFIT PLAN
Effective January 1, 1991, the Company adopted the Jandel Scientific
401(k) Plan (the Plan), which is intended to qualify under Section
401(k) of the Internal Revenue Code of 1986, as amended. An employee
is eligible to participate after three months of employment,
completing at least 1,000 hours of service within a plan year and
attaining the age of 21. Eligible employees may elect to contribute
to the Plan through payroll deductions, up to 20% of their
compensation, subject to certain limitations. Matching contributions
by the Company are voluntary; none were made in 1993, 1994, and 1995
and in the six months ended June 30, 1996. Company contributions do
not vest for five years and are 100% vested thereafter.
(9) COMMITMENTS
The Company leases office space in the United States and Germany under
operating leases expiring in November 1999 and August 2000,
respectively. Under the terms of the main facility lease, the Company
is responsible for its share of property taxes and operating expenses.
Both leases have the option to extend the lease for an additional
five-year term. The difference between straight-line rent expense and
scheduled rent payment increases is included in other liabilities as
of December 31, 1995.
Future minimum lease payments under these leases as of June 30, 1996,
were $128,330 due in the six months ended December 31, 1996, with the
remaining obligations for years ended December 31, as follows:
<TABLE>
<S> <C>
1997 $ $254,908
1998 254,908
Thereafter 284,249
--------
$794,065
========
</TABLE>
(Continued)
F-64
<PAGE> 145
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Information for the year ended December 31, 1993 and as of
and for the six months ended June 30, 1995 and 1996 is unaudited.)
Rent expense was approximately $280,500, $283,850, and $296,367 for
the years ended December 31, 1993, 1994, and 1995, respectively, and
$145,094 and $161,673 for the six months ended June 30, 1995 and 1996,
respectively.
(10) SEGMENT INFORMATION
The Company operates in one industry segment: developing, marketing,
and supporting graphical and statistical software products. The
distribution of revenues and operating income (loss) by geographic
area for the years ended December 31, 1993, 1994, and 1995, and assets
by geographic area for the years ended December 31, 1994 and 1995, was
as follows:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Revenues:
United States $ 6,151,231 $ 6,529,100 $ 6,333,659
Europe 1,819,479 2,141,106 2,368,723
Eliminations (387,304) (574,176) (692,830)
----------- ----------- -----------
Total revenues $ 7,583,406 $ 8,096,030 $ 8,009,552
=========== =========== ===========
Operating income (loss):
United States $ 451,610 $ 396,386 $ (534,089)
Europe 58,110 (36,550) 22,717
----------- ----------- -----------
Total operating income (loss) $ 509,720 $ 359,836 $ (511,372)
=========== =========== ===========
Identifiable assets:
United States $ 1,861,636 $ 1,434,254
Europe 661,860 740,132
----------- -----------
Total assets $ 2,523,496 $ 2,174,386
=========== ===========
</TABLE>
U.S. revenue includes export sales of $805,466, $813,344, and $795,228
in the years ended December 31, 1993, 1994, and 1995, respectively.
Export sales have been made primarily to customers in Canada,
Australia, and Japan. Intercompany sales are at prices intended to
provide a profit after marketing, support, and general and
administrative costs.
(11) SUBSEQUENT EVENT
In July 1996, the Company entered into a Letter of Intent for a plan
of merger with a publicly held software company (acquiring company).
Under terms of the Letter of Intent, the Company will exchange all its
outstanding shares of common stock and options for $9,000,000 in
common stock of the acquiring company. The Company anticipates that
the merger will be accounted for using the pooling of interests
method. Consummation of the merger is subject to several conditions,
including negotiation and execution of a definitive agreement.
F-65
<PAGE> 146
CLEAR SOFTWARE INC.
FINANCIAL STATEMENTS
<PAGE> 147
Independent Auditors' Report
The Board of Directors
Clear Software, Inc.:
We have audited the accompanying balance sheet of Clear Software, Inc., as of
December 31, 1995, and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Clear Software, Inc. at
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
August 9, 1996
F-66
<PAGE> 148
CLEAR SOFTWARE, INC.
Balance Sheet
December 31, 1995
Assets (note 5)
---------------
<TABLE>
<S> <C>
Current assets:
Cash $145,566
Trade accounts receivable, net of allowance for
doubtful accounts of $15,000 (note 9) 291,256
Inventory 24,340
--------
Total current assets 461,162
Property and equipment, net (notes 2 and 3) 5,083
--------
Total assets $466,245
========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $271,083
Accrued expenses 1,967
--------
Total current liabilities 273,050
--------
Commitments (note 4)
Stockholders' equity:
Common stock, $.001 par value, authorized 300,000 shares, issued
and outstanding 106,500 shares 107
Additional paid-in capital 16,193
Retained earnings 176,895
--------
Total stockholders' equity 193,195
--------
Total liabilities and stockholders' equity $466,245
========
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE> 149
CLEAR SOFTWARE, INC.
Statement of Income and Retained Earnings
Year ended December 31, 1995
<TABLE>
<S> <C>
Net revenues (note 9) $2,755,265
----------
Operating expenses:
Direct cost of revenues 206,136
Sales and marketing 1,772,201
Research and development 315,515
General and administrative 402,583
----------
Total operating expenses 2,696,435
----------
Operating income 58,830
----------
Other income (expense):
Interest income 1,066
Interest expense (note 5) (1,963)
Payments to a related party (note 6) (45,000)
----------
Total other expense (45,897)
----------
Net income 12,933
Retained earnings, beginning of year 175,802
Less dividends (11,840)
----------
Retained earnings, end of year $176,895
==========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE> 150
CLEAR SOFTWARE, INC.
Statement of Cash Flows
Year ended December 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $12,933
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 21,455
Stock option compensation expense 15,300
Changes in operating asset/liability accounts:
Accounts receivable (5,344)
Inventory (21,362)
Accounts payable 99,208
Accrued expenses (5,724)
--------
Net cash provided by operating activities 116,466
--------
Cash flows from investing activities:
Purchase of property and equipment (17,511)
--------
Net cash used in investing activities (17,511)
--------
Cash flows from financing activities:
Repayment of notes payable (7,200)
Dividends (11,840)
--------
Net cash used in financing activities (19,040)
--------
Net increase in cash 79,915
Cash at beginning of year 65,651
--------
Cash at end of year $145,566
========
Supplemental disclosure of cash flow information:
Cash paid for interest $181
========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 151
CLEAR SOFTWARE, INC.
Notes to Financial Statements
December 31, 1995
(1) NATURE OF BUSINESS
Clear Software, Inc. ("Clear" or the "Company") develops, markets, and
sells diagramming and flowcharting applications designed for
non-technical professionals. The Company, established in 1987, is
located in Newton, Massachusetts. The primary product, all Clear,
automatically draws charts or decision trees from text to help
businesses document their critical procedures.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company recognizes revenues from software sales upon shipment of
the software.
(b) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets
(three to seven years).
(c) Research and Development Costs
Research and development costs are charged to expense as incurred.
(d) Income Taxes
The Company is an S Corporation for income tax purposes; therefore,
federal and state income taxes are borne by the stockholders.
Distributions to shareholders are made to cover their additional
personal tax liabilities due to corporate income.
(e) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment and the related accumulated depreciation consist of
the following
<TABLE>
<S> <C>
Computer equipment $101,535
Office furniture and equipment 7,293
--------
108,828
Less accumulated depreciation 103,745
--------
$ 5,083
========
</TABLE>
(Continued)
F-70
<PAGE> 152
CLEAR SOFTWARE, INC.
Notes to Financial Statements
(4) LEASES
The Company leases office facilities and certain equipment under
noncancelable operating leases expiring in 1998. The future minimum
lease payments under these leases are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1996 $ 102,774
1997 100,023
1998 3,180
---------
Total future minimum lease payments $ 205,977
=========
</TABLE>
Rent expense amounted to $80,477 for the year ended December 31, 1995.
(5) NOTE PAYABLE TO BANK
Note payable to bank consists of borrowings under a $100,000
line-of-credit agreement. Interest is payable monthly at an annual
rate equal to 2% above the Bank's lending rate (9% at December 31,
1995). The line-of-credit is secured by the assets of the Company and
is guaranteed by certain shareholders. At December 31, 1995, there
were no outstanding borrowings under this agreement.
(6) RELATED PARTY TRANSACTIONS
The Company is related by common ownership to BZIX Development, Inc.
("BZIX") which developed the programming code for the Company's
original products. These products are no longer sold by the Company.
During 1995, the Company entered into a settlement agreement with BZIX
granting the Company the license to BZIX's programming code. The
settlement agreement requires a payment of $22,500 at execution and a
maximum monthly payment of $7,500 to BZIX for two years. The license
is considered fully paid upon the sale of the Company. During 1995,
the Company incurred expenses of $45,000 in accordance with the
agreement.
(7) STOCK OPTIONS
During 1995, the Company granted 10,500 non-qualified stock options to
three key employees at an exercise price of $.20. The options
may be exercised at various dates as specified at the time of the grant
and vest over a five month period. All options vest 100% in the event
of a change in control of ownership. If the employee's term of
employment ends, any outstanding options are canceled. At December 31,
1995, 8,500 shares were exercisable.
(Continued)
F-71
<PAGE> 153
CLEAR SOFTWARE, INC.
Notes to Financial Statements
(8) BENEFIT PLAN
In January 1996, the Company established a 401(K) plan (the "Plan")
covering all eligible employees who qualify based on age and length of
service requirements. The Plan allows employees to defer a percentage
of their annual salary. The Company may also match a percentage of
employee contributions.
(9) SIGNIFICANT CUSTOMER
One customer accounted for 22% of net sales in 1995. Included in
accounts receivable as of December 31, 1995 are amounts due from this
customer of approximately $135,000.
(10) SALE OF COMPANY
The Company is in the process of finalizing an agreement to sell all
of its outstanding common stock to SPSS, Inc. A definitive agreement
is expected to be signed in September 1996.
F-72
<PAGE> 154
CLEAR SOFTWARE INC.
Balance Sheet
June 30, 1996
(Unaudited)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------
Current assets:
Cash $ 133,696
Accounts receivable, net of allowances of $15,000 410,832
Inventory 21,270
Other assets 22,710
- --------------------------------------------------------------------------------------
Total current assets 588,508
Property and equipment, net 11,033
- --------------------------------------------------------------------------------------
$ 599,541
======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 187,108
Accrued expenses 1,511
- --------------------------------------------------------------------------------------
Total current liabilities 188,619
- --------------------------------------------------------------------------------------
Commitments --
Stockholders' equity:
Common stock, $.001 par value, authorized 300,000 shares, issued
and outstanding 106,500 shares 107
Additional paid-in capital 16,193
Retained earnings 394,622
- --------------------------------------------------------------------------------------
Total stockholders' equity 410,922
- --------------------------------------------------------------------------------------
$ 599,541
======================================================================================
</TABLE>
See accompanying notes to the unaudited financial statements.
F-73
<PAGE> 155
CLEAR SOFTWARE INC.
Statements of Income
Six months ended June 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1995 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Net revenues 1,442,280 1,659,858
Cost of revenues 87,561 93,143
- --------------------------------------------------------------------------
Gross profit 1,354,719 1,566,715
- --------------------------------------------------------------------------
Operating expenses:
Sales and marketing 836,307 972,757
Product development 139,794 176,650
General and administrative 149,988 161,582
- --------------------------------------------------------------------------
Operating expenses 1,126,089 1,310,989
- --------------------------------------------------------------------------
Operating income 228,630 255,726
- --------------------------------------------------------------------------
Other income (expense):
Interest income 802 149
Interest expense (988) (648)
Other -- (37,500)
- --------------------------------------------------------------------------
Other income (expense) (187) (37,999)
- --------------------------------------------------------------------------
Income before income taxes 228,444 217,727
Income tax expense -- --
- --------------------------------------------------------------------------
Net income $ 228,444 217,727
==========================================================================
</TABLE>
See accompanying notes to the unaudited financial statements.
F-74
<PAGE> 156
CLEAR SOFTWARE INC.
Statements of Cash Flows
Six months ended June 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 228,444 217,727
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation -- --
Changes in operating asset/liability accounts:
Accounts receivable (48,769) (119,576)
Inventories (18,504) 3,070
Accounts payable (58,774) (83,975)
Accrued expenses (6,120) (455)
Other -- (22,710)
- -----------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 96,277 (5,919)
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (5,243) (5,951)
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (5,243) (5,951)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of notes payable (7,200) --
Dividends (11,840) --
- -----------------------------------------------------------------------------------------
Net cash used in financing activities (19,040) --
- -----------------------------------------------------------------------------------------
Net change in cash and cash equivalents 71,994 (11,870)
Cash and cash equivalents at beginning of period 65,651 145,566
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 137,645 133,696
=========================================================================================
Supplemental disclosures of cash flow information:
Interest paid $ 1,660 648
=========================================================================================
</TABLE>
See accompanying notes to the unaudited financial statements.
F-75
<PAGE> 157
CLEAR SOFTWARE INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
The accompanying unaudited interim financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented. All such
adjustments are of a normal recurring nature.
These financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto for the year ended December
31, 1995 included elsewhere herein.
F-76
<PAGE> 158
ANNEX A
===============================================================
===============================================================
AGREEMENT AND PLAN OF MERGER
By and Among
SPSS INC.,
SPSS ACQUISITION INC.
and
JANDEL CORPORATION
Dated as of October 30, 1996
===============================================================
===============================================================
<PAGE> 159
TABLE OF CONTENTS
ARTICLE I
THE MERGER 1
1.1 The Merger 1
1.2 Shareholders' Meeting 2
1.3 Consummation of the Merger; Effective Date 2
1.4 Effect of the Merger 2
1.5 Closing 2
1.6 Tax and Accounting 2
ARTICLE II
ARTICLES OF INCORPORATION AND
BYLAWS OF THE SURVIVING CORPORATION 3
2.1 Articles of Incorporation 3
2.2 Bylaws 3
2.3 Directors and Officers 3
ARTICLE III
CONVERSION OF SHARES AND OPTIONS 3
3.1 Conversion and Cancellation of Shares, Options 3
3.2 Dissenting Shares 4
3.3 Surrender and Payment 4
3.4 Escrow. 5
3.5 Tax Withholding 5
3.6 Closing Of Jandel's Transfer Books 5
ARTICLE IV
SECURITIES MATTERS 6
4.1 Registration 6
4.2 Additional Obligations of SPSS. 7
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF JANDEL 7
5.1 Organization and Qualification. 7
5.2 Authority. 8
5.3 Capitalization 8
5.4 Title to Shares. 9
5.5 Consents and Approvals. 9
5.6 Absence of Conflicts. 9
5.7 Financial Statements; Accounts Receivable. 9
5.8 Absence of Undisclosed Liabilities. 10
5.9 Absence of Certain Changes or Events. 10
5.10 Investment in the Common Stock 12
5.11 Real and Personal Property; Inventories. 12
5.12 Patents, Trademarks, Etc. 13
5.13 Employees 14
- i -
<PAGE> 160
5.14 Contracts and Commitments. 14
5.15 Source Code 15
5.16 Licenses and Royalties 15
5.17 Adequacy of Documentation. 15
5.18 Third-Party Components in Software Programs. 16
5.19 Third-Party Interests or Marketing Rights in Software Programs. 16
5.20 No Virus Warranties 16
5.21 Software; Physical Media 16
5.22 Government Contracts. 17
5.23 Product Warranties and Liabilities 17
5.24 Insurance 17
5.25 Litigation and Administrative Proceedings 18
5.26 Tax Matters. 18
5.26.1 All Returns Filed 19
5.26.2 All Taxes Paid 19
5.26.3 Examinations, Etc. 19
5.26.4 Section 341(f) 19
5.26.5 Withholding 19
5.26.6 Foreign Person, Etc. 19
5.26.7 Parachute Payments 20
5.26.8 Accounting; Tax Attributes 20
5.26.9 Prior Consolidated Groups 20
5.26.10 Unpaid Tax 20
5.27 Compliance with Laws. 20
5.28 Environmental and Safety Matters. 21
5.29 Employee Benefits. 21
5.30 Licenses and Permits 23
5.31 Relations With Suppliers and Customers 23
5.32 Interests in Competitors, Suppliers and Customers 23
5.33 Employment Matters. 23
5.34 Discrimination; Occupational Safety; Labor 23
5.35 Related Transactions 24
5.36 Brokers and Finders. 24
5.37 Questionable Payments. 24
5.38 Books and Records. 25
5.39 Bank Accounts; Safe Deposit Boxes. 25
5.40 Full Disclosure. 25
5.41 Effect of Certificates. 25
5.42 Accounting Matters 25
5.43 Pooling of Interests Accounting 25
5.44 Material Misstatements or Omissions 26
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SPSS AND ACQUISITION 26
6.1 Organization and Qualification. 26
6.2 Authority. 26
6.3 Consents and Approvals. 26
6.4 Absence of Conflicts. 26
6.5 Capitalization 27
6.6 Reports and Financial Statement 27
- ii -
<PAGE> 161
6.7 Litigation and Administrative Proceedings. 27
6.8 Brokers and Finders. 27
6.9 Acquisition Stock. 28
6.10 Full Disclosure 28
6.11 Pooling of Interests Accounting 28
6.12 Material Misstatements or Omissions 28
6.13 Effect of Certificates. 28
6.14 Accounting Matters 28
ARTICLE VII
COVENANTS RELATING TO CONDUCT OF BUSINESS 29
7.1 Conduct of Business 29
ARTICLE VIII
COVENANTS OF JANDEL 32
8.1 Consents and Approvals. 32
8.2 Closing Returns 32
8.3 Access to Information 32
ARTICLE IX
COVENANTS OF SPSS AND ACQUISITION 33
9.1 Consents and Approvals. 33
9.2 Retention of Records 33
9.3 Mailing Lists 33
9.4 Termination Agreements 33
9.5 Severance Packages 34
ARTICLE X
MUTUAL COVENANTS 34
10.1 Confidentiality. 34
10.2 Consistent Tax Reporting 35
10.3 Cooperation 35
ARTICLE XI
CONDITIONS TO OBLIGATIONS OF JANDEL 35
11.1 Representations and Warranties. 35
11.2 Performance. 35
11.3 Filings; Consents; Waiting Periods. 35
11.4 Tax Opinion. 35
11.5 Pooling 35
11.6 No Litigation. 36
11.7 Delivery 36
11.8 Shareholder Approval 36
11.9 Form S-4 36
- iii -
<PAGE> 162
ARTICLE XII
CONDITIONS TO OBLIGATIONS OF SPSS 36
12.1 Representations and Warranties. 36
12.2 Performance. 37
12.3 Filings; Consents; Waiting Periods. 37
12.4 No Litigation. 37
12.5 Legal Opinion 37
12.6 Due Diligence Investigation 37
12.7 Pooling 37
12.8 Shareholder Approval 38
12.9 Affiliates and Certain Shareholders 38
12.10 Form S-4 38
12.11 Delivery 38
12.12 Non-Competition Agreement 38
ARTICLE XIII
CLOSING DELIVERIES 39
13.1 Books and Records. 39
13.2 Legal Opinion. 39
13.3 Consents. 39
13.4 Closing Certificates. 39
13.5 Charter; Good Standing Certificates. 39
13.6 Non-Competition Agreement 39
13.7 Resignations of Jandel's Officers and Directors. 39
13.8 Affiliate Letters 39
13.9 Escrow Agreement 39
13.10 Performance. 40
13.11 Further Assurances. 40
ARTICLE XIV
SURVIVAL AND INDEMNIFICATION 40
14.1 Survival of Representations and Warranties; Covenants. 40
14.2 Indemnification. 40
14.3 Indemnification by SPSS 42
14.4 Indemnification Procedure 42
14.5 Arbitration. 44
14.6 Offset Against Unpaid Amounts. 44
ARTICLE XV
TERMINATION, AMENDMENT AND WAIVER 45
15.1 Termination 45
15.2 Effect of Termination 45
- iv -
<PAGE> 163
ARTICLE XVI
MISCELLANEOUS 45
16.1 Amendment and Modification. 45
16.2 Waiver of Compliance. 45
16.3 Expenses. 46
16.4 Notices. 46
16.5 Assignment. 47
16.6 Publicity. 47
16.7 Headings. 47
16.8 Severability. 47
16.9 Governing Law. 47
16.10 Counterparts. 48
16.11 Third Parties. 48
16.12 Entire Agreement. 48
- v -
<PAGE> 164
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 30, 1996, (the
"Agreement"), by and among Jandel Corporation, a California corporation
("Jandel"), SPSS Inc., a Delaware corporation ("SPSS") and SPSS Acquisition,
Inc., a Delaware corporation and a wholly-owned subsidiary of SPSS
("Acquisition").
W I T N E S S E T H:
WHEREAS, Jandel is engaged in the business of developing and distributing
scientific analytical software;
WHEREAS, the respective Boards of Directors of each of Jandel, SPSS and
Acquisition have determined that it is advisable and for the benefit of their
corporations and their respective shareholders that Jandel be acquired by SPSS
by means of a merger of Acquisition with and into Jandel, with Jandel being the
surviving corporation, on the terms and conditions set forth hereinafter (the
"Merger") (Jandel and Acquisition being hereinafter sometimes referred to as
the "Constituent Corporations" and Jandel as the "Surviving Corporation");
WHEREAS, SPSS and Acquisition desire to acquire from the holders (the
"Shareholders") of the outstanding capital shares of Jandel, no par value per
share (the "Shares"), the Shares in exchange for shares of common stock, $.01
par value per share of SPSS (the "Common Stock"), to be determined pursuant to
the terms set forth herein;
WHEREAS, for federal income tax purposes, it is intended that this
transaction qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that this transaction be
accounted for as a "pooling of interests".
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in reliance upon
the representations and warranties contained herein, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, on the
Effective Date (as defined in Section 1.3), Acquisition shall be merged with
and into Jandel in accordance with the applicable provisions of the General
Corporation Laws of the
<PAGE> 165
States of California ("CGCL") and Delaware ("DGCL"), and Jandel, as the
surviving corporation in the Merger shall continue its corporate existence,
and the separate existence of Acquisition shall thereupon cease and its
corporate existence shall be merged into and transferred to the Surviving
Corporation.
1.2 Shareholders' Meeting. Jandel shall take all action necessary in
accordance with applicable law and its Articles of Incorporation and By-laws to
solicit the Shareholders' approval of the Merger (the "Shareholders' Meeting").
The Board of Directors of Jandel shall recommend that Jandel's Shareholders
approve the Merger and take all lawful action to solicit such approval.
1.3 Consummation of the Merger; Effective Date. As soon as practicable
after the satisfaction or waiver of the conditions hereinafter set forth, the
parties hereto will file with the Secretary of State of the State of California
and the Secretary of State of the State of Delaware a certificate or articles
of merger or ownership and other documents (the "Merger Documents"), in such
respective forms as required by, and executed in accordance with, the relevant
provisions of the CGCL and DGCL in order to effect the Merger. The Merger
shall become effective at such time as the Merger Documents shall have been
accepted for filing with the Secretary of State of the State of California and
the Secretary of State of the State of Delaware or such other times as the
parties shall agree should be specified in the Merger Documents (the "Effective
Date").
1.4 Effect of the Merger. Upon the effectiveness of the Merger, the
Surviving Corporation shall succeed, without any other action, to all rights
and property of each of the Constituent Corporations, and shall be subject to
all the debts and liabilities of each of the Constituent Corporations in the
same manner as if the Surviving Corporation had itself incurred them, all with
the effect set forth in the CGCL and the DGCL.
1.5 Closing. Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated hereby (the "Closing") shall take
place at the offices of Ross & Hardies, Chicago, Illinois, at 9:00 a.m., on
November 29, 1996 (the "Closing Date") or such other place or time as the
parties may agree.
1.6 Tax and Accounting. The parties hereto shall each use their best
efforts to cause the transactions contemplated hereunder to be treated as (i) a
reorganization within the meaning of Section 368(a) of the Code, and (ii) to
qualify for accounting treatment as a pooling of interests.
- 2 -
<PAGE> 166
ARTICLE II
ARTICLES OF INCORPORATION AND
BY-LAWS OF THE SURVIVING CORPORATION
2.1 Articles of Incorporation. The Articles of Incorporation of Jandel as
in effect on the Effective Date shall be amended, as set forth in Exhibit A
hereto.
2.2 By-laws. The By-laws of Jandel as in effect on the Effective Date
shall be amended, as set forth in Exhibit B hereto.
2.3 Directors and Officers. The directors and officers of Acquisition
immediately prior to the Effective Date shall be the directors and officers of
the Surviving Corporation, to serve in accordance with the By-laws.
ARTICLE III
CONVERSION OF SHARES AND OPTIONS
3.1 Conversion and Cancellation of Shares, Options. As of the Effective
Date, by virtue of the Merger:
(a) Treasury Shares. All Shares which are held by Jandel as treasury
shares shall be cancelled and retired.
(b) Other Outstanding Shares. Each other outstanding Share, except those
held by Shareholders of Jandel who have validly perfected dissenters' rights
under the CGCL and have not effectively withdrawn or lost such rights, shall
be converted into the right to receive shares of Common Stock in accordance
with the provisions of Section 3.3.
(c) Capital Stock of Acquisition. Each issued and outstanding share of
capital stock of Acquisition shall be converted into one validly issued,
fully paid and nonassessable share of capital stock of the Surviving
Corporation.
(d) Options. On the Effective Date, option holders who have exercised
their options contingent on the consummation of the transactions
contemplated by this Agreement shall receive the Shares of Jandel to which
they are entitled pursuant to their options, and such Shares of Jandel issued
in respect of such options will be treated as Shares of Jandel in the manner
set forth herein as of the Effective Date. Exercising option holders shall
be subject to withholding for income taxes and may exercise their
options in the manner set forth in Section 3.5.
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<PAGE> 167
3.2 Dissenting Shares. Each Shareholder which has demanded and perfected
his demand for appraisal of his Shares in accordance with the applicable
provisions of CGCL and has not effectively withdrawn or lost his right to such
appraisal, shall be entitled only to such rights as are granted by the
applicable provisions of the CGCL. Jandel shall give SPSS prompt notice upon
receipt by Jandel of any such written demands for appraisal and withdrawals of
demands for appraisal (any Shareholder duly making such demand being
hereinafter called a "Dissenting Shareholder"). Jandel agrees that it will not
prior to or on the Effective Date, except with the prior written consent of
SPSS, voluntarily make any payment with respect to, or settle or offer to
settle, any such demands.
3.3 Surrender and Payment. As of the Effective Date of the Merger, all
Shares (including Shares issued to exercising option holders pursuant to
Section 3.1(d) hereof) shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each Shareholder of a
certificate representing any Shares of Jandel ("Certificate") shall cease to
have any rights with respect thereto (other than in accordance with Section
3.2), except the right to receive a portion of the Total Shares (as defined
hereinafter) to be issued in consideration therefor and subject to Section 3.4,
upon surrender of such Certificate, in the amounts to be determined in the
manner set forth on Schedule 3.3. For purposes herein the term "Total Shares"
shall be deemed the number of shares of SPSS Common Stock obtained by dividing
(i) 9,000,000 (or such lower figure as is obtained by subtracting the amount to
be paid to any Dissenting Shareholders), less the expenses of Jandel in respect
of the transaction, by the average closing market price of the Common Stock, as
reported on the Nasdaq National Market, for the trading days between June 3,
1996 until the earlier of (a) November 25, 1996 or (b) three (3) trading days
immediately prior to the date of the shareholder's meeting of Jandel to
consider approval of the Merger (the "Share Price"). At or prior to the
Closing, Jandel shall deliver to SPSS signed letters (or other evidence
satisfactory to SPSS) from all option holders exercising their options for
Jandel stock contingent on the consummation of the transactions contemplated by
this Agreement. As soon as practicable after the Closing Date, Jandel shall
deliver to SPSS the Certificates, representing the Shares for cancellation, and
such other documents as may reasonably be required by SPSS. At such time, SPSS
shall cause to be issued, in the name of each Shareholder who delivered a
Certificate, and each exercising option holder newly issued shares of SPSS
Common Stock in accordance with the provisions of Schedule 3.3. SPSS will hold
in escrow for the Shareholders' and Option holders' account, in the respective
amounts set forth on Schedule 3.3, ten percent (10%) of the Total Shares (the
"Escrowed Shares"), together with stock powers duly executed in blank attached,
in good form for delivery. SPSS will hold the Escrowed Shares subject to the
terms and conditions of the Escrow Agreement
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(as defined hereinafter) and Section 3.4. Until so surrendered, each
Certificate which simultaneously with or immediately prior to the Effective
Date represented Shares shall upon and after the Effective Date be deemed for
all purposes to represent and evidence only the right to receive shares of
Common Stock in accordance with this Section 3.3.
3.4 Escrow. Upon the Effective Date, Jandel shall cause the Shareholders
to pledge, and grant a first priority security interest in the Escrowed Shares
to SPSS as collateral to satisfy any post-Closing claims for breaches under
this Agreement, subject to the limitations of the Basket and the Cap. The
number of Escrowed Shares, if any, remaining after any retention made in
accordance with this Agreement will be delivered to the Shareholders and
exercising option holders, in amounts proportionate to the Shareholders' and
exercising option holders' interest in such Escrowed Shares, promptly after
the earlier of the first anniversary of the Effective Date or the date of
release of results of the first post-acquisition financial statement audit of
SPSS, except for the number of such Escrowed Shares then subject to a bona fide
dispute in connection with a claim for indemnification, made prior to the
Expiration Date (as defined herein), over which a party is entitled to such
Escrowed Shares, which shares, if any, shall be delivered to the Shareholders
and exercising option holders promptly after resolution of such dispute.
3.5 Tax Withholding. The exercise of Jandel options and the subsequent
issuance of shares of SPSS Common Stock will constitute a taxable transaction
to the exercising option holders and will be subject to any local, state and
federal tax withholding requirements. At the Closing, an exercising option
holder may elect (i) to effect a cashless exercise, with Jandel issuing to the
exercising option holders only the net number of Shares to which the option
holder would be entitled after a sufficient amount of the Shares to which the
exercising option holder would otherwise be entitled is withheld to cover the
exercise price of the option and all local, state and federal tax withholding
requirements (based on the value received by the Jandel option holder in
connection with the merger transaction) or (ii) to provide to SPSS cash in the
amount necessary to satisfy such tax withholding requirements, and in either
case, Jandel or its successor shall pay over to the appropriate taxing agencies
the appropriate amount withheld.
3.6 Closing Of Jandel's Transfer Books. On the Effective Date, the stock
transfer books of Jandel shall be closed and no transfer of Shares shall
thereafter be made.
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ARTICLE IV
SECURITIES MATTERS
4.1 Registration. As soon as reasonably practicable after the date of this
Agreement, SPSS will file with the Securities and Exchange Commission ("SEC") a
registration statement using Form S-4 (the "Form S-4" or the "Registration
Statement") which shall contain a combined prospectus/proxy statement with
respect to the merger and relating to the Total Shares, and SPSS will use all
reasonable efforts to cause the Registration Statement to become effective as
soon after such filing as practicable. Jandel agrees to provide to SPSS all
information concerning or relating to Jandel necessary for inclusion in the
Registration Statement. SPSS will promptly advise Jandel as to the time at
which the Registration Statement becomes effective and of the issuance by the
SEC of any stop order suspending the effectiveness of the Registration
Statement or the institution of any proceedings for such purpose and will use
its best efforts to prevent the issuance of any stop order and to obtain as
soon as possible the lifting thereof if issued. Until the Effective Date, SPSS
will advise Jandel promptly of any requirement by the SEC for any amendment or
supplement to the Registration Statement of additional information, and will
not at any time file any amendment or supplement to the prospectus contained
therein (or the prospectus filed pursuant to Rule 424(b) of the Securities Act
of 1933, as amended, (the "1933 Act")) (the "Prospectus") that shall not have
been previously submitted to Jandel a reasonable time prior to the proposed
filing thereof or to which Jandel shall reasonably object or which is not in
compliance with in all material respects with the 1933 Act. If any event
occurs as a result of which the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") included in the Registration Statement would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading or if it is necessary
at any time to amend the Registration Statement and the Proxy
Statement/Prospectus contained therein to comply with the 1933 Act, SPSS will
promptly notify Jandel, and SPSS will prepare an amendment or supplement to the
Registration Statement or Proxy Statement/Prospectus that will correct such
statement or omission and will use its best efforts to cause any such amendment
to become effective as promptly as possible. Jandel will provide to SPSS all
information relating to Jandel necessary to enable SPSS to prepare the
amendment or supplement to the Registration Statement or Proxy
Statement/Prospectus to correct such statement or omission and will assist SPSS
in using its best efforts to cause any such amendment to become effective as
promptly as possible. SPSS will deliver to Jandel two signed copies of the
Registration Statement and all amendments thereto, including all financial
statements and exhibits filed therewith.
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<PAGE> 170
4.2 Additional Obligations of SPSS. As soon as reasonably practicable
after the date of this Agreement, SPSS will use its best efforts to qualify the
Total Shares to be issued under the securities or "blue sky" laws of every
jurisdiction of the United States in which any shareholder of Jandel has an
address on the records of Jandel's transfer agent on the record date for
determining the Jandel shareholders entitled to notice of and to vote on the
Merger.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF JANDEL
Subject to and limited by the matters disclosed in the Disclosure Schedule
attached to this Agreement (the "Disclosure Schedule"), Jandel represents and
warrants to SPSS and Acquisition as follows:
5.1 Organization and Qualification. (a) Jandel is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has the corporate power and authority to enter into this
Agreement, to consummate the transactions contemplated hereby, to own or lease
the properties and other assets which it presently owns or leases and to carry
on its business as presently conducted.
Jandel Scientific GmbH (the "Subsidiary") is a corporation duly organized,
validly existing and in good standing under the laws of the Federal Republic of
Germany, is wholly owned by Jandel and is the only entity owned or under common
control with Jandel. Subsidiary is a corporation duly organized, validly
existing under the laws of Germany and has the power and authority to own or
lease the properties and other assets which it presently owns or leases and
to carry on its business as presently conducted.
(b) The copy of the Articles of Incorporation, as amended to date, of
Jandel, as certified by the Secretary of State of the State of California, and
of the By-Laws, as amended to date, of Jandel, as certified by its Secretary,
as previously delivered to SPSS, are true, complete and correct copies as
amended and presently in effect. The copies of any organizational and
governing documents of the Subsidiary as certified by the appropriate
government authorities, as previously delivered to SPSS, are true, complete and
correct copies as amended and presently in effect. All minutes and consents of
the shareholders and directors of Jandel and the Subsidiary are contained in
the minute books of Jandel and the Subsidiary and said minute books have been
furnished to SPSS for examination at a reasonable time prior to the Closing.
No minutes or consents have been included in such minute books since such
examination by SPSS which have not heretofore been furnished to SPSS and no
corporate action not reflected in said minute books has been taken.
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(c) Jandel and the Subsidiary are each duly licensed or qualified to do
business as a foreign corporation, and are each in good standing, in every
jurisdiction in which each of Jandel and the Subsidiary are required to be so
licensed or qualified, except where failure to be so qualified would not have a
material adverse effect on Jandel and the Subsidiary, taken as a whole.
5.2 Authority. Subject only to the requisite approval of the Merger by
Jandel's Shareholders, Jandel has full power, capacity and authority (corporate
or otherwise) to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by all necessary action on the part of the
Board of Directors of Jandel and subject only to the requisite approval of the
Merger by Jandel Shareholders, no other proceedings (corporate or otherwise) on
the part of Jandel are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement and the other agreements
contemplated by this Agreement have been duly and validly executed and
delivered by Jandel and constitute legal, valid and binding agreements of
Jandel.
5.3 Capitalization. The entire authorized capital stock of Jandel and the
number of Shares thereof which are issued and outstanding are as follows:
<TABLE>
NUMBER OF NUMBER
AUTHORIZED SHARES ISSUED AND
OF JANDEL CLASS OUTSTANDING
<S> <C> <C>
600,000 Common Stock, no par value 351,034
</TABLE>
All of the issued and outstanding Shares of Jandel's capital stock are owned of
record and to the best knowledge of Jandel, beneficially by the Shareholders in
the respective amounts set forth in the Disclosure Schedule. Jandel owns all
of the issued and outstanding shares of the Subsidiary's capital stock (the
"Subsidiary Shares"). The Shares and the Subsidiary Shares are subject to no
restrictions on transferability other than restrictions imposed by the 1933
Act, and applicable state securities laws. All of the outstanding Shares of
capital stock of Jandel and Subsidiary Shares are duly authorized and validly
issued and outstanding, fully paid and non-assessable, and were not issued in
violation of any preemptive rights. There are no Shares of capital stock in
treasury. Except as set forth in this Agreement, there are no outstanding
options, warrants, conversion or other rights to acquire from any of the
Shareholders or Jandel, or any plans, contracts or commitments providing for
the issuance of, or the granting of, rights by any of the Shareholders or
Jandel to acquire: (i) any capital stock of Jandel (whether issued or
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unissued) or Subsidiary Shares or (ii) any securities convertible into or
exchangeable for any capital stock of Jandel or Subsidiary Shares, and there
are no Shares or Subsidiary Shares reserved for issuance. There are no
agreements or understandings with respect to the voting, holding or selling of
any Shares of capital stock of Jandel or Subsidiary Shares, or any contractual
obligations of Jandel or to the best of knowledge of Jandel, any of its
Shareholders with respect to Jandel's capital stock or Subsidiary Shares.
There are no voting trusts or proxies currently in effect with respect to the
Shares or Subsidiary Shares. No person has any right to require Jandel to
register any of its securities under the 1933 Act.
5.4 Title to Shares. To the best of Jandel's knowledge, the Shareholders
own and have good and marketable title to the Shares, free and clear of any
lien, pledge, claim, encumbrance, restriction or right of any third party of
any kind. On the Effective Date, SPSS will acquire good and marketable title
to the Shares and Subsidiary Shares, respectively, free and clear as aforesaid,
including without limitation any of the foregoing set forth in the Articles of
Incorporation of Jandel, subject to any lien, pledge, claim, encumbrance,
restriction or right of any third party of any kind of which SPSS has
knowledge. The Shares represent the only equity interest of the Shareholders
in Jandel.
5.5 Consents and Approvals. Except as set forth in this Agreement, there
is no authorization, consent, order or approval of, or notice to or filing
with, any individual or entity required to be obtained or given in order for
Jandel to consummate the transactions contemplated hereby and fully perform its
obligations hereunder.
5.6 Absence of Conflicts. The execution, delivery and performance by
Jandel of this Agreement and the consummation by Jandel of the transactions
contemplated hereby will not, with or without the giving of notice or lapse of
time or both, (i) violate any provision of law, statute, rule or regulation to
which either Jandel or the Subsidiary is or was subject, (ii) violate any
order, judgment or decree which is or was applicable to either Jandel or the
Subsidiary; (iii) conflict with or result in a breach or default under any term
or condition of the Articles of Incorporation or By-Laws of Jandel or any
organizational documents of the Subsidiary, or any material agreement or other
instrument to which either Jandel or the Subsidiary is a party or by which
either of them is bound, or (iv) cause, or give any person grounds to cause,
the maturity of any debt, liability or obligation of Jandel to be accelerated
or increase any such liability or obligation.
5.7 Financial Statements; Accounts Receivable. Jandel has previously
delivered to SPSS true and correct copies of the audited balance sheets of
Jandel and the Subsidiary, as of December 31, 1994 and December 31, 1995 and
the related audited statements
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of income, statements of retained earnings and statements of changes in
financial position for the periods ending on such dates, (collectively, the
"Financial Statements"). The Financial Statements (i) have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis, are correct and complete in all material respects and are in
accordance with the books and records of Jandel and the Subsidiary, (ii)
present fairly the financial position and condition of Jandel and the
Subsidiary and the related results of operations as at the dates and for the
periods then ended (subject to customary year-end adjustments, which
adjustments shall not be material in kind or amount) and (iii) contain no
material misstatements or omissions which under generally accepted accounting
principles would be required to be disclosed for financial statement purposes.
Subject to applicable reserves for bad debts shown on Jandel's and the
Subsidiary's latest balance sheets included in the Financial Statements, as
such reserves are adjusted from the date thereof in the ordinary course of
business, all accounts and notes receivable reflected on the balance sheets
are, and all accounts and notes receivable subsequently accruing to the
Effective Date will be, (a) valid, genuine and subsisting, (b) subject to no
known defenses, set-offs or counterclaims and (c) current and collectible.
5.8 Absence of Undisclosed Liabilities. Except as and to the extent
reserved for in the Financial Statements neither Jandel nor the Subsidiary has
any liabilities or obligations, whether accrued, absolute or contingent,
determined or undetermined, known or unknown or whether due or to become due
(including, without limitation, obligations as guarantor) other than those in
the ordinary course of business since December 31, 1995, which have not yet
been accrued or booked. Jandel does not know of any basis for the assertion of
any claim or liability relating to the businesses of either Jandel or the
Subsidiary, nor is it aware of any occurrence or fact having a material adverse
effect on the businesses of Jandel and the Subsidiary, taken as a whole, other
than general economic considerations affecting the software industry generally.
As of the date of this Agreement, neither Jandel nor the Subsidiary has
outstanding debt to any bank or other lender.
5.9 Absence of Certain Changes or Events. Since December 31, 1995, there
has not been (a) any damage, destruction or casualty loss to the properties or
assets of Jandel and the Subsidiary, taken as a whole (whether covered by
insurance or not) outside the ordinary course of business; (b) any material
adverse change in the business, assets, properties, operations, prospects or
financial condition of Jandel and the Subsidiary, taken as a whole, or any fact
or condition which could reasonably be expected to cause such a change, other
than any change, fact or condition related solely to the transactions
contemplated hereby; (c) any
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entry into any transaction, commitment or agreement (including, without
limitation, any borrowing) in excess of $100,000; or outside the ordinary
course of business of either Jandel or the Subsidiary; (d) any direct or
indirect redemption, repurchase or other acquisition for value by Jandel of its
capital stock or any agreement to take such action, or any declaration, setting
aside or payment of any dividend or other distribution in cash, stock or
property with respect to Jandel's capital stock; (e) other than increases in
base compensation and bonuses in the ordinary course of business (not
exceeding 5% per annum of the aggregate payroll), any increase in the rate or
terms of compensation payable or to become payable by either Jandel or the
Subsidiary to their respective directors, officers, employees, agents or
independent contractors or any increase in the rate or change in the terms of
any employment agreement or compensatory arrangement, or any changes in any
bonus, severance, pension, insurance or other employee benefit plan, or any
other payment or benefit made to or for any such director, officer, employee,
agent or independent contractor; (f) any sale, transfer or other disposition of
any asset of either Jandel or the Subsidiary to any party, including, without
limitation, the Shareholders, except for payment of obligations incurred, and
sale of products, in the ordinary course of business consistent with past
practices; (g)Eany amendment or termination of any material contract or
agreement to which either Jandel or the Subsidiary is a party or any
termination or waiver of any other rights of value to the businesses of either
Jandel or the Subsidiary; (h) any capital expenditure for additions to property
or equipment by either Jandel or the Subsidiary in excess of $10,000; (i) any
split, combination, exchange or reclassification of shares of capital stock of
either Jandel or the Subsidiary; (j) any issuance of capital stock of either
Jandel or the Subsidiary or of securities convertible into or rights to acquire
any such capital stock; (k) any failure by either Jandel or the Subsidiary to
pay accounts payable or other obligations in the ordinary course of business;
(l) except as set forth in subsection 5.9(c), the incurrence of any obligations
or liability (absolute or contingent) not in the ordinary course of business or
in excess of $10,000; (m) any pledge of any of the assets or properties of
either Jandel or the Subsidiary or any action or inaction which would subject
any such assets or properties to any lien, security interest, mortgage, pledge,
claim, charge or other encumbrance of any kind; other than such liens arising
in the ordinary cause of business; (n) any actual or threatened termination or
cancellation of, or modification or change in, any business relationship with
any material customer or customers of either Jandel or the Subsidiary or other
agreement or arrangement involving or related to the assets or properties of
the businesses of either Jandel or the Subsidiary in excess of $10,000; (o) any
cancellation of a debt due to, or a claim, of either Jandel or the Subsidiary,
other than by payment or other satisfaction; (p) any failure of either Jandel
or the Subsidiary to perform under, or any default by either Jandel or the
Subsidiary under, any agreement, obligation or covenant to
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<PAGE> 175
which either of them is or was bound; (q) any change in any method of
accounting or accounting practice, principle or procedure; (r)Eany action or
inaction which could reasonably be expected to cause either Jandel or the
Subsidiary to incur any tax liability out of the ordinary course of business;
(s) any other event or condition of any character which materially and
adversely affects the businesses of Jandel and the Subsidiary, taken as a
whole; or (u) any agreement, whether in writing or otherwise, to take any
action described in this Section 5.9.
5.10 Investment in the Common Stock.
Jandel has, or will prior to the Effective Date, informed the Shareholders
of the provisions of Article IV and has, or will prior to the Effective Date,
given each Shareholder the combined Proxy Statement/Prospectus on Form S-4
prepared by Jandel and SPSS and such other materials which Jandel received from
SPSS to be distributed to such Shareholders. Jandel further acknowledges that
(i) each Shareholder has been provided, or will be provided prior to the
Effective Date, an opportunity to receive such other information as each has
deemed necessary to make an informed decision to acquire the portion of Total
Shares to which it is entitled under this Agreement (the "Acquisition Stock")
pursuant to this Agreement and have had or will have had prior to the Effective
Date sufficient opportunity to ask questions and receive answers of Jandel and
SPSS, as appropriate, concerning the operations, business and financial
condition of SPSS and regarding the Merger and the business of SPSS and Jandel
and all such questions regarding Jandel have been, or prior to the Effective
Date will be, answered by Jandel, (ii) each Shareholder has been, or will be
prior to the Effective Date, informed that the Shareholders have no recourse
against SPSS for declines in the value of their investment in the Acquisition
Stock absent fraud or violations of the Federal and State securities, blue sky
and other similar laws on the part of SPSS; (iii) each Shareholder has been, or
will be prior to the Effective Date, informed that the Acquisition Stock of
SPSS being acquired pursuant to the terms of this Agreement represents an
investment in the business of SPSS, and that SPSS has made no representations
or warranties with respect to the future business performance of SPSS or the
price of its Common Stock; and (iv) each "affiliate" of Jandel has been
informed of the restrictions on the transfer of the Shares and shares of SPSS
Common Stock.
5.11 Real and Personal Property; Inventories. The Disclosure Schedule
correctly identifies (i) each lease or rental of real property held or paid by
each of Jandel and the Subsidiary; and (ii) each parcel of real property, and
each interest (other than such leases or rentals) in real property, used the
operations of the businesses of each of Jandel and the Subsidiary. All
structures described in the Disclosure Schedule and Jandel's and the
Subsidiary's use thereof conform in all material respects with all applicable
ordinances, requirements, regulations, zoning laws,
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restrictions and do not encroach on property of others, and are not encroached
upon by structures of others. No claims, charges or notice of violations have
been filed, served, made or threatened, orally or in writing, against or
relating to any such property or any of the operations conducted at any such
property (currently or in the past) as a result of (i) any violation or alleged
violation of any applicable ordinances, requirements, regulations, zoning laws,
restrictive covenants, conditions or restrictions, or (ii) as a result of any
encroachment on the property of others. The Disclosure Schedule lists all
material tangible or intangible personal property and assets of each of Jandel
and the Subsidiary. Jandel and the Subsidiary have good and marketable title
to, and are in possession of or have control over, all of their real and
personal property, none of which is held under or subject to any mortgage,
pledge, lien, lease, encumbrance, conditional sales contract or other security
arrangement. Each item of such tangible personal property and assets is in
good working order or condition, reasonable wear and tear excepted.
The inventories of each of Jandel and the Subsidiary are in all material
respects in good and merchantable condition and are of a quality suitable and
usable or saleable in the ordinary course of business for the purposes for
which such inventories are intended. The inventory is adequate for each of
Jandel's and the Subsidiary's businesses and there has been no material adverse
change in such inventories since December 31, 1995.
5.12 Patents, Trademarks, Etc. The Disclosure Schedule contains an
accurate and complete description of all domestic and foreign patents,
trademarks, current service marks, trademark registrations, logos, trade names,
assumed names, copyrights and copyright registrations and all pending
applications therefor (collectively, the "Intellectual Property"), presently
owned or held by each of Jandel and the Subsidiary or under which either Jandel
or the Subsidiary owns or holds any license, or in which either Jandel or the
Subsidiary owns or holds any direct or indirect interest; and to Jandel's
knowledge no others are necessary for the conduct of the present businesses of
either Jandel or the Subsidiary. To the best knowledge of Jandel, none of the
products manufactured, distributed or sold by either Jandel or the Subsidiary,
nor any of the Intellectual Property or other intellectual property (including
without limitation, technology, inventions, processes, designs, formulae,
know-how, trade secrets) (collectively, with the Intellectual Property, the
"Intellectual Assets"), or any of Jandel's and the Subsidiary's activities,
conflict with, infringe or otherwise violate any patents, trademarks or
copyrights, or any other rights, of any individual or entity, nor require
payments to be made to any person. Each of Jandel and the Subsidiary has the
sole and exclusive right to use, has the right and power to sell and has taken
reasonable measures to maintain and protect the Intellectual Assets; no claims
have
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<PAGE> 177
been asserted by any individual or entity with respect thereto or challenging
or questioning the validity or effectiveness of any license or agreement with
respect thereto, and, to the best knowledge of Jandel, there is no valid basis
for any such claim. To Jandel's knowledge, neither Jandel nor the Subsidiary
is using confidential information or trade secrets of any former employer of
any past or present employees engaged in businesses of either Jandel or the
Subsidiary. The items described in the Disclosure Schedule and the other
Intellectual Assets are reasonably adequate to conduct the businesses of each
of Jandel and the Subsidiary as presently conducted. Upon consummation of the
transactions contemplated hereby, SPSS will acquire good and marketable title
to all of the Intellectual Assets and the goodwill associated therewith.
5.13 Employees. All personnel, including employees, agents, consultants
and contractors, who have contributed to or participated in the conception and
development of the Intellectual Assets on behalf of either Jandel or the
Subsidiary either (a) were at such time parties to "work-for-hire" arrangements
or agreements with either Jandel or the Subsidiary, in accordance with
applicable federal and state law, that has accorded either Jandel or the
Subsidiary full, effective, exclusive and original ownership of all
intellectual property thereby arising, or (b) have executed appropriate
instruments of assignment, which are still in full force and effect, in favor
of either Jandel or the Subsidiary, as assignee, that have conveyed to either
Jandel or the Subsidiary full, effective and exclusive ownership of all
intellectual property thereby arising. Neither Jandel nor the Subsidiary owns
or has any right, license or interest, whether as a licensee, licensor or
otherwise, in any registered copyrights, patents, applications for copyrights
or patents, and designs or in any trademarks, service marks, trade names, or
applications in which such personnel have an interest. To Jandel's knowledge,
no employee of either Jandel or the Subsidiary is in violation of (i) any term
of any employment contract, any "work for hire" arrangement or agreement, or
any patent disclosure agreement or (ii) any other contract or agreement, or any
restrictive covenant relating to the rights of any such employee to be employed
by either Jandel or the Subsidiary or to use trade secrets or proprietary
information of others.
5.14 Contracts and Commitments.
(a) Other than standard form customer and distributor contracts and other
agreements entered into in the ordinary course of business, and except as set
forth in the Disclosure Schedule, neither Jandel nor the Subsidiary are parties
to any material agreements, contracts, guarantees, commitments, restrictions or
instruments of any kind ("Contracts"). A Contract shall be deemed material if
it commits Jandel or the Subsidiary to expend more than $5,000 over the life of
the Contract. True and correct copies of
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all Contracts listed on the Disclosure Schedule have been made available to
SPSS at a reasonable time prior to Closing. All of the Contracts are valid and
binding obligations of either Jandel or the Subsidiary, enforceable in
accordance with their respective terms to the extent permitted by applicable
law, and are in full force and effect and complied with. None of the
Contracts, to the best of Jandel's knowledge have, a material adverse
effect on either Jandel's or the Subsidiary's assets, properties, businesses,
financial conditions or prospects. To the best of knowledge of Jandel, no
other party to any of the Contracts is in default or breach thereof. True and
correct copies of each standard form customer and distributor contract
currently in use by each of Jandel and the Subsidiary in the conduct of its
businesses are attached to the Disclosure Schedule. Neither Jandel nor the
Subsidiary has agreed with any customer or distributor to make any variation in
any such contract which could have a material adverse effect on either Jandel's
or the Subsidiary's assets, properties, businesses, financial condition or
prospects.
(b) Neither Jandel nor the Subsidiary has given any power of attorney
(whether revocable or irrevocable) to any individual or entity.
(c) Neither Jandel nor the Subsidiary is in default, and there is no basis
for any valid claim of default on the part of Jandel or the Subsidiary, or to
the best knowledge of Jandel, in any respect under any of the Contracts.
5.15 Source Code. Each of Jandel and the Subsidiary owns all rights,
title and interest in and to the source codes for all of its software products
and has not distributed any copies of such source codes to any third parties,
and neither Jandel nor the Subsidiary has agreed to pay to any individual or
entity any royalty, commission or other amount on account of sales of their
software products.
5.16 Licenses and Royalties. Neither Jandel nor the Subsidiary is a
licensee under any license, including, without limitation, licenses with
respect to source codes used or to be used in either Jandel's or the
Subsidiary's software products, and neither has an obligation to pay royalties
to any third party in connection therewith. Neither Jandel nor the Subsidiary
has granted to any individual or entity any rights or security interests with
respect to the source codes for either Jandel's or the Subsidiary's software
products.
5.17 Adequacy of Documentation. The technical documentation includes, if
pertinent, the source code, system documentation, statements or principles of
operation, and schematics for all of the software products currently maintained
or licensed by either Jandel or the Subsidiary, as well as any pertinent
commentary or explanation that may be necessary to render
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such materials understandable and usable by a trained computer programmer
familiar with the relevant compilers, tools and platform (the "Technical
Documentation").
5.18 Third-Party Components in Software Programs. To the extent necessary
to license such software products in the ordinary course of business, each of
Jandel and the Subsidiary has validly and effectively obtained the right and
license to use, copy, modify and distribute any third-party programming and
materials contained in each of Jandel's and the Subsidiary's software products
and the Technical Documentation pursuant to licenses from third parties as set
forth in the Disclosure Schedule.
Each of Jandel's and the Subsidiary's software products and the Technical
Documentation contains no other programming or materials in which any third
party may claim superior, joint or common ownership, including any right or
license, and, do not contain derivative works of any programming or materials
not owned in their entirety by either Jandel or the Subsidiary.
5.19 Third-Party Interests or Marketing Rights in Software Programs. All
of Jandel's and the Subsidiary's standard form customer contracts constitute
only end-user agreements, each of which grants the end-user thereunder solely
the non-exclusive right and license to use an identified software product of
either Jandel or the Subsidiary and related user documentation, for internal
purposes only. There are no material contracts, agreements, licenses or other
commitments or arrangements in effect with respect to the development,
marketing, distribution, licensing, or promotion of either Jandel's or the
Subsidiary's software products or any other inventory, the Technical
Documentation, or either Jandel's or the Subsidiary's Intellectual Assets with
any independent salesperson, distributor, sublicensor, or other remarketer or
sales organization, except for Contracts identified in the Disclosure Schedule.
5.20 No Virus Warranties. To the best of knowledge of Jandel, the
software products, as delivered to SPSS, (other than the master copies of the
software products (the "Master Copies") to which the knowledge qualification
provided in this Section 5.20 does not apply) shall be free of any passwords,
keys, security devices or trap doors, and that such software shall be free from
any computer instructions (including, but not limited to, computer instructions
commonly referred to as Trojan Horses, anomalies, worms, self-destruct
mechanisms, or time/logic bombs) which are intended to interfere with or
frustrate the use of the software products, any portion thereof, or other
software or computer hardware, whether or not currently in effect with respect
to any copy of either Jandel's or the Subsidiary's software products.
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5.21 Software; Physical Media. Each of Jandel's and the Subsidiary's
software products, other than that currently under development, will operate
materially in accordance with the Technical Documentation. To Jandel's
knowledge, the software products and any licenses or other rights granted in
connection therewith, express or implied, will not infringe any other person's
intellectual property rights. The Master Copies of the software products are
free from physical defects in the media that tangibly embodies the copies.
5.22 Government Contracts. Jandel does not have knowledge of any acts,
omissions or noncompliance with regard to any applicable public contracting
statute, regulation or contract requirement (whether express or incorporated by
reference) to any contracts relating to either Jandel or the Subsidiary, its
businesses or any of its assets with any Government Contract Party (as defined
below) in either case that have led to or could lead to (a) any claim or
dispute involving either Jandel or the Subsidiary, its businesses, or any of
its assets and any Government Contract Party or (b) any suspension, debarment
or contract termination, or proceeding related thereto. Neither Jandel nor the
Subsidiary has any knowledge of any act or omission related to the marketing,
licensing, or selling of any software to a Government Contract Party related to
Jandel and the Subsidiary, or their businesses that has led to or could have
any material adverse effects on Jandel's and the Subsidiary's rights or on any
of their assets, taken as a whole. All of Jandel's and the Subsidiary's
development of technical data and computer software was developed exclusively
at private expense. For purposes of this Section 5.22, the term "Government
Contract Party" means any independent or executive agency, division,
subdivision, audit group or procuring office of the federal government,
including any prime contractor of the federal government and any higher level
subcontractor of a prime contractor of the federal government, and including
any employees or agents thereof, in each case acting in such capacity.
5.23 Product Warranties and Liabilities. Neither Jandel nor the
Subsidiary has given or made any express or implied warranties with respect to
any products licensed, distributed, offered or sold or services performed by
them, except for the limited warranties stated in standard form customer
contracts, in the forms attached to the Disclosure Schedule with modifications
that, in the aggregate, would not have a material adverse effect on business,
prospects or financial condition of either Jandel or the Subsidiary. Jandel
does not have any knowledge of any fact or of the occurrence of any event
forming the basis of any present or future claim against either Jandel or the
Subsidiary, whether or not fully covered by insurance, for liability on account
of products liability or on account of any express or implied product warranty,
except for warranty obligations and product returns in the ordinary course of
business.
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5.24 Insurance. Each of Jandel and the Subsidiary keeps all of its
businesses, operations and properties insured against loss or damage, with
responsible insurers. The Disclosure Schedule contains a description of all
insurance policies held by each of Jandel and the Subsidiary concerning its
businesses, operations and properties, true, complete and correct copies of
which have been previously provided to SPSS. All these policies are in the
respective face amounts set forth in the Disclosure Schedule and such insurance
is reasonably adequate and appropriate in accordance with sound business
practices. Each of the insurance policies referred to in the Disclosure
Schedule is in force and the premiums with respect thereto are fully paid
through the dates indicated thereon. No insurer has denied coverage or
reserved rights for any claim made by Jandel, the Subsidiary or any other
individual or entity under any insurance policies.
5.25 Litigation and Administrative Proceedings. Except as set forth in
the Disclosure Schedule, there is no claim, action, suit, proceeding or
investigation in any court or before any governmental or regulatory authority
pending or to the best knowledge of Jandel threatened against or to the best
knowledge of Jandel otherwise affecting either Jandel or the Subsidiary or
which seeks to enjoin or obtain damages in respect of the transactions
contemplated hereby. Jandel does not know nor have any reason to know of any
basis for any such claim, action, suit, proceeding or investigation. No claim,
action, suit, proceeding or investigation set forth in the Disclosure Schedule
could, if adversely decided, have a material adverse effect on the business,
properties, condition (financial or otherwise) or prospects of either Jandel or
the Subsidiary.
5.26 Tax Matters. For purposes of this Agreement:
(i) The term "Taxes" mean all federal, state, local, foreign, and
other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees,
assessments, or charges of any kind whatever, together with
any interest and any penalties, additions to tax, or
additional amounts with respect thereto, and the term "Tax"
means any one of the foregoing Taxes;
(ii) The term "Returns" means all returns, declarations, reports,
statements, and other documents required to be filed in
respect of
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Taxes, and the term "Return" means any one of the foregoing
Returns;
(iii) The term "Code" means the Internal Revenue Code of 1986, as
amended. All citations to the Code or to the regulations
promulgated thereunder shall include any amendments or any
substitute or successor provisions thereto.
5.26.1 All Returns Filed. All Returns required to be filed by or
on behalf of each of Jandel and the Subsidiary on or before the Effective Date
have been filed and such Returns are complete and accurate. No extension of
time in which to file any such Returns is currently in effect and there are not
outstanding agreements or waivers extending the statutory period of limitation
applicable to such Returns.
5.26.2 All Taxes Paid. All Taxes (and other charges) shown on such
Returns, and any deficiency assessments, penalties, interest and other charges
with respect thereto, have been paid. There are no tax liens (other than for
taxes not yet due) on any of the assets or properties of either Jandel or the
Subsidiary, and no basis exists for the imposition of any such liens.
5.26.3 Examinations, Etc. No federal, state, local, foreign or
other Returns of either Jandel or the Subsidiary for tax years that remain open
under any applicable statute of limitations have been examined by the IRS or
other pertinent tax authorities and no deficiencies have been asserted or
assessments made as a result of examinations (including all penalties and
interest). No issues have been raised by (or are currently pending before) the
IRS or any other taxing authority in connection with any of the Returns which
could reasonably be expected to have a material adverse effect on the financial
condition of either Jandel or the Subsidiary, taken as a whole, if decided
adversely to Jandel or the Subsidiary.
5.26.4 Section 341(f). Neither Jandel nor the Subsidiary has filed a
consent to the application of Section 341(f) of the Code.
5.26.5 Withholding. Jandel and the Subsidiary have withheld from its
employees and others (and timely remitted to the appropriate taxing
authorities) for all periods in compliance with all tax withholding provisions
of applicable federal, state, foreign, local and other laws (including, without
limitation, income, withholding, social security, employment and other payroll
taxes).
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5.26.6 Foreign Person, Etc. No Shareholder is a "foreign person" as
defined in Section 1445(f)(3) of the Code. Neither Jandel nor the Subsidiary
has a permanent establishment in any foreign country, as defined in the
applicable tax treaty, if any, between the United States and such foreign
country. Neither Jandel nor the Subsidiary is, and never has been, a United
States real property holding corporation within the meaning Section
897(c)(1)(A)(ii) of the Code and SPSS is not required to withhold tax on the
purchase of the Shares by reason of Section 1445 or any other provisions of the
Code. Neither Jandel nor the Subsidiary has participated in an international
boycott within the meaning of Section 999 of the Code. Neither Jandel nor the
Subsidiary has foreign assets.
5.26.7 Parachute Payments. Neither Jandel nor the Subsidiary has
made, has become obligated to make nor will, as a result of any event connected
with the acquisition of Jandel by SPSS or any other transaction contemplated
herein, make or become obligated to make any "excess parachute payment" as
defined in Section 280G of the Code.
5.26.8 Accounting; Tax Attributes. None of the assets or properties
of either Jandel or the Subsidiary (a) is tax-exempt use property within the
meaning of Section 168(h) of the Code, (b) directly or indirectly secures any
debt the interest on which is tax-exempt under Section 103(a) of the Code, or
(c) is required to be treated as property owned by another under the provisions
of former Section 168(f)(8) of the Code. Neither Jandel nor the Subsidiary has
agreed to make any adjustment under Section 481(a) of the Code. Neither Jandel
nor the Subsidiary is a party to or bound by any tax indemnity, tax sharing or
tax allocation agreement.
5.26.9 Prior Consolidated Groups. Neither Jandel nor the Subsidiary
is, and has never been, an includable corporation in an affiliated group of
corporations within the meaning of Section 1504 of the Code, except for the
affiliated group of which they are currently members.
5.26.10 Unpaid Tax. Neither Jandel's nor the Subsidiary's unpaid
taxes exceed the reserve for tax liability (excluding any reserve for deferred
taxes established to reflect temporary differences between book and tax income)
set forth or included in the most recent balance sheet included in the
Financial Statements, as that reserve is adjusted through the Effective Date,
in accordance with its past custom and practice.
5.27 Compliance with Laws. Neither Jandel nor the Subsidiary has in the
past been nor are either presently in violation of, in respect of operations,
real property, machinery, equipment, all other property, practices and all
other aspects of its businesses, any applicable law (whether statutory or
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otherwise), rule, regulation, order, ordinance, judgment or decree of any
governmental authority (federal, state, local or otherwise) (collectively,
"Laws"). Neither Jandel nor the Subsidiary has received any notification of
any asserted present or past failure of either Jandel or the Subsidiary to
comply with any of such Laws.
5.28 Environmental and Safety Matters. Each of Jandel and the Subsidiary
has complied in all material respects with all federal, state or local Laws,
regulations or ordinances relating to environmental matters ("Environmental
Laws") including, but not limited to: air pollution; water pollution; noise
control; on-site or off-site solid or hazardous waste storage, treatment,
discharge, disposal or recovery; toxic and hazardous chemical reporting; or
employee safety and hazardous material use, generation, reliance,
transportation, and reporting provisions. No notice of violation of or
potential liability resulting from any such Environmental Laws, or orders with
respect thereto, has been received by Jandel or the Subsidiary, nor is any such
notice pending or to the best of its knowledge threatened. To the best of its
knowledge, no underground or above ground storage tanks are or have been
located on the real properties described in the Disclosure Schedule attached
hereto or previously owned or operated by either Jandel or the Subsidiary.
Jandel is not aware of any generation, treatment, storage, transfer, disposal,
release or threatened release in, at, from or on such real properties of toxic
or hazardous substances by any current or previous owner or tenant of such real
properties.
5.29 Employee Benefits.
5.29.1 The Disclosure Schedule contains a written list of all employee
benefit plans relating to employee benefits with respect to which each of
Jandel and the Subsidiary is obligated or may incur any future or contingent
obligations, including, without limitation, all plans, agreements or
arrangements relating to deferred compensation, pensions, profit sharing,
retirement income or other benefits, stock purchase, stock ownership and stock
option plans, stock appreciation rights, bonuses, severance arrangements,
health and welfare benefits, insurance benefits and all other employee benefits
or fringe benefits (collectively referred to as the "Plans") having an annual
value in excess of $10,000 individually and $25,000 in the aggregate. Neither
Jandel nor the Subsidiary contributes, nor has either of them ever contributed,
to any multi-employer plan within the meaning of Section 4001(a)(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), nor are
either Jandel or the Subsidiary affiliated with any entity such that Jandel or
the Subsidiary has, or might have in the future, any multi-employer plan
withdrawal liability under Subtitle E of Part IV of ERISA.
5.29.2 Each Plan (and each trust forming a part of such Plan) has been
administered and operated in all respects in accordance with its terms and
applicable law, except where the
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failure to do so would not have a material adverse effect on the business or
financial condition of Jandel or the Subsidiary. Each Plan that is intended to
be qualified under Section 401(a) of the Code has received a favorable
determination from the Internal Revenue Service, and Jandel is not aware of any
reason why any such determination letter may not be relied upon.
5.29.3 With respect to each Plan, no person: (i) has entered into any
non-exempt "prohibited transaction," as such term is defined in ERISA and the
Code; (ii) has breached a fiduciary obligation or violated Sections 402, 403,
405, 503, 510 or 511 of ERISA; (iii) has any liability for any failure to act
or comply with the administration or investment of the assets of such Plan;
(iv) has engaged in any transactions or otherwise acted with respect to such
Plan in a manner which could subject Jandel or the Subsidiary to liability
under Sections 409 or 502 of ERISA or Sections 4972 or 4976 through 4980 of the
Code.
5.29.4 No liability to the Pension Benefit Guaranty Corporation
("PBGC") has been, or to the best knowledge of Jandel is expected to be,
incurred with respect to any Plan, except for liabilities for PBGC premiums
which may be expected to be incurred in the ordinary course of business. PBGC
has not instituted proceedings to terminate any Plan. No "reportable event,"
within the meaning of Section 4043(b) of ERISA, for which the obligation to
report to the PBGC within 30 days has not been waived by the PBGC, has occurred
with respect to any Plan. There exists no condition or set of circumstances
which presents a risk of termination or partial termination of any Plan and
which could result in a liability on the part of either Jandel or the
Subsidiary to the PBGC.
5.29.5 Full payment has been made of all amounts which either Jandel
or the Subsidiary was required under the terms of any of the Plans to have paid
as contributions to such Plans on or prior to the Effective Date, and no
"accumulated funding deficiency" (as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the Code), whether or not waived, exists with respect to any
such Plan.
5.29.6 Other than for claims in the ordinary course of business for
benefits under the Plans, there are no actions, suits, claims or proceedings,
pending or threatened, nor to the best knowledge of Jandel does there exist any
basis therefor, which may result in any material liability with respect to any
Plan to Jandel, the Subsidiary or any Plan or trust thereof.
5.29.7 The present value of accrued benefits under each Plan which is
subject to Title IV of ERISA does not presently exceed the current value of the
assets of such Plan allocable to such accrued benefits. For purposes of the
representation in the preceding sentence, the terms "current value"
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and "accrued benefit" have the meanings specified in Sections 3(26) and 3(23),
respectively, of ERISA; and "present value" shall be determined using the
actuarial assumptions which would be used by the enrolled actuary for each such
Plan in connection with determining whether such Plan satisfies the
requirements of Section 412 of the Code, determined without regard to
Subsection (b)(5)(B) thereof.
5.29.8 Except for continuation coverage under Sections 601 et seq. of
ERISA or otherwise required by law, no former employee of Jandel, the
Subsidiary or any affiliate thereof, nor any dependent of any such former
employee, is entitled to any medical, dental benefits or other welfare benefits
under any Plan.
5.30 Licenses and Permits. Jandel and the Subsidiary have all material
governmental licenses and permits and other governmental authorizations and
approvals required for the conduct of its businesses as presently conducted
("Permits"). The Disclosure Schedule includes a list of all Permits.
5.31 Relations With Suppliers and Customers. Neither Jandel nor the
Subsidiary is required to provide any bonding or other financial security
arrangements in connection with any transaction with any customer or supplier.
Neither Jandel nor the Subsidiary has received any notice that any customer or
supplier of either Jandel or the Subsidiary will cease to do business with
either Jandel or the Subsidiary or refuse to do business with SPSS or the
Surviving Corporation after the consummation of the transactions contemplated
hereby.
5.32 Interests in Competitors, Suppliers and Customers. To the best
knowledge of Jandel, none of the Shareholders nor any officer or director of
Jandel or the Subsidiary or any entity controlled by or under common control
with either Jandel or the Subsidiary has any ownership interest in any
competitor, supplier or customer of either Jandel or the Subsidiary or any
property used in the operation of either of their businesses.
5.33 Employment Matters. The Disclosure Schedule contains a list of all
oral and written employment or consulting contracts or other agreements or
arrangements providing for remuneration to which either Jandel or the
Subsidiary is a party or by which either of them is bound, and all these
contracts and arrangements are in full force and effect. There are no oral
contracts or arrangements of the type described in the preceding sentence
which, individually or in the aggregate, exceed $5,000 in value. There have
been no claims of defaults and there are no facts or conditions which if
continued, or with the giving of notice, will result in a default under these
contracts or arrangements.
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5.34 Discrimination; Occupational Safety; Labor. No person or party
(including, but not limited to, governmental agencies of any kind) has any
claim, or basis for any action or proceeding, against either Jandel or the
Subsidiary arising out of any statute, ordinance or regulation relating to
discrimination in employment or employment practices or occupational safety and
health standards (including, but without limiting the foregoing, The Fair Labor
Standards Act, as amended; Title VII of the Civil Rights Act of 1964, as
amended; 42 U.S.C. 1981 or the Age Discrimination in Employment Act of 1967, as
amended), which, if upheld, would have a material adverse effect on the assets,
properties, businesses or conditions, financial or otherwise, of either Jandel
or the Subsidiary. There is no pending or threatened federal or state equal
employment opportunity enforcement action or labor dispute, strike, or work
stoppage affecting any of businesses of either Jandel or the Subsidiary.
Neither Jandel nor the Subsidiary has any collective bargaining or similar
agreements, nor do either of them have any obligation to bargain with any labor
organization as the representative of their employees, and there is neither
pending, or to Jandel's knowledge threatened, any labor dispute, strike or work
stoppage which affects or which may affect Jandel's or the Subsidiary's
businesses or which may interfere with the continued operations of either
Jandel or the Subsidiary. No present or former employee of either Jandel or
the Subsidiary has any claim against either of them for (a) overtime pay, other
than overtime pay for the current payroll period, (b) wages or salary
(excluding bonuses and amounts accruing under pension and profit sharing plans)
for any period other than the current payroll period, (c) vacation, time off or
pay in lieu of vacation or time off, or (d) any violation of any statute,
ordinance or regulation relating to minimum wages or maximum hours of work.
5.35 Related Transactions. Neither Jandel nor the Subsidiary has made or
entered into any loan, contract, lease, commitment, arrangement or
understanding with any of its officers, directors, employees, shareholders or
any entity controlled by or under common control with either Jandel or the
Subsidiary, except normal compensation arrangements with officers, all of which
are reasonable in amount and terminable by either Jandel or the Subsidiary on
30 days' notice.
5.36 Brokers and Finders. Neither Jandel, nor the Subsidiary (nor any of
their respective officers, directors, employees, affiliates, associates, or
family members), has employed any broker, finder or investment banker, or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with this Agreement or the transactions contemplated hereby.
5.37 Questionable Payments. Neither Jandel nor the Subsidiary nor any
director, officer, agent, employee or other person associated with or acting on
behalf of either Jandel or the Subsidiary has directly or indirectly: (a) used
any corporate
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funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (b) made any unlawful payment to
government officials or employees or to political parties or campaigns from
corporate funds; (c) violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; (d) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (e) intentionally made any
false or fictitious entry on the books or records of Jandel; (f) made any
bribe, payoff, influence payment, kickback or other unlawful payment; or (g)
made any bribe or other payment of a similar or comparable nature to any person
or entity, private or public, regardless of form, to obtain favorable treatment
in securing business or to obtain special concessions or treatment. Neither
Jandel nor the Subsidiary has foreign assets.
5.38 Books and Records. The books and records of each of Jandel and the
Subsidiary have been maintained in accordance with commercially reasonable
business and bookkeeping practices and accurately reflect in all material
respects the business, assets, properties, rights, obligations, liabilities and
operations of each of Jandel and the Subsidiary.
5.39 Bank Accounts; Safe Deposit Boxes. The Disclosure Schedule include
the names and locations of all banks in which either Jandel or the Subsidiary
have accounts or safe deposit boxes and the names of all persons authorized to
draw thereon or to have access thereto.
5.40 Full Disclosure. Jandel has disclosed in, or pursuant to, this
Agreement or in the course of the due diligence investigations all facts
material to the business, operations, assets or condition (financial or
otherwise) of each of Jandel and the Subsidiary taken as a whole. To the best
knowledge of Jandel, no representation or warranty to SPSS or to Acquisition
contained in this Agreement, and no statement contained in the Disclosure
Schedule to this Agreement, any certificate, or other writing furnished to SPSS
or to Acquisition pursuant to the provisions hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein not misleading.
5.41 Effect of Certificates. All representations and warranties made in
certificates of Jandel and the officers of Jandel delivered hereunder shall be
deemed to be additional representations and warranties of Jandel.
5.42 Accounting Matters. Neither Jandel nor the Subsidiary has through
the date of this Agreement taken or agreed to take any action that (without
giving effect to this Agreement, the transactions contemplated hereby, or
actions relating thereto, or any taken or agreed to be taken by SPSS or
Acquisition) would
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prevent SPSS from accounting for the business combination to be effected by the
merger as a pooling of interests.
5.43 Pooling of Interests Accounting. Jandel has consulted with KPMG Peat
Marwick LLP as its independent auditors, regarding Jandel's ability to qualify
for pooling of interests accounting relating to the transactions contemplated
hereunder. Such auditors have not stated to Jandel any doubt that pooling of
interests accounting will be available with respect to the transactions
contemplated hereunder. Jandel presently believes that the condition precedent
contained in Section 11.5 hereof will be satisfied.
5.44 Material Misstatements or Omissions. No representation or warranty
by Jandel in this Agreement nor any documents, exhibits, certificates or
schedules furnished to either SPSS or Acquisition in connection with the
Closing, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make the statements
or facts contained therein not misleading. The copies of all documents
furnished to SPSS and Acquisition hereunder are true and complete copies of the
originals thereof in all material respects.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SPSS AND ACQUISITION
SPSS and Acquisition, jointly and severally, represent and warrant to
Jandel as follows:
6.1 Organization and Qualification. SPSS and Acquisition are each
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and have the corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby.
6.2 Authority. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by SPSS and Acquisition, and no other corporate proceedings on the
part of either SPSS or Acquisition are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by each of SPSS and Acquisition and
constitute legal, valid and binding agreements of SPSS and Acquisition.
6.3 Consents and Approvals. Except as set forth on Schedule 6.3, there is
no authorization, consent, order or approval of, or notice to or filing with,
any individual or entity required to be obtained or given in order for either
SPSS or Acquisition to
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consummate the transactions contemplated hereby and fully perform their
obligations hereunder.
6.4 Absence of Conflicts. The execution, delivery and performance by SPSS
and Acquisition of this Agreement (including, without limitation, the offering,
issuance and sale of the Acquisition Stock) and the consummation by SPSS and
Acquisition of the transactions contemplated hereby will not, with or without
the giving of notice or the lapse of time, or both, (i) violate any provision
of law, statute, rule or regulation to which either SPSS or Acquisition is or
was subject, (ii) violate any order, judgment or decree which is or was
applicable to either SPSS or Acquisition or (iii) conflict with, or result in a
breach or default under, any term or condition of the Certificates of
Incorporation or By-Laws of either SPSS or Acquisition or any material
agreement or other instrument to which either of them is a party or by which
either of them is bound.
6.5 Capitalization. The authorized capital stock of SPSS consists of
50,000,000 shares of Common Stock, of which, as of the date hereof,
approximately 7,380,000 shares were issued and outstanding. All the issued and
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable. There are no options, warrants or other rights, agreements or
commitments obligating of SPSS to issue shares of its capital stock except for
stock options to purchase approximately 1,170,000 shares of Common Stock
pursuant to various SPSS option plans and agreements and employee rights to
purchase Common Stock pursuant to SPSS' employee stock purchase plans.
6.6 Reports and Financial Statement. SPSS has previously furnished Jandel
with true and complete copies of its (i) Annual Report on Form 10-K for the
fiscal year ended DecemberE31, 1995 as filed with the SEC, and (ii) its
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June
30,1996, as filed with the SEC (collectively the "SPSS Reports"). The audited
and unaudited consolidated financial statements of SPSS (the "SPSS Financial
Statements") included or incorporated by reference into such SPSS Reports have
been prepared in accordance with generally accepted accounting principles
applied in a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of SPSS and its
consolidated subsidiaries, as of the dates thereof, and the results of their
operations and changes in financial position for the periods then ended
subject, in the case of the unaudited financial statements, to normal year-end
adjustments which are not materially adverse.
6.7 Litigation and Administrative Proceedings. There is no claim, action,
suit, proceeding or investigation in any court or before any governmental or
regulatory authority pending or threatened against or affecting either SPSS or
Acquisition which
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seeks to enjoin or obtain damages in respect of the transactions contemplated
hereby.
6.8 Brokers and Finders. Neither SPSS nor Acquisition has employed any
broker, finder or investment banker, or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with this Agreement
or the transactions contemplated by this Agreement.
6.9 Total Shares. The Total Shares, when delivered in accordance with
this Agreement, shall be duly authorized, validly issued, fully paid and
nonassessable.
6.10 Full Disclosure. No statement contained in any periodic report or
other disclosure documents filed by SPSS with the SEC and to the best knowledge
of SPSS and Acquisition, no representation or warranty of SPSS or Acquisition
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein not misleading.
6.11 Pooling of Interests Accounting. SPSS has consulted with KPMG Peat
Marwick LLP, as its independent auditors, regarding the ability to qualify for
pooling of interests accounting relating to the transactions contemplated
hereunder. Such auditors have not stated to SPSS any doubt that pooling of
interests accounting will be available with respect to the transactions
contemplated hereunder. SPSS believes that the condition precedent contained
in Section 12.8 hereof will be satisfied.
6.12 Material Misstatements or Omissions. No representation or warranty
by either SPSS or Acquisition in this Agreement nor any reports, documents,
exhibits, certificates or schedules furnished to Jandel pursuant hereto,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements or facts
contained therein not misleading. The copies of all documents furnished to
Jandel are true and complete copies of the originals thereof in all material
respects.
6.13 Effect of Certificates. All representations and warranties made in
certificates of SPSS or Acquisition and the officers of SPSS or Acquisition
delivered hereunder shall be deemed to be additional representations and
warranties of SPSS and Acquisition respectively.
6.14 Accounting Matters. SPSS has not through the date of this Agreement
taken or agreed to take any action that (without giving effect to this
Agreement, the transactions contemplated hereby, or actions relating thereto,
or any taken or agreed to be taken by Jandel) would prevent Jandel from
accounting for the
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business combination to be effected by the merger as a pooling of interests.
ARTICLE VII
COVENANTS RELATING TO CONDUCT OF BUSINESS
7.1 Conduct of Business
(a) Conduct of Business by Jandel. During the period from the date of
this Agreement to the Effective Date of the Merger, Jandel shall carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent therewith, use all
reasonable efforts to preserve intact its current business organizations, keep
available the services of its current officers and employees, and preserve its
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with it to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Date of the Merger and
shall cause the Subsidiary to do the same. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Date of the Merger, except with SPSS' consent which shall not be
unreasonably withheld, neither Jandel nor the Subsidiary shall:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock or (z) purchase, redeem or otherwise acquire any shares of
capital stock of Jandel or the Subsidiary or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities;
(ii) except upon the exercise of options outstanding as of the date of the
Agreement under and pursuant to the provisions of Article III, issue,
deliver, sell, pledge or otherwise encumber any shares of its capital stock,
any other voting securities or any securities convertible into, or any
rights, warrants, or options to acquire, any such shares, voting securities
or convertible securities;
(iii) amend its articles of incorporation, by-laws or other comparable
charter or organizational documents;
(iv) acquire or agree to acquire (x) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any
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corporation, partnership, joint venture, association or other business
organization or division thereof or (y) any assets that individual or in the
aggregate are material to either Jandel or the Subsidiary, except purchases
of inventory in the ordinary course of business consistent with past
practice;
(v) except in the ordinary course of business sell, lease, license,
mortgage or otherwise encumber or subject to any lien or otherwise dispose of
any of its properties or assets;
(vi) (x) incur any indebtedness, except for short term borrowings not
exceeding $100,000 incurred in the ordinary course of business consistent
with past practice, or (y) make any loans, advances or capital contributions
to, or investments in, any other person;
(vii) make or agree to make any equipment leases or any new capital
expenditure or capital expenditures which are individually in excess $5,000
or in the aggregate are in excess of $10,000;
(viii) make any tax election that could reasonably be expected to have a
material adverse effect or settle or compromise any income tax liability;
(ix) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent Financial Statements or incurred since the
date of such financial statements in the ordinary course of business
consistent with past practice;
(x) except in the ordinary course of business, modify, amend or terminate
any material contract or agreement to which either Jandel or the Subsidiary
is a party or waive, release or assign any material rights or claims
thereunder;
(xi) take any action that (without giving effect to any action taken or
agreed to be taken by SPSS or any of its affiliates) would prevent SPSS from
accounting for the business combination to be effected by the Merger as a
pooling of interests or from treating the Merger as a "reorganization" under
Section 386(a) of the Code; or
(xii) take any action to institute any new severance or termination pay
practices with respect to any directors, officers or employees of either
Jandel or the Subsidiary or to
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increase the benefits payable under its severance or termination pay
practices in effect on the date hereof;
(xiii) except for salary increases in the ordinary course of business and
consistent with past practice, adopt or amend, in any material respect,
except as may be required by applicable law or regulation, any collective
bargaining, bonus, profit sharing, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund, plan or arrangement for the
benefit or welfare of any directors, officers or employees; or
(xiv) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) Negotiations with Others. Prior to the Effective Date or the earlier
termination of this Agreement, Jandel shall not, directly or indirectly,
through any officer, director, employee, representative or agent thereof,
solicit or encourage (including by way of furnishing nonpublic information) or
take other action to facilitate any inquiries or the making of any proposal
that constitutes or may reasonably be expected to lead to an Acquisition
Proposal (as defined below) from any person, or engage in any discussions or
negotiations relating thereto or in furtherance thereof or accept any
acquisition proposal. For the purposes of this Agreement "Acquisition
Proposal" means inquiries or proposals regarding (i) any merger, consolidation,
sale of substantial assets or similar transactions involving either Jandel or
the Subsidiary, (ii) sale of 10% or more of the outstanding shares of capital
stock of Jandel or any shares of the capital stock of the Subsidiary or similar
transactions involving Jandel or the Subsidiary (other than issuances in
connection with the exercise of options outstanding as of the date hereof), or
(iii) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing. Jandel shall
immediately cease and cause to be terminated any existing discussions or
negotiations with any parties conducted prior to the date of this Agreement
with respect to any of the foregoing.
(c) Notification of Certain Matters. Jandel shall give prompt notice to
SPSS and Acquisition, and SPSS and Acquisition shall give prompt notice to the
Jandel of: (i) the occurrence or failure to occur, of any event which such
party believes would be likely to cause any of its representations or
warranties contained in this Agreement to be materially untrue or inaccurate
when made or as of the Effective Date and any resulting change in the
Disclosure Schedule (an "Update") and (ii) any failure of Jandel on the one
hand or SPSS and Acquisition on the other hand, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant,
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condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that failure to give such notice shall not constitute a
waiver of any defense that may be validly asserted. An Update provided in
writing to SPSS and Acquisition scheduling items that have occurred between the
date of this Agreement and the Closing Date shall be deemed to supplement and
amend the Disclosure Schedule and shall be incorporated herein, including
without limitation for purposes of determining whether any breach of any
representation or warranty shall have occurred, if such Update is acceptable to
SPSS in its sole discretion. If such Update is not acceptable to SPSS, SPSS
may at its option, terminate the Agreement and not complete the transactions
contemplated herein.
(d) Pooling Accounting. Jandel, SPSS and Acquisition each hereby agree
(i) not to take any action that would adversely affect the ability of SPSS to
treat the Merger as a pooling of interests, and (ii) to take such action as can
be taken without material expense and may be reasonably required to negate the
impact of any past actions which would adversely affect the ability of SPSS to
treat the Merger as a pooling of interests in accordance with generally
accepted accounting principles consistently applied and all published rules,
regulations and policies of the SEC.
ARTICLE VIII
COVENANTS OF JANDEL
Jandel covenants as follows:
8.1 Consents and Approvals. Jandel agrees to use all reasonable efforts
to make all registrations, filings and applications, and give all notices and
obtain all governmental and other consents, approvals, orders, qualifications
and waivers necessary for the consummation of the transactions contemplated by,
or the performance by Jandel of any of its obligations under, this Agreement,
or which may become reasonably necessary or desirable in connection with any of
the foregoing, in each case upon terms and conditions reasonably satisfactory
to SPSS and its counsel.
8.2 Closing Returns. SPSS will cooperate with Joseph Osborn and John
Osborn to file, or cause to be prepared and filed, on a timely basis all income
tax returns of Jandel and the Subsidiary for the short period ending on the
Effective Date (the "Closing Returns"). SPSS shall direct the preparation and
filing of the Closing Returns; provided, however, that payment for any Taxes to
the extent of the indemnity therefor shall be satisfied from the Escrowed
Shares.
8.3 Access to Information.
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(a) From the date of Closing to the Effective Date, Jandel shall allow
SPSS and Acquisition to have complete access upon reasonable notice at all
reasonable times to its officers, employees, agents, properties, books and
records, and shall furnish SPSS and Acquisition all financial, operating and
other data and information as SPSS or Acquisition, through its officers,
employees or agents, may reasonably request.
(b) No investigation pursuant to this Section 8.3 shall affect, add to or
subtract from any representations or warranties or the conditions to the
obligations of the parties hereto to effect the Merger.
ARTICLE IX
COVENANTS OF SPSS AND ACQUISITION
SPSS and Acquisition, jointly and severally, covenant as follows:
9.1 Consents and Approvals. SPSS and Acquisition agree to use all
reasonable efforts to make all registrations, filings and applications, and
give all notices and obtain all governmental and other consents, approvals,
orders, qualifications and waivers necessary for the consummation of the
transactions contemplated by, or the performance by SPSS and Acquisition of any
of their obligations under, this Agreement, or which may become reasonably
necessary or desirable in connection with any of the foregoing, in each case
upon terms and conditions reasonably satisfactory to Jandel and its counsel.
9.2 Retention of Records. After the Effective Date, SPSS shall cause the
Surviving Corporation to retain all of Jandel's and the Subsidiary's books and
records in its possession in accordance with SPSS's policies for retention of
its own books and records, and upon reasonable notice and during SPSS's and the
Surviving Corporation's regular business hours and at reasonable intervals,
shall cause the Surviving Corporation to provide to John Osborn and Joseph
Osborn and their respective agents and representatives designated in writing,
access to such books and records, concerning periods prior to the Effective
Date.
9.3 Mailing Lists. After the Effective Date, for as long as SPSS allows
the use of its customer lists by third parties, SPSS shall from time to time
allow Dr. John Osborn, Joseph Osborn or Westing Software to use Jandel customer
lists for periodic, approved, non-competitive mailings, at rates commensurate
with those SPSS charges other organizations for similar purposes.
9.4 Termination Agreements. Within seven (7) days of the Effective Date,
SPSS shall terminate the employment agreements with Dr. John Osborn and Anne K.
Osborn pursuant to the Termination
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Agreements ("Termination Agreements"), substantially in the form attached
hereto as Exhibit C.
9.5 Severance Packages. Within a reasonable time after the Effective Date,
SPSS shall provide reasonable severance packages to Jandel employees who are
not retained for employment with SPSS. Such severance packages will grant one
week severance pay for every year of service with Jandel. However, in no event
will an employee who is not retained for service with SPSS receive less than
one month of severance pay.
ARTICLE X
MUTUAL COVENANTS
Each of the parties hereto covenants as follows:
10.1 Confidentiality. Except as otherwise required by law or judicial or
administrative proceedings, including proceedings between the parties with
respect to the transactions contemplated hereby, and then only to the extent
specifically required by such proceedings, and except for public announcements
on the advice of counsel, each of the parties agrees not to (i) disclose any
Confidential Information (defined hereinbelow) of any other party, or the terms
of this Agreement, to any individual or entity (other than its directors,
officers, employees, agents and representatives with a need to know such
Confidential Information in order to consummate the transactions contemplated
hereby and then only if reasonable steps are taken with such parties to
preserve the confidentiality thereof) or (ii) use any Confidential Information
for any purpose other than, with respect to SPSS or Acquisition, operating the
acquired business. "Confidential Information" shall mean any secret or
confidential information of the software business, Jandel, SPSS or Acquisition,
including, but not limited to, customer information, financial information,
technical information, details or information concerning contracts, trade
secrets, marketing information or any other data, information or proprietary
information of or relating to the software business, Jandel, SPSS or
Acquisition or any affiliate thereof, or their respective products or services.
No obligations shall exist under this Agreement with respect to Confidential
Information that (i) is publicly known at the time of the disclosure or becomes
publicly known through no wrongful act or failure of Jandel, SPSS or
Acquisition, (ii) is disclosed by a third party which does not have a
confidential relationship with either Jandel, SPSS or Acquisition, and which
was rightfully acquired by such third party, or (iii) is legally compelled to
be disclosed pursuant to a subpoena, summons, order or other judicial or
governmental process, provided that the parties hereto provide prompt notice of
any such subpoena, summons, order or other judicial or governmental process
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to such other parties of the Confidential Information, so as to allow the
parties an opportunity to oppose such process.
10.2 Consistent Tax Reporting. The parties agree for tax purposes to
report the transactions contemplated by this Agreement, and to treat any
subsequent related transactions or items, in a manner consistent in all
respects with the terms and provisions of this Agreement. Each party shall
cooperate with the other parties as appropriate for all relevant tax purposes
relating to the transactions contemplated by this Agreement.
10.3 Cooperation. The parties agree to cooperate for all other
reasonable purposes after the Closing, including with respect to any audit
by any taxing authority of any of the income tax or other tax returns of Jandel
or the Subsidiary.
ARTICLE XI
CONDITIONS TO OBLIGATIONS OF JANDEL
The obligations of Jandel to consummate the transactions contemplated
hereby is subject to the satisfaction on or prior to the Closing Date of the
following conditions:
11.1 Representations and Warranties. The representations and
warranties of SPSS and Acquisition shall be materially true and accurate
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
11.2 Performance. SPSS and Acquisition shall have performed in all
material respects all covenants and agreements required by this Agreement to be
performed by them on or before the Closing Date.
11.3 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions listed on Schedule 6.3 hereto or otherwise required
of any persons or governmental authorities or private agencies in connection
with the consummation of the transactions contemplated by and the performance
by SPSS and Acquisition of their respective obligations under this Agreement
shall have been made or obtained and all applicable waiting periods shall have
expired or been terminated.
11.4 Tax Opinion. Jandel shall have received the written opinion,
dated the Closing Date, of Cooley Godward LLP ("Cooley"), special counsel to
Jandel, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code. In connection therewith, (a) Jandel
shall have received from the shareholders of Jandel, holding the
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requisite number of shares of Jandel Common Stock, Continuity of Interest
Certificates in form and substance acceptable to Jandel and (b) Jandel, SPSS
and Acquisition shall have delivered to Cooley tax representation letters in
form and substance acceptable to Cooley.
11.5 Pooling. Jandel shall have received from KPMG Peat Marwick LLP a
letter dated as of the Closing Date, in form and substance reasonably
acceptable to Jandel, stating that based on their procedures, no conditions
exist which would preclude accounting for the transaction as a pooling of
interests. No action shall have been taken by any government authority or any
statute, rule, regulation or order, promulgated or issued by any governmental
authority, or any proposal made for any such action by any governmental
authority which is reasonably likely to be put into effect, that would prevent
SPSS from accounting for the transactions contemplated hereunder as a pooling
of interests.
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11.6 No Litigation. No action, suit or proceeding shall have been
instituted by any person or entity, or threatened by any governmental agency or
body, before a court or governmental body, to restrain or prevent the
consummation of the transactions contemplated by, or the performance by SPSS or
Acquisition of their respective obligations under, this Agreement or which
seeks other relief with respect to any of such transactions or which could
reasonably be expected to have a materially adverse effect on the businesses,
results of operations, assets, financial condition or prospects of either SPSS
or Acquisition. At the Closing Date, there shall be no injunction, restraining
order or decree of any nature of any court or governmental agency or body in
effect which restrains or prohibits the consummation of the transactions
contemplated by this Agreement.
11.7 Delivery. At the Closing, the documents to be delivered by SPSS as
referenced in Article XIII shall be delivered to Jandel.
11.8 Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by the Shareholders in accordance with the CGCL and
the Articles of Incorporation and By-Laws of Jandel.
11.9 Form S-4. The Form S-4 shall have become effective and shall not be
subject to any stop order proceeding.
ARTICLE XII
CONDITIONS TO OBLIGATIONS OF SPSS AND ACQUISITION
The obligation of SPSS and Acquisition to consummate the transactions
contemplated hereby is subject to the satisfaction on or prior to the Closing
Date of the following conditions:
12.1 Representations and Warranties. The representations and warranties
of Jandel shall be materially true and accurate on and as of the Closing Date
with the same effect as though such representations and warranties had been
made on and as of such date.
12.2 Performance. Jandel shall have performed in all material respects
all covenants and agreements required by this Agreement to be performed by it
on or before the Closing Date.
12.3 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind or otherwise required of any persons or
governmental authorities or private agencies in connection with the
consummation of the transactions contemplated by, and the performance by Jandel
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of its obligations under this Agreement shall have been made or obtained and
all applicable waiting periods shall have expired or been terminated, in each
case upon terms and conditions reasonably satisfactory to SPSS.
12.4 No Litigation. No action, suit or proceeding shall have been
instituted by any person or entity, or threatened by any governmental agency or
body, before a court or governmental body, to restrain or prevent the
consummation of the transactions contemplated by, or the performance by Jandel
of its obligations under, this Agreement or which seeks other relief with
respect to any of such transactions or which could reasonably be expected to
have a materially adverse effect on the businesses, results of operations,
assets, financial condition or prospects of either Jandel or the Subsidiary,
taken as a whole. At the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or governmental agency
or body in effect which restrains or prohibits the consummation of the
transactions contemplated by this Agreement.
12.5 Legal Opinion. SPSS shall have received the written opinion, dated
the Closing Date, of Johnston, Horton and Roberts, counsel to Jandel, or other
counsel reasonably acceptable to SPSS, covering the matters set forth on
Exhibit E.
12.6 Due Diligence Investigation. SPSS shall have completed a due
diligence investigation of Jandel and the Subsidiary, the results of which
shall have been satisfactory to SPSS in its sole discretion.
12.7 Pooling. SPSS shall have received from KPMG Peat Marwick LLP a letter
dated as of the Closing Date, in form and substance reasonably acceptable to
SPSS, and stating that based on their procedures, no conditions exist which
would preclude accounting for the transaction as a pooling of interests. No
action shall have been taken by any government authority or any statute, rule,
regulation or order, promulgated or issued by any governmental authority, or
any proposal made for any such action by any governmental authority which is
reasonably likely to be put into effect, that would prevent SPSS from
accounting for the transactions contemplated hereunder as a pooling of
interests.
12.8 Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by the Shareholders in accordance with the CGCL and the
Articles of Incorporation and By-Laws of Jandel.
12.9 Affiliates and Certain Stockholders. (a) Prior to the Closing Date,
Jandel shall deliver to SPSS and Acquisition a letter identifying all persons
who are "affiliates" of Jandel for purposes of applicable interpretations
regarding the pooling-of-interests method of accounting. Jandel shall use its
best efforts
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to cause each such person to deliver to SPSS on or prior to the Closing Date a
written agreement substantially in the form attached as Exhibit F hereto (the
"Affiliate Letter"). If the Merger would otherwise qualify for
pooling-of-interests accounting treatment, the affiliate may not sell, transfer
or otherwise dispose of any Shares held by such affiliate within thirty (30)
days prior to the Closing Date and shares of SPSS Common Stock issued to such
affiliates of Jandel in exchange for Shares of Jandel shall not be transferable
until such time as financial results covering at least thirty (30) days of
combined operations of SPSS, Acquisition and Jandel have been published within
the meaning of Section 201-01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this Section 12.9, except to the extent
permitted by, and in accordance with, Accounting Series Release 135 and Staff
Accounting Bulletins 65 and 76. Any Shares of Jandel held by such affiliates
shall not be transferable, regardless of whether each such affiliate has
provided the written agreement referred to in this Section 12.9, if such
transfer, either alone or in the aggregate with other transfers by affiliates,
would preclude SPSS's ability to account for the business combination to be
effected by the Merger as a pooling of interests. Jandel shall not register
the transfer of any certificate representing capital stock of Jandel, unless
such transfer is made in compliance with the foregoing. Jandel has advised, or
prior to the Closing Date will have advised, the affiliates of the provisions
of this Section 12.9 and such affiliates have agreed, or prior to the Closing
Date will have agreed, to abide by the terms of this Section 12.9.
12.10 Form S-4. The Form S-4 shall have become effective and shall not be
subject to any stop order proceeding.
12.11 Delivery. At the Closing, the documents to be delivered by Jandel
as referenced in Article XIII shall be delivered to SPSS.
12.12 Non-Competition Agreement. At the Closing, Joseph H.K. Osborn shall
have entered into a Non-Competition Agreement with SPSS, substantially in the
form attached hereto as Exhibit D.
ARTICLE XIII
CLOSING DELIVERIES
The following deliveries shall be made at the Closing:
13.1 Books and Records. Jandel shall have caused to be delivered to SPSS
all of Jandel's and the Subsidiary's books and records, including without
limitation the stock transfer and minute books and financial records.
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13.2 Legal Opinion. Jandel shall cause to be delivered to SPSS and
Acquisition the written legal opinion of Johnston, Horton and Roberts, counsel
to Jandel, or other counsel reasonably acceptable to SPSS, covering the matters
set forth on Exhibit E.
13.3 Consents. Jandel shall deliver to SPSS and Acquisition all consents
and approvals required in connection with the performance by Jandel of its
obligations under this Agreement and the consummation by Jandel and the
Subsidiary of the transactions contemplated hereby and thereby.
13.4 Closing Certificates. Jandel shall deliver, or cause to be
delivered, to SPSS and Acquisition such closing certificates and documents as
SPSS and its counsel shall reasonably request.
13.5 Charter; Good Standing Certificates. Jandel shall cause to be
delivered to SPSS and Acquisition Jandel's Articles of Incorporation, as
amended to the Closing Date, certified by the Secretary of State of the State
of California and good standing and tax certificates from the State of
California and each other jurisdiction in which Jandel is required to be
qualified. The Subsidiary shall deliver a certificate or certificates, from
the customary public officials in Germany, certifying as to similar matters
under the laws of Germany.
13.6 Non-Competition Agreement. A fully executed copy of the
Non-Competition Agreement shall have been delivered to the respective parties
thereto in substantially the form attached hereto as Exhibit D.
13.7 Resignations of Jandel's Officers and Directors. Jandel and the
Subsidiary shall have caused to be delivered to SPSS resignations, operative as
of the Effective Date, of all the officers and directors of Jandel and the
Subsidiary.
13.8 Affiliate Letters. SPSS shall have received an executed Affiliate
Letter from each Jandel Affiliate.
13.9 Escrow Agreement. A fully executed copy of the Escrow Agreement
shall have been delivered to SPSS and Jandel, (the "Escrow Agreement"),
substantially in the form attached hereto as Exhibit G.
13.10 Performance. The parties hereto shall have performed in all
material respects all covenants and agreements required by this Agreement to be
performed by them on or before the Closing Date.
13.11 Further Assurances. Each party shall deliver, or cause to be
delivered, all other documents required to be delivered at the Closing by the
other party and shall take all other actions
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which the other parties may reasonably determine necessary or appropriate in
order to consummate fully the transactions contemplated hereby.
ARTICLE XIV
SURVIVAL AND INDEMNIFICATION
14.1 Survival of Representations and Warranties; Covenants. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the Effective Date until the earlier of
the first anniversary of the Effective Date or the date of release of results
of the first post-acquisition audit of SPSS (the "Expiration Date"). All
covenants contained herein shall survive until performed fully.
14.2 Indemnification. (a) Subject to Section 14.2 (c), SPSS and
Acquisition and their affiliates and the respective officers, directors,
employees, agents and representatives of each of the foregoing (collectively,
the "Representatives") shall be indemnified and held harmless from and against
any and all costs, expenses, losses, claims, damages, penalties, fines,
liabilities and obligations whenever arising or incurred (including, without
limitation, amounts paid in settlement, costs of investigation and attorneys'
fees and expenses) (individually, a "Loss," and collectively, "Losses"),
arising out of or relating to (i) any breach of any representation or warranty
set forth herein or in any related schedule, or set forth in any closing
certificate or other document entered into or delivered in connection with this
Agreement; (ii) any breach of any covenant, obligation or agreement of Jandel
contained in this Agreement, or set forth in any closing certificate or other
document entered into or delivered in connection with this Agreement; (iii) any
fraudulent representation or intentional misrepresentation on the part of
Jandel; (iv) any claim or cause of action by any shareholder or employee of
Jandel arising out of or related to any act or omission of Jandel prior to the
Effective Date or the transactions contemplated hereby; and (v) any tax
liability or obligation asserted against SPSS or Acquisition and arising out of
or related to tax periods ending on or prior to the Effective Date, except as
reserved for in the manner described in Section 5.26.10, or Jandel's actions or
omissions.
(b) Subject to Section 14.2 (c), SPSS, Acquisition and their affiliates
and Representatives shall be indemnified and held harmless from and against (i)
any Taxes of or incurred by either Jandel or the Subsidiary for any taxable
year or other period the Return for which was filed or due on or before the
Effective Date; (ii) any Taxes incurred by either Jandel or the Subsidiary for
any taxable year or other period ending on or prior to the Effective Date, the
Return for which is filed or due after the Effective
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Date, to the extent in excess of the reserve for tax liability (excluding any
reserve for deferred Taxes established to reflect temporary differences between
book and tax income) as set forth in its most recent balance sheet contained in
the Financial Statements, as that reserve is adjusted through the Effective
Date, in accordance with its and the Subsidiary's past custom and practice;
(iii) the pro-rata share of any Taxes incurred by either Jandel or the
Subsidiary for any taxable year or other period beginning before and ending
after the Effective Date, to the extent in excess of the reserve for tax
liability (excluding any reserve for deferred taxes established to reflect
temporary differences between book and tax income) set forth or included in its
most recent balance sheet contained in the Financial Statements, as that
reserve is adjusted through the Effective Date, in accordance with its and the
Subsidiary's past custom and practice; and (iv) all Taxes of any corporation
other than Jandel or the Subsidiary which was at any time prior to the
Effective Date a member of an "affiliated group" of corporations that included
either Jandel or the Subsidiary. For purposes of this Subparagraph 14.2(b), in
the case of any taxable period beginning before and ending after the Effective
Date, for purposes of determining the amount of liability for Taxes
attributable to the portion of the taxable period ending on or before the
Effective Date: (A) in the case of sales, use, payroll or excise Taxes or
Taxes based upon or related to income, such portion of the taxable period shall
be deemed to be a separate taxable year and the liability shall be determined
by taking into account all items of income, gain, loss, deduction or credit on
a basis consistent with that employed in preparing the federal income tax
return of Jandel or the Subsidiary for the taxable year ending on the Effective
Date and the relevant state or local tax return for prior years, and (B) in the
case of other Taxes, the liability shall equal a pro-rata portion of the
liability for taxes for the entire taxable period based on the ratio of the
number of days from the beginning of such taxable period through the Effective
Date to the total number of days included in such taxable period.
(c) Any indemnity to be provided to SPSS and Acquisition pursuant to this
Article XIV (an "Indemnification Payment") shall not exceed an amount equal to
ten percent (10%) of the Total Shares (the "Cap") and any Indemnification
Payment to be made to SPSS and Acquisition shall be satisfied solely out of the
Escrowed Shares. Except as otherwise specifically set forth herein, the
indemnity provided in this Agreement shall not apply until the cumulative
amount of all Losses shall exceed $50,000 (Fifty Thousand Dollars) in the
aggregate (the "Basket"). If the Basket is exceeded, SPSS shall be entitled to
the excess, if any, of the full amount of all such claims over the Basket,
subject to the Cap. Notwithstanding the foregoing, the Basket shall not apply
to the indemnities provided in this Agreement for breach of any confidentiality
obligation contained herein or in any other closing document, or any fraud,
willful misconduct, gross negligence or criminal action on the part of Jandel,
and shall not apply to any
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liability under Subparagraph 14.2(b) hereof, and notwithstanding anything
contained or implied in this Agreement, the indemnity obligations set forth
herein above in this sentence shall survive the Closing without limitation
except as provided by the applicable statute of limitations (including any
extension of said statute of limitations).
14.3 Indemnification by SPSS. Subject to the Cap, SPSS and Acquisition
agrees to indemnify and hold Jandel and its affiliates and the respective
officers, directors, employees, agents and representatives of each of the
foregoing harmless from and against any and all Losses relating to (i) any
breach of any representation or warranty of either SPSS or Acquisition set
forth in Article VI hereof or any related schedule, or set forth in any closing
certificate or other document entered into or delivered by either SPSS or
Acquisition in connection with this Agreement; (ii) any breach of any covenant,
obligation or agreement of either SPSS or Acquisition contained in this
Agreement or in any other closing document; and (iii) any fraudulent
representation or intentional misrepresentation on the part of either SPSS or
Acquisition; unless the claim or cause of action with respect thereto arises
out of or is related to actions or omissions of Jandel prior to the Effective
Date.
14.4 Indemnification Procedure. (a) An indemnified party under this
Article XIV shall give prompt written notice to the indemnifying party (when
and to the extent that the indemnified party has actual knowledge thereof) of
any condition, event or occurrence or the commencement of any action, suit or
proceeding for which indemnification may be sought, and through counsel
reasonably satisfactory to the indemnified party, shall assume the defense
thereof or other indemnification obligation with respect thereto; provided,
however, that any indemnified party shall be entitled to participate in any
such action, suit or proceeding with counsel of its own choice but at its own
expense; and provided, further, that any indemnified party shall be entitled to
participate in any such action, suit or proceeding with counsel of its own
choice at the expense of the indemnifying party, if, under applicable canons of
ethics, joint representation of the indemnifying party and the indemnified
party presents a conflict of interest.
In any event, if the indemnifying party fails to assume the defense within
a reasonable time, the indemnified party may assume such defense or other
indemnification obligation and the reasonable fees and expenses of its
attorneys will be covered by the indemnity provided for hereunder. No action,
suit or proceeding for which indemnification may be sought shall be compromised
or settled in any manner which might adversely affect the interests of the
indemnifying party without the prior written consent of the indemnifying party
(which shall not be unreasonably withheld); provided, however, that the
indemnified party may settle
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any claim or cause of action without the indemnifying party's consent, but in
such case the indemnifying party shall not be required to reimburse the
indemnified party for its Losses except and to the extent that a court of
competent jurisdiction finally determines on appeal that indemnifying party
must indemnify the indemnified party therefor. Notwithstanding anything in this
SectionE14.4 to the contrary, the indemnifying party shall not, without the
prior written consent of the indemnified party, (i) settle or compromise any
action, suit or proceeding or consent to the entry of any judgment which does
not include as an unconditional term thereof the delivery by the claimant or
plaintiff to the indemnified party of a written release from all liability in
respect of such action, suit or proceeding or (ii) settle or compromise any
action, suit or proceeding in any manner that may materially and adversely
affect the indemnified party other than as a result of money damages or other
money payments. The indemnifying party shall pay all expenses, including
attorneys' fees, that may be incurred by any indemnified party in enforcing the
indemnity provided for hereunder.
(b) In the case of any proposed or actual assessment of tax liabilities
for which SPSS is entitled to indemnification as provided in Section 14.2(b),
SPSS shall give written notice as provided in subparagraph (a) hereof and shall
contest such proposed or actual assessment through the administrative review or
appeal procedures available under the relevant tax laws and regulations,
provided, however, that SPSS shall not be required to contest such proposed or
actual assessment unless the indemnifying party shall first provide an opinion
of counsel, reasonably acceptable to SPSS, stating that it has a reasonable
basis for its position. SPSS shall keep the indemnifying party fully informed
as to the progress of such contest. If at any point prior to the termination
of the administrative review process, the indemnifying party notifies SPSS in
writing that it is willing to accept a settlement proposed by the IRS with
respect to such proposed or actual assessment of tax liabilities, SPSS will
settle the proposed or actual tax assessment, and SPSS shall immediately be
entitled to indemnification from the indemnifying party. If the indemnifying
party never elects to request SPSS to settle and such administrative review
process is unsuccessful at eliminating the proposed tax, SPSS shall be entitled
to pay the tax (and any penalties and interest) and be entitled to
indemnification from the indemnifying party; provided, that if within ten (10)
days of receipt from SPSS of notice that it is paying the tax, the indemnifying
party notifies SPSS of its desire to contest the proposed or assessed tax
deficiency in the courts, the indemnifying party shall be entitled to do so
provided that (a) if the proposed or actual tax deficiency is contested in tax
court, the indemnifying party shall pay from its own sources any amount of
taxes, penalties and interest determined to be due and (b) if the proposed or
actual tax deficiency is contested by suit for refund in any other court, funds
shall be provided to SPSS and SPSS shall
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pay the tax and if the outcome of the contest determines that the tax paid
should be refunded, such refund shall be returned to the indemnifying party.
Any contest (whether during the administrative review process or otherwise)
shall be conducted at the sole cost and expense of the indemnifying party.
14.5 Arbitration. Any dispute as to any claims under this Agreement shall
be settled by arbitration in the City of Chicago, Illinois by three
arbitrators, one of whom shall be appointed by the Shareholders one by SPSS and
the third of whom shall be appointed by the first two arbitrators. If either
party fails to appoint an arbitrator within 20 days of a request in writing by
the other party to do so or if the first two arbitrators cannot agree on the
appointment of a third arbitrator within 20 days of their designation, then
such arbitrator shall be appointed by the Chief Judge of the United States
District Court for the Northern District of Illinois. Except as to the
selection of arbitrators which shall be as set forth above, the arbitration
shall be conducted promptly and expeditiously in accordance with the commercial
arbitration rules of the American Arbitration Association so as to enable the
arbitrators to render an award within 90 days of the commencement of the
arbitration proceedings. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. Each party shall bear
the expenses of its arbitrator and shall jointly and equally share with the
other the expenses for the third arbitrator and the arbitration.
ARTICLE XV
TERMINATION, AMENDMENT AND WAIVER
15.1 Termination. This Agreement may be terminated at any time prior to
the Effective Date, whether before or after approval by the Shareholders of
Jandel:
(a) by mutual consent of the Boards of Directors of the parties hereto;
(b) by Jandel or SPSS if a material breach of any provision of this
Agreement has been committed and such breach is not waived;
(c) by SPSS, if the conditions set forth in Section XI hereof shall not
have been complied with or performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated (or by
its nature cannot be cured or eliminated) by Jandel on or before December 31,
1996; or
(d) by Jandel, if the conditions set forth in Section XII hereof shall not
have been complied with or performed in any
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<PAGE> 209
material respect and such noncompliance or nonperformance shall not have been
cured or eliminated (or by its nature cannot be cured or eliminated) by SPSS or
before December 31, 1996; or
(e) by either SPSS or Jandel if the Merger shall not have been consummated
on or before December 31, 1996 or such later date as the parties hereto agree
in writing.
15.2 Effect of Termination. In the event of termination of this Agreement
as provided above, this Agreement shall hereafter become void and there shall
be no liability or further obligation on the part of Jandel, SPSS or
Acquisition or their respective officers or directors, except as set forth in
Section 10.1 and Section 16.3 and except that nothing herein will relieve any
party from liability for breach of this Agreement.
ARTICLE XVI
MISCELLANEOUS
16.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented by written agreement of the
parties.
16.2 Waiver of Compliance. Any failure of Jandel on the one hand, or SPSS
or Acquisition, on the other, to comply with any obligation herein may be
expressly waived hereunder, but such waiver shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Any waiver must
be in writing and duly executed by the appropriate parties.
16.3 Expenses. Whether or not the transactions contemplated by this
Agreement shall be consummated, the parties hereto agree that all fees and
expenses incurred by Jandel on the one hand, and SPSS, Acquisition on the
other, in connection with this Agreement, and the transactions and other
actions contemplated thereby or taken in connection therewith, shall be borne
by Jandel and by SPSS, respectively, including, without limitation, all fees of
counsel and accountants; provided, however, that SPSS agrees to pay the fees
incurred by KPMG Peat Marwick LLP for the audit of Jandel's financial
statements.
16.4 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or by facsimile transmission (receipt
confirmed), one day after being sent by recognized overnight courier or
delivery service, freight prepaid, or five days after being mailed, certified
or registered mail, postage prepaid, return receipt requested:
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(a) If to Jandel to:
Jandel Corporation
2591 Kerner Boulevard
San Rafael, CA 94901
Attention: President
with a copy to:
Johnston, Horton and Roberts
1901 Harrison Street, Suite 1500
Oakland, CA 94612
Attention: James Roberts, Esq.
or to such other person or address as Jandel shall furnish to SPSS in writing
by notice given in the manner set forth in (a) above.
(b) If to SPSS or Acquisition, to:
SPSS Inc.
444 North Michigan Avenue
Chicago, IL 60611
Attention: Mr. Edward Hamburg
with a copy to:
Ross & Hardies
150 North Michigan Avenue, Suite 2500
Chicago, Illinois 60601
Attention: T. Stephen Dyer, Esq.
or to such other person or address as SPSS shall furnish to Jandel in writing
by notice given in the manner set forth above.
16.5 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except by operation of law and except that SPSS may assign its rights and
obligations under this Agreement to any other entity wholly owned by SPSS. If
such assignment shall be made by SPSS, the assignee shall be entitled to all of
the rights and shall assume all of the obligations of SPSS hereunder, provided,
that SPSS shall remain liable for and guarantee the performance of such
entity's obligations under this Agreement.
16.6 Publicity. Neither Jandel, SPSS nor Acquisition shall make or issue,
or cause to be made or issued, any announcement or written statement concerning
this Agreement or the trans-
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<PAGE> 211
actions contemplated hereby for dissemination to the general public, without
the prior written consent of the other parties. This provision shall not
apply, however, to any announcement or written statement required to be made by
law, the regulations of any federal or state governmental agency or any stock
exchange, except that the party required to make such announcement shall,
whenever practicable, consult with the other party concerning the timing and
content of such announcement before such announcement is made.
16.7 Headings. The Article and Section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
16.8 Severability. If any provision of this Agreement shall be determined
to be contrary to law and unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms.
16.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to its
conflicts of law doctrine. The parties hereto expressly submit themselves to
the non-exclusive jurisdictions of the State and Federal Courts of Illinois for
the resolution of any disputes which may arise under or with respect to
compliance with this Agreement.
16.10 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
16.11 Third Parties. Nothing herein shall be construed to confer upon or
give to any party other than the parties hereto and their successors or
permitted assigns, any rights or remedies under or by reason of this Agreement.
16.12 Entire Agreement. This Agreement, including the Exhibits and
Disclosure Schedule and other schedules hereto, sets forth the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein, and supersedes all prior agreements, covenants,
representations or warranties, whether oral or written, by any party hereto.
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<PAGE> 212
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first written above.
JANDEL CORPORATION SPSS INC.
By: By:
------------------ ------------------------------
Title: President Title:
--------------- ----------------
SPSS ACQUISITION INC.
By:
------------------------------
Title:
---------------------------
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ANNEX B
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1300. Reorganization or short-form merger; dissenting shares;
corporate purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b). The fair market value shall
be determined as of the day before the first announcement of the terms of the
proposed reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either, (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does
not apply to any shares with respect to which there exists any restriction on
transfer imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to 5
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
<PAGE> 214
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1301. Notice to holders of dissenting shares in reorganizations;
demand for purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation
to purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any
purpose unless it is received by the corporation or any transfer agent thereof
(1) in the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement of
the proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
<PAGE> 215
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1302. Submission of share certificates for endorsement; uncertificated
securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement together with the name of the original dissenting
holder of the shares.
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1303. Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
<PAGE> 216
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1304. Action to determine whether shares are dissenting shares or fair
market value: limitation; joinder; consolidation; determination of issues;
appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivison (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shars or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
<PAGE> 217
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1305. Report of appraisers; confirmation; determination by court;
judgment; payment; appeal; costs
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the
time fixed by the court, the appraisers, or a majority of them, shall make and
file a report in the office of the clerk of the court. Thereupon, on the
motion of any party, the report shall be submitted to the court and considered
on such evidence as the court considers relevant. If the court finds the
report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at
the legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301).
<PAGE> 218
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1306. Prevention of immediate payment; status as creditors; interest
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1307. Dividends on dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
<PAGE> 219
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1308. Rights of dissenting shareholders pending valuation; withdrawal
of demand for payment
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1309. Termination of dissenting share and shareholder status
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
<PAGE> 220
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1310. Suspension of right to compensation or valuation proceedings;
litigation of shareholders' approval
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1311. Exempt shares
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
<PAGE> 221
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Current through 1995 legislation.
Section 1312. Right of dissenting shareholder to attack, set aside or rescind
merger or reorganization; restraining order or injunction; conditions
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or
short-form merger or to have the reorganization or short-form merger set aside
or rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination by
the court that clearly no other remedy will adequately protect the complaining
shareholder or the class of shareholders of which such shareholder is a
memeber.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
<PAGE> 222
JANDEL CORPORATION
2591 Kerner Boulevard
San Rafael, California 94901
PROXY
The undersigned hereby appoints Joseph H. K. Osborn and Ross J.
Garofalo and each of them, as the attorneys and proxies of the undersigned,
with power of substitution, to vote all shares of the stock of Jandel
Corporation, a California corporation ("Jandel"), which the undersigned is
entitled to vote at the Special Meeting of Shareholders of Jandel to be held at
the offices of Jandel, at 2591 Kerner Boulevard, San Rafael, California, 94901
on ___________, 1996 at 10:00 a.m., and at any continuation or adjournment
thereof, with the same force and effect as the undersigned might or could do if
personally present thereof, as set forth below and in their discretion upon any
other business that may properly come before the meeting.
1. To approve (i) an Agreement and Plan of Merger dated October
30, 1996 among SPSS Inc., a Delaware corporation ("SPSS"), SPSS Acquisition,
Inc., a Delaware corporation and a wholly owned subsidiary of SPSS
("Acquisition"), and Jandel (the "Merger Agreement"), pursuant to which
Acquisition would be merged with and into Jandel (the "Merger") resulting in
Jandel becoming a wholly-owned subsidiary of SPSS (and by virtue of the
foregoing, to approve a Stock Pledge and Escrow Agreement between Jandel and
SPSS (the "Escrow Agreement") and the appointment of Joseph H. K. Osborn as the
Representative established in accordance with the Escrow Agreement).
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. SHARES REPRESENTED
BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE HEREIN. IF
NO SPECIFICATION IS MADE AS TO ANY ITEM HEREIN, IT IS INTENDED THAT SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE PROPOSAL SPECIFIED HEREIN.
Both of said attorneys and proxies or their substitutes as shall be
present and act at the meeting, or if only one be present and act then that
one, shall have and may exercise all of the powers of both said attorneys and
proxies hereunder.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders to be held _____________, 1996 and a Proxy
Statement/Prospectus, each dated __________, 1996.
WITNESS the signature of the undersigned this ____ day of __________,
1996.
__________________________________
(Name of Shareholder)
__________________________________
(Signature)
__________________________________
(Title, if applicable)
Number of Shares of Common Stock Held: ____________________
<PAGE> 223
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Delaware General Corporation Law. The Company has statutory authority
to indemnify the officers and directors. The applicable provisions of the
DGCL state that, to the extent such person is successful on the merits
or otherwise, a corporation may indemnify any person who was or is a party or
who is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise ("such Person"), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred by such Person, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In any threatened,
pending or completed action by or in the right of the corporation, a
corporation also may indemnify any such Person for costs actually and
reasonably incurred by him in connection with that action's defense or
settlement, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation; however, no
indemnification shall be made with respect to any claim, issue or matter as to
which such Person shall have been adjudged to be liable to the corporation,
unless and only to the extent that a court shall determine that such indemnity
is proper.
Under the applicable provisions of the DGCL, any indemnification shall
be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct. Such determination shall be made:
(1) By the Board of Directors by a majority vote of a quorum
consisting of directors who are not parties to such action, suit or proceeding;
or
(2) If such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion; or
(3) By the affirmative vote of a majority of the shares entitled
to vote thereon.
The Company's Certificate of Incorporation provides for
indemnification to the full extent permitted by the laws of the State of
Delaware against and with respect to threatened, pending or completed actions,
suits or proceedings arising from or alleged to arise from, a party's actions
or omissions as a director, officer, employee or agent of the Company or of any
subsidiary of the Company or of any other corporation, partnership, joint
venture, trust or other enterprise which he has served in such capacity at the
request of the Company if such acts or omissions occurred or were or are
alleged to have occurred, while said party was a director or officer of the
Company.
II-1
<PAGE> 224
Item 21. Exhibits and Financial Statement Schedules [TO BE CONFIRMED]
<TABLE>
<CAPTION>
Incorporation by
Annex Reference (if
Number Description of Document applicable)
------ ----------------------- ------------------
<S> <C> <C>
4.1 Credit Agreement *4.1
5.1 Opinion of Ross & Hardies regarding legality of shares of Common
Stock
15.1 Letter re: Unaudited Interim Financial Information
23.1 Consent of KPMG Peat Marwick LLP regarding the financial
statments of SPSS Inc.
23.2 Consent of Ross & Hardies (contained in opinion described in 5.1)
24.1 Power of Attorney **
- -----------------------------------------------------------------
</TABLE>
* Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
Quarterly period ended March 31, 1996 (Registration No. 0-22194)
** Included in signature pages.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement; (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement, and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
II-2
<PAGE> 225
(6) That every prospectus: (i) that is filed pursuant to
paragraph (5) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(8) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration statement
when it became effective.
(9) To deliver or cause to be delivered with the prospectus, to
each person to whom the prospectus is sent or given, the latest annual report,
to security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
(10) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
II-3
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on October 31, 1996.
SPSS INC.
By: /s/ Jack Noonan
----------------------------------
Jack Noonan
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Jack Noonan and Edward Hamburg, and each of them, the true and lawful
attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in furtherance of the foregoing, as fully to all intents and purposes as
the undersigned might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 31, 1996.
<TABLE>
<CAPTION>
Signature Title(s)
--------- --------
<S> <C>
/s/Norman H. Nie Chairman of the Board of Directors
----------------------------------------------------
Norman H. Nie
President, Chief Executive Officer
/s/Jack Noonan and Director
----------------------------------------------------
Jack Noonan
Senior Vice President, Corporate
/s/Edward Hamburg Operations, Chief Financial Officer
---------------------------------------------------- and Secretary
Edward Hamburg
/s/Robert Brinkmann Controller and Assistant Secretary
---------------------------------------------------- (Chief Accounting Officer)
Robert Brinkmann
/s/Guy de Chazal Director
----------------------------------------------------
Guy de Chazal
/s/Bernard Goldstein Director
----------------------------------------------------
Bernard Goldstein
/s/Frederic W. Harman Director
----------------------------------------------------
Frederic W. Harman
</TABLE>
II-4
<PAGE> 227
<TABLE>
<S> <C>
Director
/s/Merritt Lutz
----------------------------------------------------
Merritt Lutz
</TABLE>
II-5
<PAGE> 228
EXHIBIT INDEX
<TABLE>
<CAPTION>
Location of Document in
Exhibit No. Sequential Numbering System Description of Document
- ----------- --------------------------- -----------------------
<S> <C>
5.1 Opinion of Ross & Hardies regarding legality
of shares of Common Stock
15.1 Letter re: Unaudited Interim Financial Information
23.1 Consent of KPMG Peat Marwick LLP regarding
the financial statements of SPSS Inc.
23.2 Consent of KPMG Peat Marwick LLP regarding
the financial statements of Jandel Corporation
23.3 Consent of KPMG Peat Marwick LLP regarding
the financial statements of Clear Software, Inc.
27.1 Financial Data Schedule Restated for the years
ended December 31, 1993, 1994 and 1995.
27.2 Financial Data Schedule Restated for 6 months ended
June 30, 1995 and June 30, 1996.
</TABLE>
II-6
<PAGE> 1
EXHIBIT 5.1
October ____, 1996
SPSS Inc.
444 N. Michigan Avenue
Chicago, Illinois 60611
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
You have requested our opinion with respect to the offering and sale
of Common Stock pursuant to a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), of up to an aggregate of approximately 357,000 shares of
Common Stock, $.01 par value per share (the "Common Stock") of SPSS Inc.
(the "Corporation").
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed relevant and necessary
to form a basis for the opinions hereinafter expressed. In conducting such
examination, we have assumed (i) that all signatures are genuine, (ii) that all
documents and instruments submitted to us as copies conform with the originals,
and (iii) the due execution and delivery of all documents where due execution
and delivery are a prerequisite to the effectiveness thereof. As to any facts
material to this opinion, we have relied upon statements and representations of
officers and other representatives of the Corporation and certificates of
public officials and have not independently verified such facts.
Based upon the foregoing, it is our opinion that the Common Stock is
legally issued, fully paid and non-assessable.
We express no opinion as to the laws of any jurisdiction other than
the State of Illinois, the United States of America, and, solely with respect
to matters of corporate organization and authority, the General Corporation Law
of the State of Delaware. We are not admitted to the practice of law in the
State of Delaware. Insofar as the foregoing opinion relates to matters that
would be controlled by the substantive laws of any jurisdiction other than the
United States of America, the General Corporation Law of the State of Delaware
(with respect to matters of corporate organization and authority) or the State
of Illinois, we have assumed that the substantive laws of such jurisdiction
conform in all respects to the internal laws of the State of Illinois.
We hereby consent to the use of this opinion as Annex 5.1 to the
Registration Statement relating to the registration of approximately 357,000
shares of Common Stock and to the use of our name as your counsel in
connection with the Registration Statement and in the Prospectus forming
a part thereof.
Very truly yours,
ROSS & HARDIES
By:___________________________
A Partner
<PAGE> 1
EXHIBIT 15.1
LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
The Board of Directors
SPSS Inc.:
With respect to the subject registration statement on Form S-4, we acknowledge
our awareness of the use therein of our reports dated May 10, 1996 and August 2,
1996 related to our reviews of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such reports are not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG PEAT MARWICK LLP
Chicago, Illinois
October 31, 1996
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
SPSS Inc.:
We consent to the use of our report dated September 26, 1996, relating to the
supplemental consolidated balance sheets of SPSS Inc. and subsidiaries as of
December 31, 1994 and 1995, and the related supplemental consolidated
statements of income, stockholders' (deficit) equity, and cash flows for each
of the years in the three-year period ended December 31, 1995, included herein
and to the reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
We consent to the use of our report dated February 21, 1996, except as to note
14, which is as of March 15, 1996, relating to the consolidated balance sheets
of SPSS Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, stockholders' (deficit) equity, and cash
flows for each of the years in the three-year period ended December 31, 1995,
included herein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
October 31, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated August 30, 1996, relating to the
consolidated balance sheets of Jandel Corporation as of December 31, 1994 and
1995 and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years then ended, included herein and to the
reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
KPMG PEAT MARWICK LLP
San Jose, California
October 31, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated August 9, 1996, relating to the
balance sheet of Clear Software, Inc. as of December 31, 1995 and the related
statements of income and retained earnings and cash flows for the year then
ended, included herein and to the reference to our firm under the heading
"Experts" in the Proxy Statement/Prospectus.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
October 31, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1993 DEC-31-1994 DEC-31-1995
<PERIOD-END> DEC-31-1993 DEC-31-1994 DEC-31-1995
<CASH> 1,754 1,780 10,924
<SECURITIES> 0 0 0
<RECEIVABLES> 7,241 11,134 13,225
<ALLOWANCES> 398 391 682
<INVENTORY> 1,275 1,447 1,614
<CURRENT-ASSETS> 11,085 15,429 26,550
<PP&E> 9,654 11,738 13,625
<DEPRECIATION> 6,355 7,851 9,283
<TOTAL-ASSETS> 21,855 31,794 41,843
<CURRENT-LIABILITIES> 21,168 24,931 21,848
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 62 64 73
<OTHER-SE> (954) 4,058 17,619
<TOTAL-LIABILITY-AND-EQUITY> 21,855 31,794 41,843
<SALES> 44,591 54,498 65,784
<TOTAL-REVENUES> 44,591 54,498 65,784
<CGS> 5,415 5,923 6,383
<TOTAL-COSTS> 5,415 5,923 6,383
<OTHER-EXPENSES> 32,568 42,430 52,354
<LOSS-PROVISION> 96 70 164
<INTEREST-EXPENSE> 1,689 349 124
<INCOME-PRETAX> 4,559 5,787 7,350
<INCOME-TAX> 1,349 2,191 2,968
<INCOME-CONTINUING> 3,210 3,596 4,382
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,210 3,596 4,382
<EPS-PRIMARY> .65 .54 .56
<EPS-DILUTED> .65 .54 .56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> JUN-30-1995 JUN-30-1996
<CASH> 7,529 11,645
<SECURITIES> 0 0
<RECEIVABLES> 10,845 13,117
<ALLOWANCES> 801 623
<INVENTORY> 1,084 1,408
<CURRENT-ASSETS> 19,903 27,484
<PP&E> 13,202 14,887
<DEPRECIATION> 8,796 9,899
<TOTAL-ASSETS> 36,627 43,098
<CURRENT-LIABILITIES> 17,246 19,165
<BONDS> 0 0
0 0
0 0
<COMMON> 71 74
<OTHER-SE> 16,654 21,682
<TOTAL-LIABILITY-AND-EQUITY> 36,627 43,098
<SALES> 31,228 35,876
<TOTAL-REVENUES> 31,228 35,876
<CGS> 2,911 3,396
<TOTAL-COSTS> 2,911 3,396
<OTHER-EXPENSES> 24,108 26,729
<LOSS-PROVISION> 0 315
<INTEREST-EXPENSE> 1 12
<INCOME-PRETAX> 4,362 5,869
<INCOME-TAX> 1,418 1,929
<INCOME-CONTINUING> 2,944 3,940
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,944 3,940
<EPS-PRIMARY> .39 .49
<EPS-DILUTED> .39 .49
</TABLE>
