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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K 405
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER: 33-64732
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SPSS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2815480
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
233 S. WACKER DRIVE, CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (312) 651-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. (X)
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT (BASED UPON THE PER SHARE CLOSING SALE PRICE OF
$16.75 ON MARCH 17, 1999, AND FOR THE PURPOSE OF THIS CALCULATION ONLY, THE
ASSUMPTION THAT ALL REGISTRANT'S DIRECTORS AND EXECUTIVE OFFICERS ARE
AFFILIATES) WAS APPROXIMATELY $132 MILLION.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, PAR
VALUE $.01, AS OF MARCH 17, 1999, WAS 9,037,433.
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SPSS INC.
TABLE OF CONTENTS
PART I
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 22
Item 3. Legal Proceedings............................................... 22
Item 4. Submission of Matters to a Vote of Security Holders............. 22
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 23
Item 6. Selected Consolidated Financial Data............................ 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risks..... 31
Item 8. Financial Statements and Supplementary Data..................... 32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 56
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 56
Item 11. Executive Compensation.......................................... 59
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 66
Item 13. Certain Relationships and Related Transactions.................. 68
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K................................................... 69
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SPSS INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PART I
ITEM 1. BUSINESS
GENERAL
SPSS Inc. was incorporated in Illinois in 1975 under the name "SPSS,
Inc." and was reincorporated in Delaware in May 1993 under the name "SPSS Inc."
Unless the context otherwise requires, the term "SPSS" refers to SPSS Inc., a
Delaware corporation, its Illinois predecessor and its subsidiaries. SPSS is a
multinational company that delivers reporting, analysis and modeling software
products, and whose primary markets are marketing research, business
analysis/data mining, scientific research and quality improvement analysis. SPSS
develops, markets and supports an integrated line of statistical software and
other products that enable users to effectively bring marketplace and enterprise
data to bear on decision-making. SPSS' major products include:
- SPSS for business and general applications;
- Clementine for data mining;
- Quantime, In2itive and Surveycraft family of products for market research;
- NewView for analytical reporting;
- SigmaPlot and SYSTAT for scientific research;
- QI Analyst for quality improvement and statistical process control; and
- allCLEAR for process documentation and management.
The primary users of SPSS' software are managers and data analysts in corporate
settings and 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 features a windows-based point-and-click graphical user
interface, sophisticated statistical procedures, data access and management
capabilities, report writing and integrated graphics. SPSS' products provide
extensive analytical capabilities not found in spreadsheets, database management
systems or graphics packages.
In its 23 years of operation, SPSS has become a widely recognized name
in statistical software. SPSS 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 the information
for use in decision-making. Management believes the ease-of-use of SPSS' 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 summer 1993, SPSS completed an initial public offering of common
stock, $.01 par value. The common stock is listed on the Nasdaq National Market
under the symbol "SPSS". In early 1995, SPSS and some stockholders sold
1,865,203 shares of common stock in a public offering.
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SAFE HARBOR
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: With the exception of historical information, some matters
discussed in this Form 10-K are forward-looking statements, within the meaning
of Section 21E of the Securities Exchange Act. These statements involve risks
and uncertainties including, but not limited to, market conditions, competition
and other risks indicated in this document, and SPSS' other filings with the
Securities and Exchange Commission that could cause actual results to vary
materially from the future results indicated in these forward-looking
statements. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. Other factors could also cause
actual results to vary materially from the future results indicated in such
forward-looking statements.
RECENT DEVELOPMENTS
SPSS' acquisition of SYSTAT, Inc. in September 1994, BMDP Statistical
Software, Inc. in December 1995 and Jandel Corporation in November 1996 was part
of its strategy to establish a separate line of software products for scientific
research. This strategy enables SPSS to direct its SPSS product line toward the
growing market for data mining applications and its QI Analyst product line
toward real-time quality improvement applications. SPSS' acquisition of Jandel
is a continuation of this strategy of product differentiation.
SPSS' acquisition in September of 1996 of Clear Software, Inc., a
developer and marketer of process management, analysis and documentation
software products, including allCLEAR, brought important technology to the SPSS
family of products. Unlike most flowcharting packages, allCLEAR is built on a
database that enables users to develop an initial diagram faster, make changes
quickly and easily and try different views with a touch of a button.
In April 1997, SPSS entered into a 15-year sublease agreement to
sublease approximately 100,000 square feet of space in the Sears Tower in
Chicago, Illinois. During 1998, this space became the principal office space of
SPSS.
In May 1997, SPSS acquired the DeltaGraph software program from
DeltaPoint, Inc., a California corporation, for approximately $910,000.
DeltaGraph is a computer graphics software product which was acquired to
complement SPSS' data visualization and statistical products. DeltaGraph offers
a broad range of scientific, business and technical charts.
In September 1997, SPSS acquired approximately 97% of the outstanding
shares of capital stock of Quantime Limited, a corporation organized under the
laws of England, in exchange for 863,049 shares of common stock of SPSS. As a
result of this transaction, Edward Sherman Ross, formerly a director of
Quantime, beneficially acquired 441,635 shares of SPSS common stock. In November
1997, SPSS acquired the remaining shares of capital stock of Quantime in
exchange for 28,175 shares of common stock of SPSS. Quantime is a developer of
market research software products. The Quantime business strategy is to form a
business focused exclusively on the top 200 market research companies in the
world.
In November 1997, SPSS acquired all of the outstanding shares of
capital stock of In2itive Technologies A/S, a corporation organized under the
laws of Denmark, in exchange for 140,727 shares of common stock of SPSS.
In2itive is a computer software company specializing in market research
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software. The In2itive business will operate under the same strategy to focus on
the top 200 market research companies in the world.
In November 1998, SPSS acquired all of the outstanding shares of
capital stock of Surveycraft Pty Ltd., a corporation organized under the laws
of Australia, for approximately $1,700,000. Surveycraft develops products for
market research, and was the first global research software to support Asian
languages. The Surveycraft business will augment SPSS' business focus on the top
200 market research companies in the world.
On December 31, 1998, SPSS acquired all of the outstanding shares of
capital stock of Integral Solutions Limited, a corporation organized under the
laws of England, for an aggregate purchase price of approximately $7,000,000.
SPSS may be required to make additional payments up to approximately $7,000,000
in future years to the former owners of Integral Solutions based upon the
attainment of specific operating results by Integral Solutions. The amount of
these additional payments was not determinable at December 31, 1998. The
additional payments will be recorded as an adjustment to the purchase price paid
by SPSS for the stock of Integral Solutions in the periods in which the payments
are determinable. SPSS plans to develop Integral Solutions' award-winning data
mining analytical techniques through a single user interface. With this new
workbench, SPSS plans to target more large organizations as part of its strategy
focused on more enterprise-wide sales of all SPSS software and services.
Fredric Harman resigned as a director of SPSS effective January 1,
1999.
INDUSTRY BACKGROUND
Statistical analysis is a means of drawing reliable conclusions from
numerical information about a given subject. This 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 remain the same today: to help decision makers understand and resolve
problems by uncovering the causes underlying events and conditions. SPSS
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 part 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 part 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 their
success in a market, or a bank needs to distinguish good and bad credit risks
before making loans, or a manufacturer seeks to reduce the number of defects in
production by identifying the causes proactively.
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Spreadsheet, graphics and database packages lack the necessary range and depth
of analytical functionality to adequately address these types of questions.
SPSS believes that the worldwide demand for statistical software will
grow for the following reasons:
- organizations are demanding more useful information from the increasing
amount of data being collected, organized and stored;
- 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. SPSS focuses, however, on the following market areas:
Business Intelligence, Especially Market Research and Data Mining.
Almost all of the top market research firms in the world are SPSS customers.
Corporations worldwide use SPSS products to collect data, analyze data in
databases and data warehouses to help target advertising and direct mail
campaigns, test-market new products, identify changing customer characteristics,
measure customer satisfaction and assess sales-force productivity, and other
applications
Government. SPSS software is used in almost every country of the
world, at all levels of government, including both defense and civilian
agencies. For example, SPSS' products:
- are used as part of the efforts of the Internal Revenue Service of the
United States to modernize their tracking systems;
- are also 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.
Education. SPSS software is used at virtually every major college and
university. In addition to its use in teaching statistics at the undergraduate
and graduate levels, SPSS is in academic research of all types. Academic
administrators also 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.
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Scientific Research. SPSS products are used in a wide variety of
research and development efforts across academic, government and corporate
institutions. SPSS software provides data analysis and presentation tools in
pharmacology, clinical trials, environmental monitoring and experimental
modeling, to name a few of its applications.
Quality in Manufacturing. Rising costs, government regulation, customer
mandates and increasingly competitive global markets, drive more and more
manufacturing companies to implement systems for statistical quality control and
improvement. SPSS software is currently used in a variety of manufacturing
quality control applications, both on the shop floor, and off.
STATISTICAL SOFTWARE PRODUCTS
SPSS provides a set of software products that enable end-users to
perform statistical analysis, including the generation of reports, graphs and
models on a wide variety of computing platforms. Many of the software products
can be used either stand-alone or as part of an integrated system. The product
line is:
- comprehensive in function, including advanced techniques;
- modular, allowing users to purchase only the functionality they need;
- available, to a greater or lesser extent, on many popular computing
platforms;
- tailored to desktop operating environments, where adherence to platform
standards directly translates into greater usability of products; and
- for some products, localized for use in France, Germany, Italy, Japan,
Taiwan, Korea, China and Spanish-speaking countries.
While there are some variations according to version and computing
platform, the typical SPSS configuration in a business intelligence and data
mining application is a Base System and related add-on and stand-alone products.
The SPSS 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, providing a wide variety of specialized statistical capabilities and
offering additional presentation capabilities. With the exception of SPSS
Categories, these add-on products are developed by SPSS. Stand-alone products
are fully functioning software products for a specific application, such as
facilitating some types of data entry and performing some types of advanced
analysis, and do not require SPSS Base to generate stand-alone reports. These
stand-alone products are either developed by SPSS or third parties. See
"Business - Reliance on Third Parties."
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The following tables summarize SPSS' software products:
BUSINESS INTELLIGENCE KEY FUNCTIONS AND FEATURES
AND DATA MINING
PRODUCT LINE
================================================================================
SPSS Base STATISTICS: Comprehensive range of descriptive
(Release 9.0) statistics; frequency counts and 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; cluster analysis; factor
analysis; discriminant analysis; reliability analysis;
multidimensional scaling; matrix language and library.
PRESENTATION AND GRAPHICS: Drag-and-drop pivot tables,
Report writer; interactive and production use 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). Help includes an on-line
tutorial; Statistics Coach(TM); Chart Advisor; Results
Coach(TM); "What's This?"; "Ask me"; context-sensitive
Help and on-line statistical glossary.
- --------------------------------------------------------------------------------
SPSS Regression Multinomial logistic regression; binary logistic
Models Analysis regression; weighted and two-stage least squares
regression; constrained and unconstrained non-linear
regression; probit analysis and LOGIT, models analysis.
- --------------------------------------------------------------------------------
SPSS Advanced General linear models, variance component estimation,
Models generalized loglinear models, hierarchical loglinear
models, survival/life tables analysis, repeated measures
analysis of variance, multivariate analysis of variance.
- --------------------------------------------------------------------------------
SPSS Categories Optimal scaling procedures, correspondence analysis,
perceptual mapping.
- --------------------------------------------------------------------------------
SPSS Trends Time series forecasting routines, including ARIMA
with Box-Jenkins models, efficient smoothing and
seasonality adjustments.
- --------------------------------------------------------------------------------
SPSS Tables High-quality, complex stub-and-banner tables. Easily
handles multiple response items.
- --------------------------------------------------------------------------------
DBMS/COPY Plus Transparently converts data for use between databases,
spreadsheets and statistics packages.
- --------------------------------------------------------------------------------
SPSS Exact Tests Gives correct p-values, regardless of data structure.
- --------------------------------------------------------------------------------
SPSS Missing Searches for relationships between the missing values in
Value Analysis data and other variables, estimates what the values would
be, estimates the mean, covariance matrix and correlation
matrix via regression.
- --------------------------------------------------------------------------------
AMOS Comprehensive linear structural models, with fit causal
paths.
- --------------------------------------------------------------------------------
SPSS Data Entry Products for survey design, data collection, and data
Builder and SPSS cleaning. SPSS Data Entry Station is a more economical
Data Entry Station product which does not include the survey design
capabilities.
- --------------------------------------------------------------------------------
Sample Power Used to determine the size of a sample by allowing the
user to strike a balance among confidence level,
statistical power, effect size and sample size.
- --------------------------------------------------------------------------------
allCLEAR Flowcharting business diagramming program: creates
diagrams for causes and effects, process flow, network
and deployment; builds decision trees, organizational
charts and procedural charts.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
TextSmart Used for analysis of responses to open-end survey
questions.
- --------------------------------------------------------------------------------
SmartViewer Used to distribute electronic reports (text, tables,
graphics and multimedia) produced by SPSS Base or
NewView.
- --------------------------------------------------------------------------------
NewView Used for analytical reporting. Includes the functionality
of the SPSS Base, except certain statistical procedures.
- --------------------------------------------------------------------------------
StatXact StatXact Similar to SPSS Exact Tests, but offering more
comprehensive list of methods.
- --------------------------------------------------------------------------------
LogXact Used for exact results with small-sample logistic
regression.
- --------------------------------------------------------------------------------
SPSS Conjoint Used to perform conjoint analysis
- --------------------------------------------------------------------------------
AnswerTree Used with databases to uncover profiles, groups and
trends. Contains four methods: CHAID, Exhaustive CHAID,
Classification and Regression Trees, and Quest.
- --------------------------------------------------------------------------------
DeltaGraph All-purpose (business, technical, quality) charting
software.
- --------------------------------------------------------------------------------
Neural Connection Neural network-based product with features for
prediction, 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
dimensions of data.
- --------------------------------------------------------------------------------
MapInfo Display data geographically, from world to street levels.
- --------------------------------------------------------------------------------
TELEform Standard Automated forms creation, distribution, and data entry
using fax or scanner.
- --------------------------------------------------------------------------------
Data Entry Network Network server version of Data Entry Builder.
Server
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WesVar Complex Computes correct variance estimates for data
Samples collected via complex sampling techniques.
- --------------------------------------------------------------------------------
SmartViewer Web Web server version of SmartViewer.
Server
- --------------------------------------------------------------------------------
GOLDMineR Develops more accurate models for dichotomous and ordered
categorical variables.
- --------------------------------------------------------------------------------
Surveys with "All in one" product for planning, creating,
Confidence distributing and analyzing basic surveys. Includes a
computer-based tutorial.
- --------------------------------------------------------------------------------
Clementine Data mining "workbench" for rapid modeling, data
visualization and data manipulation.
- --------------------------------------------------------------------------------
Remark Office OMR Automated forms data collection using a scanner or fax
modem. Works with forms created in any software package.
================================================================================
QI Analyst and Trial Run are also marketed as part of the SPSS product
line. SPSS Release 9.0 currently operates only in the Windows 95 and
Windows NT 4.0 environments. SPSS Release 6.1 is currently available for
Windows 3.1, Windows 95, Windows NT 3.1, Macintosh and selected UNIX
platforms. SPSS PC+ is available for character-based DOS platforms. SPSS
Professional Statistics, SPSS Advanced Statistics, SPSS Categories, SPSS
Conjoint, SPSS Trends, SPSS Tables, SPSS Exact Tests and SPSS Missing Value
Analysis require the SPSS Base to operate. All other products operate
stand-alone.
MARKET RESEARCH
PRODUCT LINE KEY FUNCTIONS AND FEATURES
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QUANCEPT A series of products for data collection via CATI
(computer-aided telephone interviewing), CAPI
(computer-aided personal interviewing), and CAWI
(computer-aided web interviewing) methods.
- --------------------------------------------------------------------------------
QUANTUM Produces high-quality tables for a production-oriented
market research setting. Is capable of producing
extremely complex tables.
- --------------------------------------------------------------------------------
QUANVERT Produces certain commonly used types of tables
intuitively.
- --------------------------------------------------------------------------------
QTS Enables more cost-effective predictive dialog.
- --------------------------------------------------------------------------------
In2Form Assists users in the creation of forms and scripts for
the other products via an easy-to-use graphical user
interface.
- --------------------------------------------------------------------------------
Surveycraft Market research software suite for CATA, CAPI, web
surveys, data entry and analysis.
- --------------------------------------------------------------------------------
Other Products Other products in the Quantime and In2itive line are used
for various data collection and tabulation tasks in the
survey research process. Some of the products have
functionality that overlaps with the products listed
above.
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SCIENTIFIC RESEARCH
PRODUCT LINE KEY FUNCTIONS AND FEATURES
================================================================================
SYSTAT Base SYSTAT offers integrated desktop statistics and graphics
(Release 8.0) to scientists, engineers and statisticians and provides
an extensive selection of statistics and high quality
graphics. SYSTAT uses an intuitive user interface, an
interactive library of statistical graphics tools and
publication quality charts.
- --------------------------------------------------------------------------------
SYSTAT 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.
- --------------------------------------------------------------------------------
SYSTAT Logit Binary, multinomial, and conditional logistic regression
with maximum likelihood estimation.
- --------------------------------------------------------------------------------
SYSTAT Survival Extensive set of methods for survival, reliability, and
life table analysis.
- --------------------------------------------------------------------------------
SYSTAT Design Estimates sample sizes required to obtain desired
statistical confidence levels.
- --------------------------------------------------------------------------------
SigmaPlot SigmaPlot is an easy-to-use technical graphics and data
analysis software package for scientists and engineers
that enables them to create the exact graph they want to
best present their research results for lab notebooks and
journals. Users can quickly create 2D and 3D graphs using
SigmaPlot's award-winning interface and customize graphs
in every detail - from inserting multiple axes per graph
to error bar style. SigmaPlot provides the data analysis
tools to analyze data easily - from basic statistics to
curve fitting to advanced mathematical functions.
Automate repetitive reports of your experiments with
SigmaPlot's new macro language and macro recorder.
- --------------------------------------------------------------------------------
SigmaScan Pro SigmaScan Pro provides powerful and comprehensive image
analysis for scientists to turn visual information into
reliable statistics, understandable graphs and valuable
scientific conclusions.
- --------------------------------------------------------------------------------
SigmaStat SigmaStat is a statistical software program designed for
scientists and engineers. Easy to learn and use,
SigmaStat offers an automated system that guides users
through statistical analysis.
- --------------------------------------------------------------------------------
TableCurve 2D TableCurve is the first and only program that combines a
And TableCurve powerful curve and surface fitter with the ability to
3D find the ideal equation to describe two and three
dimensional empirical data. TableCurve 2D fully automates
the curve fitting process and in a single processing
step, instantly fits and ranks about 3,600 built-in
frequently encountered equations enabling users to easily
find the ideal model to their XY data in seconds.
TableCurve 3D fits three dimensional surfaces instantly
and ranks 36,000 of over 450 million built-in equations.
- --------------------------------------------------------------------------------
PeakFit PeakFit is a nonlinear peak separation and analysis
software package for scientists doing spectroscopy,
chromatography and electrophoresis. Its nonlinear curve
fitting techniques separate overlapping peaks that other
processes miss
- --------------------------------------------------------------------------------
SigmaGel SigmaGel is a quantitative electrophoretic gel analysis
software program. With SigmaGel, users can load the
image, calibrate distance and use one of three
measurement modes before transferring measurements to
spreadsheets.
- --------------------------------------------------------------------------------
Sample Power, allCLEAR, DeltaGraph, StatXact, LogXact, AnswerTree, Neural
Connection, Trial Run and SPSS Diamond are also marketed as part of the science
product line.
QUALITY IN MANUFACTURING
PRODUCT LINE KEY FUNCTIONS AND FEATURES
================================================================================
QI Analyst Comprehensive set of SPC data entry/access features, SPC
(Version 3.5) statistics, 27 quality improvement chart types and
reporting.
- --------------------------------------------------------------------------------
QI Analyst DB A version of QI Analyst designed for use in a computing
(Version 3.5) environment with a centralized database.
- --------------------------------------------------------------------------------
Gage R&R Implementation and systematic testing of measurement
instruments.
- --------------------------------------------------------------------------------
Trial Run For design of experiments, including analysis.
================================================================================
SPSS quality in manufacturing products are available on Windows 3.1,
Windows 95 and Windows NT. allCLEAR, AnswerTree, NewView and SmartViewer,
and the SPSS Base and some products which require the SPSS Base are also
marketed as part of the quality product line.
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SPSS' statistical software products have received numerous favorable
reviews from trade and other publications. SPSS and SYSTAT software fare well in
comparative assessments against competitors' products. SPSS offers its flagship
product, SPSS for Windows, in nine languages:
- English;
- German;
- French;
- Italian;
- Korean;
- Spanish;
- Japanese;
- Catalan;
- Traditional Chinese.
In December 1998, SPSS introduced SPSS 9.0 for Windows offering significant
enhancements in usability and the display of results.
SPSS' 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 in North America are
approximately $795 for the SPSS Base System and range from $195 to $1,995 for
other products. Multi-user network and site licenses typically require annual
payments. 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 system 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 system
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 some products and services.
Some desktop products licensed for use by SPSS in some countries
outside of North America are secured with an external hardware device that is
required for operation. SPSS' large system 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.
The scientific software's licensing and pricing alternatives vary by
product and quantity sold. Multi-user and site licenses typically require annual
payments. SigmaStat and SigmaGel have a single user list price of $495, with
discounts for volume purchases. Annual site licenses and perpetual licenses are
available to 5 to 100 users for $1,040 to $21,592. SigmaPlot, TableCurve and
PeakFit have a single user list price of $595, with discounts for volume
purchases. Annual site licenses and perpetual licenses are available to 5 to 100
users for $1,250 to $25,947. SYSTAT and SigmaScan Pro have single user list
price of $995, with discounts for volume purchases. Annual site licenses and
perpetual licenses are available to 5 to 100 users for $2,090 to $43,367.
Pricing of these products outside of North America is typically higher than
domestic prices. All these products are Windows platform.
SPSS Science's principal customers are research scientists and
engineers from nearly all disciplines. Accordingly, SPSS Science's markets
directly to scientists and engineers, principally through advertising in
scientific and engineering journals and by direct mail to SPSS Science's own
databases of
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research scientists and engineers and to lists of prospective customers obtained
from third parties. SPSS Science also distributes its products through a limited
number of specialty distributors and software retailers. SPSS Science
distributes its products in Europe through its wholly owned subsidiary, SPSS
Science GmbH.
The Quantime and In2itive product lines are used by market researchers
for data collection and tabulation. In general, the Quantime products have more
robust feature sets and the In2itive products have more modern user interfaces.
SPSS plans to combine the strengths of the product lines, and improve the
ability for these products to communicate with the SPSS product line, through a
series of development projects, which, while not yet fully defined, are expected
to be completed in the next two to three years.
The Quantime and In2itive products are currently licensed to large
market research organizations on an annual recurring basis, where the amount of
the annual fee depends on the number of modules in all and the number of users
of each module. Annual license fees from customers range from approximately
$1,000 to over $1 million. The rate of renewal of these licenses has
historically been very high (in excess of 90%).
The Surveycraft product is licensed for a period of one year.
Thereafter, payments are on a month-to-month basis. The average price of a
license ranges between $160 and $250, depending on the number of licenses.
The Clementine product is currently licensed to business users and
analysts for data mining and business intelligence. The list price for an annual
license fee is $43,800.
PUBLICATIONS AND STUDENT SOFTWARE
SPSS authors and regularly updates a number of publications that
include user manuals and instructional texts. SPSS also develops student
versions of its Windows and Macintosh products which are subsets of the SPSS
Base System and SYSTAT products, designed for classroom use with SPSS textbooks
or with other statistics instructional materials. Since February 1993, SPSS
publications and student software have been distributed by the College Division
of Prentice Hall under the terms of a semi-exclusive, worldwide agreement. See
"Business- Prentice Hall Agreement." SPSS also has arrangements with other
publishers to include the SPSS Student Version in textbooks with data sets
specific to the text.
TRAINING AND CONSULTING
SPSS 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.
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<PAGE> 13
SALES AND MARKETING
SPSS sells its products primarily through a well-developed, worldwide
telesales and direct response organization. More recently, SPSS has extended the
capability of this organization through the formation of sales teams that
combine field sales and telesales personnel. Advertising, direct mail and
customer references have proven the most effective method of generating new
sales and sales leads. SPSS' 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 $1,400.
SPSS' 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 SPSS 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. SPSS also maintains an
office in the Washington, D.C. area focused on sales to the United States
government, as well as offices in New York, San Francisco and Cincinnati. The
SPSS international sales operation consists of thirteen sales offices, in Europe
and the Pacific Rim, as well as over 60 licensed distributors. Overall, SPSS is
represented in over 50 countries. Transactions are customarily made in local
currencies.
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. Similar arrangements were recently concluded with
WCB/McGraw-Hill Higher Education and John Wiley & Sons, Inc.
Current users of SPSS' products comprise a significant source of new
sales leads. Also important are the expert reviews of SPSS software in trade and
market-specific publications. SPSS' marketing communications program includes:
- advertising in trade and market-specific publications;
- advertising on the world wide web;
- direct mail;
- 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
SPSS provides extensive customer service and technical support by
telephone, fax, mail and the world wide web, each of which promotes customer
satisfaction and obtains 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.
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<PAGE> 14
PRODUCT DEVELOPMENT
SPSS plans to continue expanding its product offerings through internal
development of new software products and enhancements, acquiring products,
technologies and businesses complementary to SPSS' existing product line, and
forming partnerships with value-added resellers or other third parties serving
selected markets.
SPSS' team of specialists in user interface design, software
engineering, quality assurance, product documentation and statistics is
responsible for 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, SPSS maintains ongoing relationships with third-party
software developers and publishers for the development of specialized software
products and the acquisition of technology that can be embedded in SPSS
products.
Most statistical algorithms used by SPSS in its products are published
for the convenience of its customers. SPSS employs full-time statisticians who
regularly research and evaluate new algorithms and statistical techniques for
inclusion in SPSS' products. SPSS also employs statistically-trained
professionals in its documentation, quality assurance, software design and
software engineering groups.
SPSS intends to continue to invest in product development. SPSS' 1999
development plan emphasizes scalability in all its data mining products for
handling of large databases efficiently, with client/server versions planned for
the SPSS product, Clementine, AnswerTree, and a new product in 1999 for business
forecasting called DecisionTime. A series of web-based deployment products that
bring data mining results to large numbers of users in organizations are another
emphasis, with new products planned for web-based surveys, for scoring
individual cases or whole databases using models generated by AnswerTree, for
scenario testing of predictive models built by DecisionTime, and for
browser-based reporting using pre-defined tables and graphs. Upgrades to many of
SPSS market research products will be completed in 1999, including Quanvert and
In2Quest, while work proceeds on a major new integrated system for data
collection for the future. Other product upgrades that are included in 1999
development plans are DeltaGraph for Windows, allCLEAR, QI Analyst, SigmaPlot,
SYSTAT, and TextSmart.
In the past, SPSS has experienced delays in the introduction of new
products and product enhancements primarily due to staffing shortages or
problems in new technologies or operating systems. These delays have varied
depending upon the size and scope of the project and the nature of the problems
encountered. From time to time SPSS learns of defects in its products that are
resolved through product patches that are posted on its web site for downloading
by customers, patches that are sent to customers automatically, or fixes that
are included in the next planned product update, depending on the seriousness of
the defect.
The SPSS product development staff currently includes approximately 157
professionals organized into groups for software design, statistical
development, software engineering, documentation, quality assurance and product
localization. SPSS' expenditures for product development, including capitalized
software, were approximately $17.1 million in 1996, $19.4 million in 1974 and
$22.5 million in 1998.
SPSS also uses independent contractors in its product development
efforts. Sometimes SPSS uses these 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
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<PAGE> 15
SPSS is unfamiliar or which are too costly to acquire for development purposes.
SPSS has outsourced maintenance, conversion and new programming for some
products to enable its internal development staff to focus exclusively on
products which are of greater strategic significance. SPSS sometimes uses
independent contractors to augment its development capacity at a lower cost.
MANUFACTURING AND ORDER FULFILLMENT
SPSS entered into the IBM Software Distribution Agreement in February
1993 to assure speed and efficiency in the manufacturing order fulfillment and
delivery of its products. From April 1993 to December 1996, IBM performed all
diskette and CD-ROM duplication, documentation printing, packaging, warehousing,
fulfillment and shipping of SPSS products in the western hemisphere. In January
1997, the IBM software distribution agreement was replaced with a similar
agreement with Banta Global Turnkey. These services have recently been expanded
worldwide. SPSS believes that, because of the size capacity of these third party
distribution centers and their around-the-clock operation, SPSS can easily adapt
to peak period demand, quickly manufacture new products for distribution and
effectively respond to anticipated sales volumes.
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,
SPSS believes that it competes effectively against its competitors, particularly
on desktop computing platforms. SPSS considers its primary worldwide competitor
to be the larger and better-financed SAS Institute, although SPSS believes that
SAS' revenues are derived principally from products for purposes other than
statistical analysis and operate on large systems platforms. StatSoft Inc.,
developers of the Statistica product, Manugistics Group, Inc., distributors of
the Statgraphics Plus product, and Minitab, Inc. 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.
SPSS 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, SPSS competes on the basis of price. SPSS maintains pricing and
licensing policies to meet market demand. SPSS 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;
- its worldwide distribution capabilities; and
- its widely recognized name.
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<PAGE> 16
In the future, SPSS may face competition from new entrants into the
statistical software market. SPSS 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 SPSS.
INTELLECTUAL PROPERTY
SPSS 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. SPSS 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, SPSS licenses
its products to end-users by use of a "shrink-wrap" license, as is customary in
the industry. It is uncertain whether these license agreements are legally
enforceable. The source code for all of SPSS' products is protected as a trade
secret and as unpublished copyrighted work. In addition, SPSS has entered into
confidentiality and nondisclosure agreements with its key employees. Despite
these restrictions, the possibility exists for competitors or users to copy
aspects of SPSS' products or to obtain information which SPSS regards as a trade
secret. SPSS has no patents, and judicial enforcement of copyright laws and
trade secrets may be uncertain, particularly outside of North America.
Registrations of selected Jandel trademarks in Germany have been withdrawn based
on an opposition by a company with registration for "Sigma" for electronic
registers. SPSS believes it will be able to use its "Sigma" trademarks on
products in Germany. 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.
SPSS uses a variety of trademarks with its products. Management
believes there are currently twenty trademarks in use which are material to
SPSS' business:
- SPSS is a registered trademark used in connection with virtually all
of SPSS' products, other than DOS-based products;
- SPSS/PC+ is an unregistered trademark used in connection with SPSS'
DOS-based products;
- SPSS Categories is an unregistered trademark used with SPSS'
correspondence analysis products on all platforms;
- Neural Connection is a registered trademark being used with SPSS'
neural network-based product;
- QI Analyst is an unregistered trademark and is being used with SPSS'
new process control software for Windows;
- SPSS Real Stats. Real Easy. is an unregistered trademark used in
connection with SPSS products generally;
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<PAGE> 17
- SYSTAT is a registered trademark used in connection with SPSS' SYSTAT
products on all platforms;
- Jandel Scientific is a registered trademark used in connection with
SPSS' recently acquired Jandel products on all platforms;
- Jandel is an unregistered trademark used in connection with SPSS'
recently acquired Jandel products on all platforms;
- SigmaPlot is a registered trademark used in connection with SPSS'
recently acquired Jandel products on all platforms;
- SigmaStat is a registered trademark used in connection with SPSS'
recently acquired Jandel products on all platforms;
- CLEAR is a registered trademark used in connection with SPSS' recently
acquired CLEAR products on all platforms;
- allCLEAR is the subject of a pending application for registration and
is being used in connection with SPSS' Clear products;
- AnswerTree, Text Smart, SmartViewer and NewView are the subject of
pending applications for registration and are add on products to
the SPSS product family;
- Quantime is an unregistered trademark used in connection with SPSS'
recently acquired Quantime products on all platforms;
- Quancept is a registered trademark used in connection with SPSS'
recently acquired Quantime products on all platforms;
- In2itive Technologies and In2Quest are registered trademarks in
Denmark and are used in connection with SPSS' recently acquired
In2itive products on all platforms;
- Clementine is a registered trademark used in connection with SPSS'
recently acquired Integral Solutions product;
- Surveycraft is an unregistered trademark used in connection with SPSS'
recently acquired Surveycraft products; and
- ScyTab is an unregistered trademark used in connection with SPSS'
recently acquired ScyTab products.
Some of these trademarks comprise portions of other SPSS trademarks.
SPSS has registered some of its trademarks in the United States and some 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 presumes 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.
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<PAGE> 18
Due to the rapid pace of technological change in the software industry,
SPSS 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 SPSS' personnel, new product development, frequent
product enhancements, name recognition and ongoing reliable product maintenance
and support.
SPSS 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
SPSS has entered into a perpetual nonexclusive license agreement, the
HOOPS agreement, with Autodesk Inc. that permits SPSS to incorporate a graphics
software program known as the HOOPS Graphics System into SPSS' products. Under
the terms of the HOOPS agreement, SPSS is currently required to pay royalties to
Autodesk based on the amount of revenues received by SPSS from products which
incorporate the HOOPS Graphics System. SPSS 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.
SPSS also licenses certain other software programs from third-party
developers and incorporates them into SPSS' products. Many of these are
exclusive worldwide licenses which terminate upon varying dates. SPSS believes
that it will be able to renew non-perpetual licenses or that it will be able to
obtain substitute products if needed.
SPSS currently has contracts with companies based in India and other
foreign countries, which provide software development and engineering services.
These companies are providing these services for the development of new
components of the graphical user interface used in SPSS' products and for
porting SPSS' product to some UNIX/Motif platforms. SPSS may increase the amount
of software development and engineering work performed by third-party
contractors in India, or elsewhere, in the future.
BANTA GLOBAL TURNKEY DISTRIBUTION AGREEMENT
In January 1997, SPSS entered into the Banta Global Turnkey software
distribution agreement, under which Banta Global Turnkey manufactures, packages,
and distributes SPSS' software products to SPSS' domestic and international
customers and some international subsidiaries. The Banta agreement has a
three-year term, and automatically renews thereafter for successive periods of
one year. Either party may terminate the Banta agreement with 180 days' written
notice. If Banta terminates the Banta agreement for convenience or for any other
reason (other than for cause), then during the 180-day notice period Banta will
assist SPSS in finding a new vendor. If either party materially breaches its
obligations, the other party may terminate the Banta agreement for cause by
written notice. This termination notice for cause must specifically identify the
breach or breaches, upon which the termination based and will be effective 180
days after the notice is received by the other party, unless the breach(es) is
(are) corrected during the 180 days.
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<PAGE> 19
PRENTICE HALL AGREEMENT
SPSS entered into the Prentice Hall agreement in February 1993. Under
this agreement, SPSS granted to Prentice Hall the exclusive, worldwide right to
publish and distribute all SPSS publications, including student versions of SPSS
for DOS and Windows. SPSS received advance royalty payments in the amount of
$4 million, payable as follows:
- $1.6 million was paid upon execution of the agreement;
- $1.6 million was paid in January 1994; and
- $800,000 was paid in February 1995.
If operational versions of the student software are not delivered to
Prentice Hall by specified dates, then the agreement provides for reductions in
advance royalties and additional advance royalties for new types of student
software developed by SPSS. The initial Prentice Hall agreement had a five-year
term which ended in 1998.
SPSS entered into a new five-year contract with Prentice Hall in April
1998. Prentice Hall has an option to renew this contract for five additional
years if it pays SPSS $2,750,000 or more during the term of this agreement. If
Prentice Hall does not pay SPSS $1,100,000 by the end of the second year of the
contract, SPSS has the option to make Prentice Hall's right to distribute
Student Versions non-exclusive. The key differences in the new contract are (1)
Prentice Hall may only operate in certain geographic territories, instead of
having worldwide rights; (2) Prentice Hall only has rights to certain books and
SPSS may sell any book (previously SPSS had to purchase the books from Prentice
Hall); and (3) SPSS can now, within certain guidelines, license other publishers
to put versions of the SPSS Student Version in the back of textbooks.
COMPUTER SOFTWARE DEVELOPMENT COMPANY
In 1981, SPSS entered into a software development agreement with the
Computer Software Development Company to obtain funding of approximately $2
million for development of software including two large system products, SPSS
Graphics and SPSS Tables, and one desktop product, SPSS/PC+ Tables. SPSS entered
into two software purchase agreements with Computer Software Development, under
which SPSS is required to pay Computer Software Development royalties through
the year 2001 based on a percentage of "net revenues" (as defined in the
agreements) from large system software products developed with Computer Software
Development funds. Under these agreements, SPSS incurred royalties payable of
approximately $255,000 in 1996, $249,000 in 1997 and $234,000 in 1998 to
Computer Software Development. Norman Nie, the Chairman of the Board of SPSS, is
a limited partner of Computer Software Development.
SEASONALITY
SPSS' 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;
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<PAGE> 20
- the timing of product shipments;
- changes in product mix; and
- timing and cost of acquisitions and general economic conditions.
If forecasts of future revenues fall below expectations operating results may be
adversely affected because SPSS' expense levels are to a large extent based on
these forecasts. Accordingly, SPSS 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. SPSS 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. SPSS has experienced a seasonal pattern in
its operating results with the fourth quarter typically having the highest
operating income. For example, excluding special general and administrative,
merger-related and acquired in-process technology charges, the percentage of
SPSS' operating income realized in the fourth quarter was 32% in 1996, 35% in
1997 and 36% in 1998. In addition, the timing and amount of SPSS' revenues are
affected by a number of factors that make estimation of operating results prior
to the end of a quarter uncertain. A significant portion of SPSS' 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. If SPSS fails to achieve these fourth quarter revenue increases,
then a material reduction in net income for the fourth quarter and the full year
could result. Generally, if revenues do not meet SPSS' expectations in any given
quarter, operating results will be adversely affected. SPSS can not provide
assurance that profitability on a quarterly or annual basis in the future.
EMPLOYEES
SPSS has approximately 782 employees, approximately 456 domestically,
and 326 internationally. Of the approximate 782 employees, there are
approximately 490 in sales and marketing, 157 in product development and 135 in
general and administrative. SPSS believes it has generally good relationships
with its employees. None of SPSS' 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. This information may not necessarily be indicative of
trends for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $ 47,128,000 $ 55,552,000 $ 62,785,000
Europe & India 38,798,000 41,680,000 45,337,000
Pacific Rim 13,695,000 13,412,000 13,265,000
-------------- -------------- --------------
Total $ 99,621,000 $ 110,644,000 $ 121,387,000
============== ============== ==============
Sales or transfers between
geographic areas:
United States $ 16,914,000 $ 18,261,000 $ 18,365,000
Europe & India (11,772,000) (12,613,000) (12,714,000)
Pacific Rim (5,142,000) (5,648,000) (5,651,000)
-------------- -------------- --------------
Total $ -- $ -- $ --
============== ============== ==============
Operating income
United States $ 6,842,000 $ 5,950,000 $ 4,433,000
Europe & India 615,000 (232,000) 10,799,000
Pacific Rim 2,460,000 1,268,000 1,397,000
-------------- -------------- --------------
Total $ 9,917,000 $ 6,986,000 $ 16,629,000
============== ============== ==============
<CAPTION>
DECEMBER 31,
----------------------------------- -----------------
1996 1997 1998
-------------- ---------------- --------------
<S> <C> <C> <C>
Identifiable assets:
United States $ 39,131,000 $ 41,610,000 $ 64,000,000
Europe & India 19,118,000 16,227,000 21,694,000
Pacific Rim 4,803,000 4,908,000 5,595,000
-------------- -------------- --------------
Total $ 63,052,000 $ 62,745,000 $ 91,289,000
============== ============== ==============
</TABLE>
SPSS' revenues from operations outside of North America accounted for
approximately 53%, in 1996, 50% in 1997 and 48% in 1998. SPSS 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 SPSS further "localizes" the SPSS product line by translating
its products into additional languages. Various risks impact international
operations. Those risks include 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. SPSS 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 SPSS expands its international operations, the risks described above could
increase and could have a material adverse effect on SPSS. See "Business - Sales
and Marketing," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Note 2, Domestic and Foreign Operations, of the
"Notes to Consolidated Financial Statements."
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ITEM 2. PROPERTIES
SPSS' principal administrative, marketing, training and product
development and support facilities are located in Chicago, Illinois. During
1997, SPSS entered into a 15-year sublease agreement to sublease approximately
100,000 square feet of office space in the Sears Tower. This space became the
principal Chicago offices of SPSS in 1998. The aggregate annual gross rental
payments on these leases were approximately $1,863,000.
In addition, SPSS leases sales office space in California,
Massachusetts, Virginia, New York, Ohio, The Netherlands, The United Kingdom,
Germany, Sweden, France, Singapore, Australia, Japan, Denmark and India. During
1998, SPSS' French office was moved to larger facilities within France.
SPSS believes its facilities are adequate for its present needs, apart
from its offices in Sweden and the United Kingdom, which SPSS plans to move to
larger facilities in 1999. The United Kingdom move is part of a plan to
consolidate SPSS' United Kingdom offices and eliminate redundant facilities
arising from the recent acquisitions of Quantime and Integrated Solutions.
ITEM 3. LEGAL PROCEEDINGS
Currently, there is no material pending legal proceeding to which SPSS
or any of its subsidiaries is a party or to which any of their property is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
SPSS' common stock is traded on the over-the-counter market on the
Nasdaq National Market under the symbol "SPSS." The following table shows, for
the periods indicated, the high and low closing sale prices for SPSS' common
stock.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
------------------------------------------ ----------- -----------
<S> <C> <C>
First Quarter $ 19 $ 14
Second Quarter 26 1/8 18 1/4
Third Quarter 28 5/8 17 5/8
Fourth Quarter 31 1/8 26 1/4
YEAR ENDED DECEMBER 31, 1997
------------------------------------------
First Quarter 32 7/8 24 3/8
Second Quarter 32 3/4 24 5/8
Third Quarter 34 1/4 27 1/4
Fourth Quarter 28 5/8 17 1/2
YEAR ENDED DECEMBER 31, 1998
------------------------------------------
First Quarter 24 19 1/4
Second Quarter 25 1/8 18 1/2
Third Quarter 26 3/8 18
Fourth Quarter 22 11/16 17
YEAR ENDED DECEMBER 31, 1999
------------------------------------------
First Quarter (through March 17, 1999) 22 16 3/4
</TABLE>
As of March 17, 1999, there were 475 holders of record of SPSS' common stock.
SPSS has never declared or paid any cash dividends on its capital
stock. SPSS currently intends to retain its earnings to fund future ongoing
operations and future capital requirements of its businesses. SPSS does not
anticipate paying any cash dividends in the foreseeable future. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources."
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of
the years in the five-year period ended December 31, 1998 are derived from the
Consolidated Financial Statements of SPSS. The Consolidated Financial Statements
as of December 31, 1997 and 1998, and for each of the years in the three-year
period ended December 31, 1998, and the report thereon of KPMG LLP, are included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ---------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenues:
Desktop products (1) $49,337 $61,255 $72,185 $81,340 $88,506
Large System products (1) 14,825 15,256 15,951 15,867 17,289
Other products and services (1) 10,508 10,892 11,485 13,617 15,592
---------- --------- ------------ ------------ ------------
Net revenues 74,670 87,403 99,621 110,644 121,387
Cost of revenues 8,031 8,789 9,738 9,835 10,048
---------- --------- ------------ ------------ ------------
Gross profit 66,639 78,614 89,883 100,809 111,339
---------- --------- ------------ ------------ ------------
Operating expenses:
Sales and marketing 37,972 44,730 48,532 54,086 59,731
Product development 10,860 12,985 15,972 17,816 20,526
General and administrative 8,711 10,768 11,826 11,578 8,508
Special general and administrative
charges (2) 870 2,794 - 5,616 445
Merger-related (3) 187 530 3,636 4,306 1,948
Acquired in-process technology (4) 871 411 - 421 3,552
---------- --------- ------------ ------------ ------------
Operating expenses 59,471 72,218 79,966 93,823 94,710
---------- --------- ------------ ------------ ------------
Operating income 7,168 6,396 9,917 6,986 16,629
Net interest income (expense) (378) 53 302 326 274
Other income (expense) (128) 132 (134) (488) (238)
---------- --------- ------------ ------------ ------------
Income before income taxes 6,662 6,581 10,085 6,824 16,665
Provision for income taxes 2,466 3,401 3,848 3,242 8,335
---------- --------- ------------ ------------ ------------
Net income $4,196 $3,180 $6,237 $3,582 $8,330
========== ========= ============ ============ ============
Basic net earnings per share $0.56 $0.38 $0.72 $0.41 $0.93
========== ========= ============ ============ ============
Shares used in basic per share
calculation 7,460 8,441 8,680 8,787 8,969
========== ========= ============ ============ ============
Diluted net earnings per share $0.53 $0.35 $0.66 $0.37 $0.87
========== ========= ============ ============ ============
Shares used in diluted per share
calculation 7,926 9,027 9,382 9,626 9,558
========== ========= ============ ============ ============
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ---------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) ($9,766) $3,513 $8,391 $14,154 $12,389
Total assets 41,840 53,096 63,052 62,745 91,289
Long-term obligations,
less current portion 4,079 3,535 3,632 3,155 3,860
Total stockholders' equity 7,018 20,582 28,449 32,462 43,723
</TABLE>
(1) Desktop products include those operating on Windows, DOS, Macintosh and
OS/2 operating environments. Large system products include those
operating on mainframes and minicomputers under proprietary operating
systems, as well as UNIX platforms. Other products and services include
training, consulting, publications sales and, in 1994 and 1995, advance
royalties from Prentice Hall.
24
<PAGE> 25
(2) Write-off principally of particular software assets capitalized more
than two years prior to 1995, charges principally from the revaluation
of some assets associated with SPSS' Macintosh and BMDP product lines
in 1997 and write-off principally of software assets associated with
SPSS' Unix and Open VMS products duplicated through the acquisitions of
Surveycraft and Integral Solutions in 1998.
(3) Includes costs related to acquisitions accounted for as
poolings-of-interests such as investment banking and other professional
fees, employee severance and costs of closing excess office facilities
and certain expenses associated with the closing of other acquisitions.
(4) Includes costs relating to acquired in-process technology.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The original Statistical Package for the Social Sciences was introduced
in 1969, and SPSS was incorporated in 1975. The first SPSS products were almost
exclusively used by academic researchers working on mainframe systems. SPSS 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, acquired nine corporate entities and
product offerings, 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, SPSS introduced its first windows-based graphical
user interface product, SPSS for Windows, which it has since updated four times,
and released versions for Macintosh computers and major UNIX/Motif platforms.
Approximately 58% of 1998 revenues came from sales to customers in corporate
settings, with another 24% in academic institutions and 18% in government
agencies.
In recent years SPSS has experienced a significant shift in the sources
of its revenues. Between 1994 and 1998, desktop product license revenues
increased from approximately 66% to 73% of total net revenues, while large
system software license revenues declined from approximately 20% to 14%. Gross
margins associated with SPSS' desktop products are slightly lower than those
associated with its large system products. Shifts in the product mix may, as a
result, cause fluctuations in gross margins. In addition, the portion of SPSS'
net revenues derived from international operations varied between 48% and 53%
between 1994 and 1998. Management expects these trends to continue in 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- International Operations."
25
<PAGE> 26
RESULTS OF OPERATIONS
The following table shows select statement of income data as a
percentage of net revenues for the years indicated.
<TABLE>
<CAPTION>
YEAR-ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues:
Desktop products 66.1% 70.1% 72.5% 73.5% 72.9%
Large System products 19.8% 17.4% 16.0% 14.2% 14.2%
Other products and services 14.1% 12.5% 11.5% 12.3% 12.9%
---------- --------- --------- ---------- ---------
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 10.8% 10.1% 9.8% 8.9% 8.3%
---------- --------- --------- ---------- ---------
Gross profit 89.2% 89.9% 90.2% 91.1% 91.7%
---------- --------- --------- ---------- ---------
Operating expenses:
Sales and marketing 50.8% 51.2% 48.7% 48.9% 49.2%
Product development 14.5% 14.9% 16.0% 16.1% 16.9%
General and administrative 11.7% 12.3% 11.9% 10.4% 7.0%
Special general and 1.2% 3.2% - 5.1% 0.4%
administrative charges
Merger-related 0.2% 0.6% 3.6% 3.9% 1.6%
Acquired in-process technology 1.2% 0.4% - 0.4% 2.9%
---------- --------- --------- ---------- ---------
Operating expenses 79.6% 82.6% 80.2% 84.8% 78.0%
---------- --------- --------- ---------- ---------
Operating income 9.6% 7.3% 10.0% 6.3% 13.7%
Net interest income (expense) (0.5%) 0.1% 0.3% 0.3% 0.2%
Other income (expense) (0.2%) 0.1% (0.1%) (0.4%) (0.2%)
---------- --------- --------- ---------- ---------
Income before income taxes 8.9% 7.5% 10.2% 6.2% 13.7%
Provision for income taxes 3.3% 3.9% 3.9% 2.9% 6.8%
---------- --------- --------- ---------- ---------
Net income 5.6% 3.6% 6.3% 3.3% 6.9%
========== ========= ========= ========== =========
</TABLE>
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1996, 1997 AND 1998.
Net Revenues. Net revenues increased from $99,621,000 in 1996 to $110,644,000 in
1997, an 11% increase from 1996 and to $121,387,000 in 1998, an increase of 10%
from 1997. These increases were primarily due to an increase in desktop revenues
of 13% in 1997 and 9% in 1998. Large system revenues decreased 2% in 1997 and
increased 10% in 1998. The increase in desktop revenues reflected $47,721,000 in
1997 and $50,506,000 in 1998 of new revenues from licenses of SPSS for Windows.
In addition, revenues from annual license renewals of desktop products increased
by $3,027,000 in 1997 and $2,998,000 in 1998, primarily reflecting a $3,283,000
and $3,140,000 increase in annual license revenue for SPSS for Windows. The
decrease in large system revenues in 1997 was primarily due to a decrease in
international licenses and renewals and a decrease in BMDP revenue. The increase
in large system revenues in 1998 was primarily due to new sales of SPSS software
on mainframes and new sales of Quantime software. In 1997, revenues from other
products and services increased by 19% due to an increase in revenues from
training and consulting services and a 117% increase in revenues from
publications and student products. Revenues from other products and services
increased by 15% in 1998 due to strong growth in training and consulting
revenues in the first three quarters of 1998. Revenues were adversely affected
by foreign currency exchange rates for the three years described.
26
<PAGE> 27
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 $9,738,000 in 1996 to $9,835,000 in 1997, to
$10,048,000 in 1998. These costs increased 1% in 1997 due to higher sales levels
and higher royalties paid to third parties and 2% in 1998 due to higher sales
levels. As a percentage of net revenues, cost of revenues decreased from 10% in
1996, to 9% in 1997 to 8% in 1998.
Sales and Marketing. Sales and marketing expenses increased from $48,532,000 in
1996 to $54,086,000 in 1997 and to $59,731,000 in 1998, an increase of 11% in
1997 and 10% in 1998. These increases were due to expansion of the domestic and
international sales and marketing organizations, increased salary, commission
and payroll related expenses, increased media placement and promotional costs.
Sales and marketing expenses were partially offset by the effects of changes in
foreign currency exchange rates in 1997 and 1998. As a percentage of net
revenues, sales and marketing expenses remained constant at 49%.
Product Development. Product development expenses increased from $15,972,000 in
1996 to $17,816,000 in 1997 and to $20,526,000 in 1998 (net of the effect of
capitalized software development costs of $1,082,000 in 1996, $1,564,000 in 1997
and $1,933,000 in 1998) an increase of 12% in 1997 and an increase of 15% in
1998. In the same periods, SPSS' expense for amortization of capitalized
software and product translations, included in cost of revenues, was $1,561,000
in 1996, $1,703,000 in 1997 and $1,892,000 in 1998. The increases in product
development expenses were primarily due to staff increases, salary increases and
recruiting fees. As a percentage of net revenues, product development expenses
increased from 16% in 1996 and 1997 to 17% in 1998.
General and Administrative. General and administrative expenses decreased from
$11,826,000 in 1996 to $11,578,000 in 1997 and to $8,508,000 in 1998, a decrease
of 2% in 1997 and 27% in 1998. The decrease in 1997 and 1998 was primarily
attributable to reduction in costs and personnel in the acquired Clear, Jandel,
and Quantime entities. This expense decreased as a percentage of net revenues
from 12% in 1996 to 10% in 1997 to 7% in 1998.
Special General and Administrative Charges. Special general and administrative
charges related to the write-off of certain assets in connection with
integration procedures associated with the acquisitions of DeltaGraph, Quantime
and In2itive were $5,616,000 in 1997. SPSS evaluated the fair value of assets
recorded through prior acquisitions and identified certain intangible assets
which had no future value. The respective balances of these assets were written
off during 1997. SPSS also re-evaluated the fair value of assets acquired
through prior acquisitions and identified certain intangible assets which had a
reduced future value. The respective balances of these assets were also written
down during 1997. Special general and administrative charges were $445,000 in
1998 and represented the write-off of duplicate capitalized software development
costs of platforms such as UNIX and Open VMS products as a result of the
acquisitions of Surveycraft and Integral Solutions.
Merger-related. SPSS incurred merger-related costs of $3,636,000 in 1996 and
$4,306,000 in 1997 related to acquisitions accounted for as
pooling-of-interests, which costs include professional fees, employee severance
payments, facility costs and various other expenses. SPSS incurred
merger-related costs of $1,948,000 in 1998 related to acquisitions accounted for
under the purchase method, which costs include employee sign-on bonuses,
employee severance, facility costs, and various other expenses. Included in
these costs is a charge for the consolidation of SPSS' United Kingdom facilities
of $1,307,000 in 1997 and a recovery of $280,000 in 1998 when the plan was
revised based on the acquisition of Integral Solutions. The United Kingdom
facility consolidation plan was established to achieve cost efficiencies through
the elimination of redundant facilities and includes accruals of
27
<PAGE> 28
$526,000 for estimated lease charges, $286,000 for estimated property tax
charges, $207,000 for the write-off of leasehold improvements and $8,000 for
dilapidation charges.
Acquired In-Process Technology. Acquired in-process technology costs were
$421,000 in 1997 and related to an acquisition of a software product from
DeltaPoint. Acquired in-process technology costs were $3,552,000 in 1998
and related to the acquisitions of Surveycraft and Integral Solutions accounted
for under the purchase method.
In November 1998, SPSS acquired all of the outstanding capital stock of
Surveycraft, a major provider of market research software in the Pacific Rim. A
portion of the purchase price was attributable to acquired in-process
technology, as the development work associated with the project had not reached
technological feasibility and was believed to have no alternative future use
other than as market research software. SPSS carefully assessed the fair value
of the acquired in-process technology using an income approach. Future cash
flows were projected over five years discounted to present value using a
discount rate of 18%. SPSS believes the discount rate is appropriate given the
level of risk of unsuccessful completion of the technology as it was estimated
to be approximately 85% complete, both in terms of costs invested as of the
acquisition date relative to completion costs and technical achievements. SPSS
anticipates incurring approximately $50,000 of additional research and
development costs over a short time frame with an anticipated completion date in
1999. In projecting the future revenue streams from the project, SPSS considered
many factors including competition, market growth estimates, time to market and
additional sales and marketing leverage which SPSS could provide to the
Surveycraft products.
In December 1998, SPSS acquired all of the outstanding capital stock of Integral
Solutions, a leading provider of data mining software. A portion of the purchase
price was attributable to acquired in-process technology, as the development
work associated with several projects had not reached technological feasibility
and were believed to have no alternative future use other than as data mining
tools. SPSS carefully assessed the fair value of the acquired in-process
technology using an income approach. Future cash flows were projected over five
years discounted to present value using discount rates ranging from 34% to 37%
depending on the project and the market risks associated with each of the
research and development projects and resulting products. Specific consideration
was given to the stage of development of each research and development effort,
which ranged from 23% to 82% complete, both in terms of costs invested as of the
acquisition date relative to completion costs and technical achievements. SPSS
anticipates incurring approximately $600,000 of additional research and
development costs over a short time frame with anticipated completion dates
throughout 1999. In projecting the future revenue streams from the projects,
SPSS considered many factors including competition, market growth estimates,
time to market and additional sales and marketing leverage which SPSS could
provide to the Integral Solutions products.
Net Interest Income. Net interest income was $302,000 in 1996, $326,000 in 1997
and $274,000 in 1998 primarily due to interest earned on short-term investments.
The decrease in 1998 was due to lower monthly cash balances throughout the year
resulting from payments related to the Quantime and In2itive acquisitions.
Other Income (Expense). Other income (expense) consists mainly of foreign
exchange transactions. These expense amounts were $134,000 in 1996, $488,000 in
1997 and $238,000 in 1998.
Provision for Income Taxes. The provision for income taxes consisted of
$3,848,000 in 1996, $3,242,000 in 1997 and $8,335,000 in 1998. During 1996, the
provision for income taxes represented a
28
<PAGE> 29
tax rate of approximately 34%, excluding the effect of Japanese withholding
taxes on monies transferred out of Japan in 1996 and the revaluation in
allowances for deferred tax assets. During 1997, the provision for income taxes
represented a tax rate of 44%, excluding the effect of Japanese withholding
taxes on monies transferred out of Japan in 1997, and the non-deductibility of
some Quantime expenses. During 1998, the provision for income taxes represented
a tax rate of approximately 38%, excluding the effect of Japanese withholding
taxes on monies transferred out of Japan in 1998, and certain expenses related
to the Surveycraft and Integral Solutions acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
SPSS' long-term debt as of December 31, 1998 is a mortgage on property
in the United Kingdom. As of December 31, 1998, SPSS held approximately
$14,912,000 of cash and short term investments. Funds in 1997 and 1998 were used
primarily for payments related to SPSS' acquisitions, as well as for capital
expenditures including, new computer systems for use in internal product
development and leasehold improvements and furnishings for SPSS' new office
space in the Sears Tower in Chicago, Illinois.
In May 1998, SPSS entered into a new loan agreement with American
National Bank and Trust Company of Chicago to replace its existing agreement
with Bank of America, N.T.S.A. Under the American National agreement, SPSS has
an available $10,000,000 unsecured line of credit under a credit agreement with
American National under which borrowings bear interest at either the prime
interest rate or the Eurodollar Rate, depending on the circumstances. As of
December 31, 1998, SPSS had $9,000,000 in borrowings under the credit agreement.
SPSS' agreement with American National requires SPSS to comply with specified
financial ratios and tests, and, restricts SPSS' ability to:
- incur additional indebtedness;
- create liens on assets;
- make investments;
- engage in mergers, acquisitions or consolidations where SPSS is not the
surviving entity;
- sell assets;
- engage in select transactions with affiliates; and
- amend its organizational documents or make changes in its capital
structure.
Effective December 22, 1998, Integral Solutions had an overdraft
facility of Pounds Sterling 100,000 available until November 30, 1999. Any
amounts owing under the facility are repayable upon demand. If Integral
Solutions borrows against the facility, interest will be charged at the Lloyds
Bank Base Rate plus 2.5% per annum (Base Rate at December 31, 1998 was 8.75%).
At December 31, 1998, the entire facility was unused.
SPSS anticipates the amounts available from cash and cash equivalents
on hand, under its line of credit, and cash flows generated from
operations, will be sufficient to fund SPSS' 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 SPSS on favorable terms or at all.
SPSS' capital expenditures, primarily for leasehold improvements and
office furniture relating to the move to the Sears Tower, totaled approximately
$10,100,000 in 1998 and are projected to total approximately $5,000,000 in 1999
and in 2000. Capital expenditures during 1998 included new computer systems for
use in internal product development, leasehold improvements and furnishings for
SPSS' move to the Sears Tower and expenditures made for the office move in
France. Capital
29
<PAGE> 30
expenditures during 1999 will include new computers primarily for use in
internal product development, and furnishings and other equipment related to the
move of SPSS' facilities in Sweden. SPSS 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 SPSS' international operations also occurred from
1994 to 1998. Revenues from international operations comprised approximately 48%
to 53% of total net revenues between 1994 and 1998. They were approximately 48%
of total net revenues in 1998.
Following the reorganization of its international operations in 1990,
SPSS 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' domestic and international operations are essentially the
same.
As international revenues increase, SPSS may experience additional
foreign currency exchange risk. To mitigate these effects, SPSS hedges its
transaction exposure (i.e., the effect on earnings and cash flows of changes in
foreign exchange rates on receivables and payables denominated in foreign
currencies). SPSS does not hedge its foreign currency exposure in a manner that
would entirely eliminate the effects of changes in foreign exchange rates on
SPSS' consolidated net income. Accordingly, SPSS' reported revenues and net
income have been and in the future may be affected by the changes in foreign
exchange rates.
YEAR 2000
Many computer systems and applications currently use two digits to
define the applicable year. As a result, date-sensitive systems may recognize
the year 2000 as 1900 or not at all, which could cause miscalculations or system
failures. SPSS uses software and other related technologies throughout its
business and also sells computer software that will be affected by the date
change in the year 2000. The four areas where year 2000 issues may affect SPSS
include:
- SPSS' information technology (IT) systems;
- SPSS non-IT systems;
- the computer software SPSS sells; and
- third parties with material relationships with SPSS, such as vendors
and suppliers.
To address the year 2000 issue, SPSS assembled a committee of
representatives from all divisions and operating areas in early 1998. An
inventory of the readiness of all major IT and non-IT systems has been completed
and SPSS is in the process of testing and replacing non-compliant systems. This
process is expected to be completed by mid-1999. Likewise SPSS has been testing
the software it sells to third parties. The year 2000 compliance of SPSS
products is detailed at SPSS' Web Site at www.spss.com. Finally, SPSS has sent
compliance question letters to all its major suppliers. Virtually all have
responded and most of those responding signed the SPSS standard compliance
letter, as SPSS requested. Those responding suppliers that did not sign the SPSS
standard compliance letter instead provided their own year 2000 compliance
materials. These materials have been forwarded to the appropriate members of
SPSS' year 2000 committee for evaluation. Thus far, the SPSS year 2000
30
<PAGE> 31
committee has not encountered any material issues. The SPSS year 2000 committee
will be developing contingency plans in the event of year 2000 non-compliance
and expects to have this completed by mid-1999.
While SPSS' year 2000 readiness plans are underway, the consequences of
non-compliance by SPSS, its major service providers, vendors or suppliers could
have a material adverse effect on SPSS' operations. Although SPSS does not
anticipate any major non-compliance issues, there can be no assurance that there
will not be a delay in, or increased costs associated with, the implementation
of SPSS' year 2000 readiness plan.
SPSS currently believes that the greatest risk of disruption in its
business exists in the event of non-compliance by its material third parties.
Some of the possible consequences of non-compliance by SPSS or its material
third party suppliers include:
- inability to efficiently contact customers to obtain orders;
- inability to get orders to fulfillment houses;
- inability to send product to customers; and
- invoice and collection errors.
Given these risks, SPSS is developing contingency plans intended to
mitigate the possible disruption in business operations that may result from
year 2000 non-compliance. It is currently estimated that the aggregate cost of
SPSS' year 2000 efforts will be approximately $1.25 million to $1.5 million, of
which $750,000 has been incurred to date. These costs do not include any costs
associated with the implementation of contingency plans, which are in the
process of being developed.
SPSS' year 2000 readiness plan is an ongoing process and the estimates
of costs and completion dates for various components of the program as described
above are subject to change.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISKS
SPSS' market risk disclosures pursuant to item 7A are not material and
are therefore not required.
31
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SPSS INC. AND SUBSIDIARIES
INDEX
PAGE
Independent Auditors' Report........................................... 33
Consolidated Balance Sheets as of December 31, 1997 and 1998........... 34
Consolidated Statements of Income for the years ended
December 31, 1996, 1997 and 1998................................... 35
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1996, 1997 and 1998................................... 36
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998................................... 37
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998................................... 38
Notes to Consolidated Financial Statements............................. 39
Financial Statement Schedule:
Schedule II Valuation and qualifying accounts....................... 55
Schedules not filed
All schedules other than that indicated in the index have been omitted as the
required information is inapplicable or the information is presented in the
consolidated financial statements or related notes.
32
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SPSS Inc.:
We have audited the consolidated financial statements of SPSS Inc. and
subsidiaries (SPSS) as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are the
responsibility of SPSS' management. Our responsibility is to express an opinion
on these consolidated financial statements and the financial statement schedule
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, 1997 and 1998, and the results of their
operations, and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/KPMG LLP
Chicago, Illinois
February 17, 1999
33
<PAGE> 34
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,079 $ 14,912
Accounts receivable, net of allowances of $1,714 in 1997 and $2,106 in 1998 27,872 33,825
Inventories 2,520 2,871
Deferred income tax assets, net -- 2,183
Prepaid expenses and other current assets 2,811 2,304
---------- -----------
Total current assets 41,282 56,095
---------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Land and building 1,700 1,721
Furniture, fixtures, and office equipment 6,044 7,252
Computer equipment and software 18,032 23,068
Leasehold improvements 2,627 6,434
---------- -----------
28,403 38,475
Less accumulated depreciation and amortization 18,974 22,783
---------- -----------
Net equipment and leasehold improvements 9,429 15,692
---------- -----------
Capitalized software development costs, net of accumulated amortization 6,703 10,658
Goodwill, net of accumulated amortization 1,062 5,110
Deferred income taxes 2,588 --
Other assets 1,681 3,734
---------- -----------
$ 62,745 $ 91,289
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 71 $ 9,000
Accounts payable 5,013 6,146
Accrued royalties 482 571
Accrued rent 428 847
Other accrued liabilities 9,912 10,431
Income taxes and value added taxes payable 1,299 5,822
Customer advances 208 579
Deferred revenues 9,715 10,310
---------- -----------
Total current liabilities 27,128 43,706
---------- -----------
Deferred income taxes 1,936 2,638
Other non-current liabilities 1,219 1,222
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 50,000,000 shares authorized; 8,811,644 and
9,029,326 shares issued and outstanding at December 31, 1997 and
December 31, 1998, respectively 88 90
Additional paid-in capital 44,313 47,054
Accumulated other comprehensive income (1,065) (877)
Accumulated deficit (10,874) (2,544)
---------- -----------
Total stockholders' equity 32,462 43,723
---------- -----------
$ 62,745 $ 91,289
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
34
<PAGE> 35
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
------------- ------------ -------------
<S> <C> <C> <C>
Net revenues:
Desktop products $ 72,185 $ 81,340 $ 88,506
Large System products 15,951 15,687 17,289
Other products and services 11,485 13,617 15,592
------------ ----------- ------------
Net revenues 99,621 110,644 121,387
Cost of revenues 9,738 9,835 10,048
------------ ----------- ------------
Gross profit 89,883 100,809 111,339
------------ ----------- ------------
Operating expenses:
Sales and marketing 48,532 54,086 59,731
Product development 15,972 17,816 20,526
General and administrative 11,826 11,578 8,508
Special general and administrative charges -- 5,616 445
Merger-related 3,636 4,306 1,948
Acquired in-process technology -- 421 3,552
------------ ----------- ------------
Operating expenses 79,966 93,823 94,710
------------ ----------- ------------
Operating income 9,917 6,986 16,629
------------ ----------- ------------
Other income (expense):
Interest income 498 530 1,024
Interest expense (196) (204) (750)
Other (134) (488) (238)
------------ ----------- ------------
Other income (expense) 168 (162) 36
------------ ----------- ------------
Income before income taxes 10,085 6,824 16,665
Income tax expense 3,848 3,242 8,335
------------ ----------- ------------
Net income $ 6,237 $ 3,582 $ 8,330
============ =========== ============
Basic net income per share $ 0.72 $ 0.41 $ 0.93
============ =========== ============
Shares used in computing basic net
income per share 8,680,145 8,787,403 8,969,131
============ =========== ============
Diluted net income per share $ 0.66 $ 0.37 $ 0.87
============ =========== ============
Shares used in computing diluted net
income per share 9,381,984 9,626,114 9,557,955
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
35
<PAGE> 36
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Net income $ 6,237 $ 3,582 $ 8,330
Other comprehensive income (loss):
Foreign currency translation adjustment 313 (687) 188
------------- ------------- ------------
Comprehensive income $ 6,550 $ 2,895 $ 8,518
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
36
<PAGE> 37
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Common stock, $.01 par value:
Balance at beginning of period $ 86 $ 87 $ 88
Issuance of 49,541 and 26,081 shares of common
stock in 1996 and 1997, respectively -- -- --
Sale of 8,319, 11,256 and 18,663 shares of common
stock to the Employee Stock Purchase Plan in
1996, 1997 and 1998, respectively -- -- --
Exercise of stock options and other 1 1 2
--------- --------- ---------
Balance at end of period $ 87 $ 88 $ 90
--------- --------- ---------
Additional paid-in capital:
Balance at beginning of period $ 41,627 $ 43,196 $ 44,313
Issuance of 49,541 and 26,081 shares of common
stock in 1996 and 1997, respectively 547 322 --
Sale of 8,319, 11,256 and 18,663 shares of common
stock to the Employee Stock Purchase Plan
in 1996, 1997 and 1998, respectively 184 297 410
Exercise of stock options and other 326 148 1,323
Income tax benefit related to stock options 358 350 1,008
Undistributed earnings related to business combination 154 -- --
--------- --------- ---------
Balance at end of period $ 43,196 $ 44,313 $ 47,054
--------- --------- ---------
Accumulated other comprehensive income:
Balance at beginning of period $ (691) $ (378) $ (1,065)
Translation adjustment 313 (687) 188
--------- --------- ---------
Balance at end of period $ (378) $ (1,065) $ (877)
--------- --------- ---------
Accumulated deficit:
Balance at beginning of period $ (20,440) $ (14,456) $ (10,874)
Net income 6,237 3,582 8,330
Undistributed earnings related to business combination (154) -- --
Dividends declared (99) -- --
--------- --------- ---------
Balance at end of period $ (14,456) $ (10,874) $ (2,544)
--------- --------- ---------
Total stockholders' equity $ 28,449 $ 32,462 $ 43,723
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
37
<PAGE> 38
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,237 $ 3,582 $ 8,330
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,465 6,731 6,743
Deferred income taxes (1,020) (1,629) (545)
Write-off of software development costs
and other assets -- 3,862 445
Write-off of acquired in-process technology -- 421 3,552
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (4,276) (6,276) (5,107)
Inventories (256) (376) (164)
Accounts payable 316 541 964
Accrued royalties 24 (38) 89
Accrued expenses 360 (1,671) (1,494)
Accrued income taxes 94 (2,632) 4,382
Other 698 (1,621) 558
---------- ---------- ---------
Net cash provided by operating activities 7,642 894 17,753
---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures, net (4,405) (2,698) (10,118)
Capitalized software development costs (1,758) (3,791) (4,070)
Net payments related to acquisitions (418) (1,006) (8,404)
---------- ---------- ---------
Net cash used in investing activities (6,581) (7,495) (22,592)
---------- ---------- ---------
Cash flows from financing activities:
Net (repayments) borrowings under
line-of-credit agreements (75) 71 8,929
Proceeds from issuance of common stock 1,058 768 1,735
Income tax benefit from stock options exercised 358 350 1,008
Other (99) -- --
---------- ---------- ---------
Net cash provided by financing activities 1,242 1,189 11,672
---------- ---------- ---------
Net change in cash and cash equivalents 2,303 (5,412) 6,833
Cash and cash equivalents at beginning of period 11,188 13,491 8,079
---------- ---------- ---------
Cash and cash equivalents at end of period $ 13,491 $ 8,079 $ 14,912
========== ========== =========
Supplemental disclosures of cash flow information:
Interest paid $ 189 $ 209 $ 195
Income taxes paid 3,477 7,063 5,612
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
38
<PAGE> 39
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
SPSS Inc. ("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 SPSS' software are
managers and data analysts in corporate settings, governmental and academic
institutions. SPSS 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 SPSS 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
SPSS 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.
Some 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.
On January 1, 1998 SPSS adopted AICPA Statement of Position ("SOP")
97-2, Software Revenue Recognition, which specifies the criteria that must be
met prior to SPSS recognizing revenues from software sales. The adoption of SOP
97-2 in 1998 has not had a material impact on SPSS' financial position or
results of operations.
39
<PAGE> 40
(e) Software Development Costs
Software development costs incurred by SPSS in connection with SPSS'
long-term development projects are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed. SPSS 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. SPSS reviews capitalized software development costs each period and,
if necessary, reduces the carrying value of each product to its net realizable
value.
(f) Earnings per Share
In the fourth quarter of 1997, SPSS adopted SFAS No. 128, Earnings Per
Share, which established new methods for computing and presenting earnings per
share ("EPS") and replaced the presentation of primary and fully-diluted EPS.
Basic earnings per share is based on the weighted average number of shares
outstanding and excludes the dilutive effect of unexercised common stock
equivalents. Diluted earnings per share is based on the weighted average number
of shares outstanding and includes the dilutive effect of unexercised common
stock equivalents.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1997 1998
----------------- ------------------ ---------------
<S> <C> <C> <C>
BASIC EPS
Income Available to Common Shareholders $ 6,237,000 $ 3,582,000 $ 8,330,000
Weighted-Average Number of Common Shares Outstanding 8,680,145 8,787,403 8,969,131
Basic EPS $ 0.72 $ 0.41 $ 0.93
============== =============== ==============
DILUTED EPS .
Income Available to Common Shareholders $ 6,237,000 $ 3,582,000 $ 8,330,000
Weighted-Average Number of Common Shares Outstanding 8,680,145 8,787,403 8,969,131
Effect of dilutive securities:
Employee and director stock options 701,839 838,711 588,824
-------------- --------------- --------------
Weighted-Average Number of Common Shares and
Common Share Options that would be issued upon exercise 9,381,984 9,626,114 9,557,955
-------------- --------------- --------------
Diluted EPS $ 0.66 $ 0.37 $ 0.87
Anti-dilutive shares - 2,163 191,014
============== =============== ==============
</TABLE>
40
<PAGE> 41
(g) Depreciation and Amortization
Depreciation of buildings is provided over thirty years on a
straight-line method. Furniture and equipment is depreciated 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.
As of January 1, 1998, SPSS adopted SOP 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. This standard
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. SOP 98-1 also requires that costs related to the
preliminary project stage and post-implementation/operations stage of an
internal-use computer software development project be expensed as incurred.
During 1998, SPSS capitalized $873,000 and amortized $6,000 of internal-use
computer software.
(h) Income Taxes
SPSS follows SFAS No. 109, Accounting for Income Taxes. SFAS No. 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 SFAS No. 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) Stock Option Plans
Prior to January 1, 1996, SPSS accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying shares exceeded the exercise price. On
January 1, 1996, SPSS adopted SFAS No. 123 Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB No. 25 and provide pro forma net income disclosures for
employee stock option grants made in 1995 and future years as if the fair-value
based method defined in SFAS No. 123 had been applied. SPSS has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(j) 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.
41
<PAGE> 42
(k) 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 to 15 years.
During 1997, certain goodwill assets were revalued and a $905,000 write-off
resulted. Accumulated amortization was $628,000 and $793,000 as of December 31,
1997 and 1998, respectively.
(l) 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 rates during the period. The gains or losses resulting from such
translation are included in stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in "other income and expense" in the
statement of income.
(m) Fair Value of Financial Instruments
The fair values of financial instruments were not materially different
from their carrying values.
(n) Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid investments
with original maturity dates of less than three months.
(o) Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
should be evaluated. Impairment is measured by comparing the carrying value to
the estimated and undiscounted future cash flows expected to result from the use
of the assets and their eventual disposition. SPSS has determined that as of
December 31, 1998, there has been no impairment in the carrying values of the
long-lived assets.
(p) Reclassifications
Where appropriate, some items relating to the prior years have been
reclassified to conform to the presentation in the current year.
42
<PAGE> 43
(2) DOMESTIC AND FOREIGN OPERATIONS
The net assets, net revenues and net earnings of international
subsidiaries as of and for the years ended December 31, 1996, 1997 and 1998
included in the consolidated financial statements are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1997 1998
---------------- ---------------- ---------------
<S> <C> <C> <C>
Working capital (deficit) $ (2,999,000) $ (334,000) $ 7,752,000
=============== =============== ===============
Excess of noncurrent assets over
noncurrent liabilities $ 6,487,000 $ 3,353,000 $ 3,468,000
=============== =============== ===============
Net revenues $ 52,493,000 $ 55,092,000 $ 58,602,000
=============== =============== ===============
Net earnings (loss) $ 1,626,000 $ (860,000) $ 7,017,000
=============== =============== ===============
</TABLE>
Net revenues(1) per geographic region are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
<S> <C> <C> <C>
United States $ 47,128,000 $ 55,552,000 $ 62,785,000
United Kingdom 17,197,000 18,853,000 22,499,000
The Netherlands 9,076,000 10,880,000 11,978,000
Japan 9,689,000 9,621,000 9,750,000
Germany 8,180,000 7,587,000 7,651,000
Other 8,351,000 8,151,000 6,724,000
------------------ ------------------ -----------------
$ 99,621,000 $ 110,644,000 $ 121,387,000
================== ================== =================
</TABLE>
(1) Revenues are attributed to countries based on point-of-sale.
Long-lived assets per geographic region are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
<S> <C> <C> <C>
United States $ 16,224,000 $ 17,248,000 $ 30,880,000
United Kingdom 5,316,000 2,212,000 2,122,000
The Netherlands 619,000 448,000 318,000
Japan 940,000 978,000 1,049,000
Germany 314,000 274,000 269,000
Other 277,000 303,000 556,000
------------------ ------------------ -----------------
$ 23,690,000 $ 21,463,000 $ 35,194,000
================== ================== =================
</TABLE>
43
<PAGE> 44
(3) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE
Activity in capitalized software is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1996 1997 1998
---------------- --------------- ----------------
<S> <C> <C> <C>
Balance, net - beginning of year $6,839,000 $7,036,000 $6,703,000
Additions 1,587,000 3,191,000 5,500,000
Product translations 203,000 1,210,000 792,000
Write-down to net realizable value (32,000) (3,031,000) (445,000)
Amortization expense charged to
cost of revenues (1,561,000) (1,703,000) (1,892,000)
---------------- --------------- ----------------
Balance, net - end of year $7,036,000 $6,703,000 $10,658,000
================ =============== ================
</TABLE>
The components of net capitalized software are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1998
---------------- ---------------
<S> <C> <C>
Product translations $ 1,687,000 $ 1,883,000
Acquired software technology 1,567,000 4,310,000
Capitalized software development costs 3,449,000 4,465,000
--------------- --------------
Balance, net -- end of year $ 6,703,000 $ 10,658,000
=============== ==============
</TABLE>
Total software development costs, including amounts expensed as
incurred, amounted to approximately $17,762,000, $21,607,000 and $24,596,000,
for the years ended December 31, 1996, 1997 and 1998, respectively.
Included in acquired software technology at December 31, 1997 and 1998
is $164,000 and $126,000 of technology resulting from the purchase of the
DeltaGraph product. (See Note 4)
Included in acquired software technology at December 31, 1998 is
$202,000 and $2,020,000 of technology resulting from the purchase of Surveycraft
Pty Ltd. and Integral Solutions Ltd., respectively. (See Note 4)
44
<PAGE> 45
(4) ACQUISITIONS
As of December 29, 1995, SPSS 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, SPSS 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. 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. During 1996
some assumed liabilities were revalued, and consequently BMDP goodwill was
increased to $542,000. During 1997, BMDP goodwill was written off since the
value of future benefit from BMDP products was determined to be minimal.
In September 1996, SPSS 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 financial statements have been
restated as if SPSS and Clear had been combined for all periods presented.
In November 1996, SPSS acquired all of the outstanding capital stock of
Jandel Corporation and Subsidiary ("Jandel"), a developer and marketer of
graphical and statistical software products used mainly in scientific
applications, in exchange for 339,427 shares of Common Stock. The merger with
Jandel was accounted for as a pooling of interests and, accordingly, the
financial statements have been restated as if SPSS and Jandel had been combined
for all periods presented.
In May 1997, SPSS purchased all of DeltaPoint Inc.'s assets primarily
relating to and comprising DeltaGraph computer software products for $910,000.
The transaction was accounted for as an asset purchase, and, accordingly the
acquired assets were recorded at their estimated fair market values. The $8,000
excess of the purchase price over the fair market values of the assets was
recorded as goodwill.
In September 1997, SPSS acquired approximately 97% of the outstanding
shares of capital stock of Quantime Limited ("Quantime"), a corporation
organized under the laws of England, in exchange for 863,049 shares of Common
Stock. In November 1997, SPSS acquired the remaining shares of capital stock of
Quantime in exchange for 28,175 shares of Common Stock. The acquisition was
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements have been restated as if SPSS and Quantime had been
combined for all periods presented. Quantime is a developer of market research
products.
In November 1997, SPSS acquired the outstanding shares of capital stock
of In2itive Technologies A/S ("In2itive"), a corporation organized under the
laws of Denmark, in exchange for 140,727 shares of Common Stock in a merger
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements have been restated as if SPSS and In2itive had been
combined for all periods presented. In2itive is a computer software company
specializing in market research software. SPSS will continue to operate the
In2itive business principally from the In2itive headquarters in Copenhagen,
Denmark.
45
<PAGE> 46
In November 1998, SPSS acquired all of the outstanding shares of
capital stock of Surveycraft for an aggregate purchase price of approximately
$1,700,000. The Surveycraft acquisition was accounted for as a purchase and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values. In the fourth quarter of 1998, SPSS recorded charges of
approximately $863,000 representing a one-time write-off of acquired in-process
technology and other merger-related costs. Surveycraft is a computer software
company specializing in market research software. SPSS will consolidate the
Surveycraft business into its Australia and Cincinnati offices.
On December 31, 1998, SPSS acquired all of the outstanding shares of
capital stock of Integral Solutions Limited ("Integral Solutions"), a
corporation incorporated under the laws of England, from the shareholders of
Integral Solutions (the "Shareholders"). The stock purchase occurred pursuant to
the Stock Purchase Agreement between SPSS and the Shareholders in the United
Kingdom (the "Agreement") dated as of December 31, 1998. SPSS acquired Integral
Solutions from the Shareholders for approximately $7,000,000 plus some
Contingent Payments (as defined in the Agreement) of up to approximately
$7,000,000 based on future results of the acquired business (the "Purchase
Price"). The amount of these payments was not determinable at December 31,
1998. Additional payments will be recorded as an adjustment to purchase price in
the periods in which such payments are determinable. The Integral Solutions
acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities have been recorded at their estimated fair values. In the
fourth quarter of 1998, SPSS recorded charges of approximately $5,053,000
representing a one-time write-off of acquired in-process technology and other
merger-related costs. Integral Solutions is a leading full-service data mining
company, supplying consultancy and training. SPSS will consolidate operations of
the Integral Solutions business with other SPSS offices in the United Kingdom.
The following summary presents information concerning the purchase
price allocations for the acquisitions accounted for under the purchase method
for the year ended December 31, 1998.
<TABLE>
<CAPTION>
ACQUIRED
PURCHASED IN-PROCESS PURCHASE
COMPANY NAME SOFTWARE TECHNOLOGY GOODWILL OTHER PRICE (1)
------------ --------- ---------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
Surveycraft $ 202,000 $ 312,000 $1,974,000 $ 533,000 $ 3,021,000
Integral Solutions 2,020,000 3,240,000 2,239,000 1,741,000 9,240,000
----------- ----------- ---------- ---------- -----------
$ 2,222,000 $ 3,552,000 $4,213,000 $2,274,000 $12,261,000
=========== =========== ========== ========== ===========
</TABLE>
- -------------------
(1) Purchase price included costs associated with the acquisition and
acquired deferred tax liabilities.
The following unaudited pro forma summary presents SPSS' results of
operations as if the acquisitions of Surveycraft and Integral Solutions had
occurred at the beginning of each period. This summary is provided for
informational purposes only. It does not necessarily reflect the actual results
that would have occurred had the acquisitions been made as of the beginning of
each period presented, or of results that may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------
1997 1998
------------------ ------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues 115,307 126,214
Net income 2,481 7,575
Net income per share 0.26 0.79
</TABLE>
46
<PAGE> 47
SPSS incurred significant costs and expenses in connection with these
acquisitions, including professional fees, employees' severance and various
other expenses. Such expenses were recorded as part of the purchase price in
connection with the Surveycraft and Integral Solutions acquisitions accounted
for as purchases.
(5) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
SPSS leases its office facilities, storage space, and some data
processing equipment under lease agreements expiring through the year 2012.
Minimum lease payments indicated below do not include costs such as property
taxes, maintenance, and insurance.
The following is a schedule of future noncancellable minimum lease
payments required under operating leases as of December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ -------------------
<S> <C>
1999 $ 4,016,000
2000 3,471,000
2001 2,993,000
2002 2,625,000
2003 2,360,000
Thereafter 19,704,000
-------------------
$ 35,169,000
===================
</TABLE>
Rent expense related to operating leases was approximately $4,109,000,
$4,631,000 and $5,166,000 during the years ended December 31, 1996, 1997, and
1998, respectively.
LITIGATION
SPSS is subject to some legal proceedings and claims that have arisen
in the ordinary course of business and have not been adjudicated. Management
currently believes the ultimate outcome of these matters will not have a
material adverse effect on SPSS' results of operations or financial position.
(6) OTHER NON-CURRENT LIABILITIES
SPSS has a mortgage on its freehold property which houses the Quantime
offices in London, England. The mortgage is held by Norwich Union Investment
Management of Norwich, England and is a fixed 12.04%, 30-year mortgage expiring
in January 2010. The annual principal and interest payments total British
Pounds Sterling (GBP) 109,692 (approximately $182,000). The current portion of
this debt is GBP 29,453 (approximately $49,000).
47
<PAGE> 48
(7) FINANCING ARRANGEMENTS
Effective March 14, 1997, SPSS amended its $5,000,000 unsecured 364-day
revolving credit facility available for advances pursuant to a definitive credit
agreement. SPSS pays a facility fee of 0.25% on the unused portion of the
facility. If SPSS does borrow against the facility, interest will be charged at
the Bank of America reference rate. At December 31, 1997, the entire $5,000,000
of the line of credit was unused.
In May 1998, SPSS entered into a new loan agreement with American
National Bank and Trust Company of Chicago ("American National") to replace its
existing agreement with Bank of America, N.T.S.A. Under the Agreement, SPSS has
an available $10,000,000 unsecured line of credit under a Credit Agreement with
American National under which borrowings bear interest at either the prime
interest rate (7.75% at December 31, 1998) or the Eurodollar Rate, depending on
the circumstances. As of December 31, 1998, SPSS had $9,000,000 in borrowings
under the Credit Agreement.
Effective December 22, 1998, Integral Solutions had an overdraft
facility of GBP 100,000 available until November 30, 1999. Any amounts owing
under the facility are repayable upon demand. If Integral Solutions does borrow
against the facility, interest will be charged at the Lloyds Bank Base Rate plus
2.5% per annum (Base Rate at December 31, 1998 was 8.75%). At December 31, 1998
the entire facility was unused.
(8) OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997 1998
--------------- ---------------- ---------------
<S> <C> <C> <C>
Interest income $ 498,000 $ 530,000 $ 1,024,000
Interest expense (196,000) (204,000) (750,000)
Exchange (loss) on foreign currency
transactions (66,000) (488,000) (238,000)
Other (68,000) -- --
------------- -------------- --------------
Total other income (expense) $ 168,000 $ (162,000) $ 36,000
============= ============== ==============
</TABLE>
(9) INCOME TAXES
Income before income tax consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997 1998
--------------- ---------------- ---------------
<S> <C> <C> <C>
Domestic $ 7,079,000 $ 6,460,000 $ 5,073,000
Foreign 3,006,000 364,000 11,592,000
-------------- --------------- ----------------
$ 10,085,000 $ 6,824,000 $ 16,665,000
============== =============== ================
</TABLE>
48
<PAGE> 49
Income tax expense consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------------- -------------- --------------
<S> <C> <C> <C>
Year ended December 31, 1996
U.S. Federal $ 2,296,000 $ (837,000) $ 1,459,000
State 792,000 (178,000) 614,000
Foreign 1,798,000 (23,000) 1,775,000
------------- ------------ --------------
$ 4,886,000 $ (1,038,000) $ 3,848,000
============= ============ =============
Year ended December 31, 1997
U.S. Federal $ 2,041,000 $ (546,000) $ 1,495,000
State 623,000 (74,000) 549,000
Foreign 2,207,000 (1,009,000) 1,198,000
------------- ------------ --------------
$ 4,871,000 $ (1,629,000) $ 3,242,000
============= ============ =============
Year ended December 31, 1998
U.S. Federal $ 3,970,000 $ (1,140,000) $ 2,830,000
State 873,000 (161,000) 712,000
Foreign 4,037,000 756,000 4,793,000
------------- ------------ --------------
$ 8,880,000 $ (545,000) $ 8,335,000
============= ============ =============
</TABLE>
For the years ended December 31, 1996, 1997 and 1998, the
reconciliation of statutory to effective income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1997 1998
--------------- ---------------- ----------------
<S> <C> <C> <C>
Income taxes using the Federal
statutory rate of 34% $ 3,429,000 $ 2,320,000 $ 5,666,000
State income taxes, net of Federal tax
benefit 404,000 362,000 470,000
Change in valuation allowance (513,000) (1,256,000) -
Foreign taxes at net rates different
from U.S. Federal rates 379,000 1,096,000 524,000
Foreign tax credit (372,000) (273,000) (642,000)
Nondeductible write-off of in-process
research and development - - 1,208,000
Acquisition costs 440,000 592,000 785,000
Other, net 81,000 401,000 324,000
-------------- --------------- ---------------
$ 3,848,000 $ 3,242,000 $ 8,335,000
============== =============== ===============
</TABLE>
49
<PAGE> 50
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1998, are presented below:
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to allowance for doubtful accounts $ 165,000 $ 431,000
Inventories, principally due to additional costs inventoried for tax
pursuant to the Tax Reform Act of 1986 46,000 103,000
Compensated absences, principally due to accrual for financial reporting 79,000 223,000
Research and experimentation credit carryforwards 523,000 491,000
Deferred rent 119,000 455,000
Plant and equipment, principally due to differences in depreciation and
capitalized interest 226,000 583,000
Deferred revenues 1,166,000 1,865,000
Foreign currency loss 171,000 107,000
Acquisition-related items 785,000 1,953,000
State deferred tax asset 838,000 -
U.S. net operating loss carryforwards 160,000 231,000
Non-U.S. net operating loss carryforwards 1,848,000 1,092,000
Other 99,000 149,000
-------------- -------------
Total gross deferred tax assets 6,225,000 7,683,000
Less valuation allowance (3,637,000) (3,637,000)
-------------- -------------
Net deferred tax assets 2,588,000 4,046,000
-------------- -------------
Deferred tax liabilities:
Capitalized software costs 1,364,000 2,826,000
Acquisition-related items - 1,675,000
State deferred tax liability 436,000 -
Other 136,000 -
-------------- --------------
Net deferred tax asset (liability) $ 652,000 $ (455,000)
============== ==============
</TABLE>
During the year ended December 31, 1998, SPSS established $1,652,000 of
deferred tax liabilities as a result of corporate acquisitions.
The valuation allowance decreased $513,000 and $1,256,000 in 1996 and
1997, respectively and remained unchanged in 1998.
As of December 31, 1998, Jandel had net operating loss carryforwards of
approximately $595,000 for Federal purposes, expiring in the year 2010. Due to
the merger with SPSS, Jandel's ability to utilize net operating loss
carryforwards may be affected.
As of December 31, 1998, In2itive had a Denmark net operating loss
carryforward of approximately $3,355,000, which begins to expire in 2000.
As of December 31, 1998, SPSS had a Federal research and
experimentation credit carryforward of approximately $491,000 which begins to
expire in 1999.
50
<PAGE> 51
(10) EMPLOYEE BENEFIT PLANS
Effective February 1, 1995, SPSS amended its 401(k) savings plan.
Qualified employees may participate in the savings plan by contributing up to
the lesser of 15% of eligible compensation or $9,240 in a calendar year. SPSS
does not make any kind of matching contribution.
In 1993, SPSS implemented an employee stock purchase plan. The SPSS
purchase plan provides that eligible employees may contribute up to 10% of their
base salary per quarter towards the quarterly purchase of SPSS common stock. The
employee's purchase price is 85% of the fair market value of the stock at the
close of the first business day after the quarterly offering period. The total
number of shares issuable under the purchase plan is 100,000. During 1996, 8,319
shares were issued under the purchase plan at market prices ranging from
$18.3125 to $28.00. During 1997, 11,256 shares were issued under the purchase
plan at market prices ranging from $24.25 to $29.875. During 1998, 18,663 shares
were issued under the purchase plan at market prices ranging from $19.25 to
$23.75. SPSS recorded $29,000, $47,000 and $54,000 in compensation expense
related to the purchase of these shares in 1996, 1997 and 1998, respectively.
(11) RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIPS
SPSS 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 SPSS and under these agreements, SPSS incurred royalty expense to
the partnerships of $349,000, $319,000 and $235,000, for the years ended
December 31, 1996, 1997 and 1998.
(12) STOCK OPTIONS
On January 16, 1992, SPSS adopted a Stock Option Plan for some key
employees. Options vest either immediately or over a four-year period. In
September 1994, SPSS granted options to purchase 150,000 shares of common stock
to the principal owners of SYSTAT. In addition, in June 1995, the stockholders
of SPSS adopted the 1995 Equity Incentive Plan which authorizes the Board of
Directors, under some conditions, to grant stock options and shares of
restricted stock to directors, officers, other key executives, employees and
independent contractors.
51
<PAGE> 52
SPSS applies APB Opinion No. 25 and related interpretations in
accounting for its plans. All options under the plans have been granted at
exercise prices not less than the market value at the date of the grant.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans. Had compensation cost for SPSS' stock option plans been determined
consistent with SFAS No. 123, SPSS' net income available to stockholders would
have been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C>
Net income:
As reported $ 6,237,000 $ 3,582,000 $ 8,330,000
Pro forma 5,547,000 2,616,000 6,016,000
Net earnings per share:
Basic as reported 0.72 0.41 0.93
Basic pro forma 0.64 0.30 0.67
Diluted as reported 0.66 0.37 0.87
Diluted pro forma 0.59 0.27 0.63
</TABLE>
Under the stock option plans, the exercise price of each option equals
the market value of SPSS' stock on the date of grant. For purposes of
calculating the compensation costs consistent with SFAS No. 123, the fair value
of each grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 1996, 1997 and 1998, respectively; no expected dividend yield;
expected volatility of 25 percent; risk free interest rates of 6.53%, 5.57% and
5.30% and expected lives of 8 years. Additional information regarding options is
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------- ------------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------------- ------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,106,869 $ 7.02 $ 1,379,076 $ 10.39 $ 1,699,106 $ 13.99
Granted 406,621 21.04 392,500 28.15 413,500 21.36
Forfeited (14,702) 11.88 (29,990) 21.28 (52,494) 26.21
Exercised (119,712) 8.23 (42,480) 3.65 (199,019) 6.66
---------------- ------------- ------------- ------------ ------------- ------------
Outstanding at end of year 1,379,076 10.39 1,699,106 13.99 1,861,093 16.43
Options exercisable at
year end 722,029 5.23 984,115 12.58 1,115,749 12.21
</TABLE>
The weighted average fair value of options granted during 1996, 1997
and 1998 was $19.16, $28.15 and $21.36, respectively.
52
<PAGE> 53
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------------------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$ 1.05 304,909 2.71 $ 1.05 304,909 $ 1.05
8.00-9.125 175,882 5.04 8.60 175,882 8.60
12.875-15.375 494,271 6.67 14.07 411,527 13.95
19.25-29.00 886,031 8.67 24.59 223,431 27.08
------------ ------------ ----------- ------------- ---------
1,861,093 6.82 $ 16.43 1,115,749 $ 12.21
</TABLE>
53
<PAGE> 54
(13) UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of the unaudited interim results of
operations for each of the quarters ended in 1997 and 1998.
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- --------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Desktop products $19,851 $19,834 $19,836 $21,819 $20,615 $21,544 $21,328 $25,019
Large System products 4,327 3,564 3,630 4,166 4,300 3,692 3,981 5,316
Other products and services 3,134 3,328 3,180 3,975 3,585 3,922 4,302 3,783
--------- --------- --------- --------- --------- --------- -------- --------
Net revenues 27,312 26,726 26,646 29,960 28,500 29,158 29,611 34,118
Cost of revenues 2,589 2,426 2,252 2,568 2,435 2,574 2,516 2,523
--------- --------- --------- --------- --------- --------- -------- --------
Gross profit 24,723 24,300 24,394 27,392 26,065 26,584 27,095 31,595
--------- --------- --------- --------- --------- --------- -------- --------
Operating expenses:
Sales and marketing 12,682 13,613 13,040 14,751 14,281 15,259 14,108 16,083
Product development 4,345 4,251 4,713 4,507 4,954 4,787 5,334 5,451
General and administrative 3,266 3,203 3,078 2,031 1,785 2,221 2,620 1,882
Special general and - - 5,555 61 - - - 445
administrative (a)
Merger-related (b) - 644 2,911 751 - - - 1,948
Acquired in-process - 421 - - - - - 3,552
technology (c)
--------- --------- --------- --------- --------- --------- -------- --------
Operating expenses 20,293 22,132 29,297 22,101 21,020 22,267 22,062 29,361
--------- --------- --------- --------- --------- --------- -------- --------
Operating income 4,430 2,168 (4,903) 5,291 5,045 4,317 5,033 2,234
Net interest income 109 101 16 100 28 59 85 102
Other income (expenses) (22) 6 (100) (372) (162) (37) 153 (192)
--------- --------- --------- --------- --------- --------- -------- --------
Income (loss) before income 4,517 2,275 (4,987) 5,019 4,911 4,339 5,271 2,144
taxes
Income tax expense (benefit) 1,603 998 (965) 1,606 1,685 1,488 1,807 3,355
--------- --------- --------- --------- --------- --------- -------- --------
Net income (loss) $2,914 $1,277 $(4,022) $3,413 $3,226 $2,851 $3,464 $(1,211)
========= ========= ========= ========= ========= ========= ======== ========
Basic net earnings per share $0.33 $0.15 $(0.46) $0.39 $0.36 $0.32 $0.38 $(0.13)
========= ========= ========= ========= ========= ========= ======== ========
Shares used in basic per share 8,736 8,759 8,799 8,811 8,844 8,979 9,023 9,029
========= ========= ========= ========= ========= ========= ======== ========
Diluted net earnings per share $0.30 $0.13 $(0.46) $0.36 $0.34 $0.30 $0.36 $(0.13)
========= ========= ========= ========= ========= ========= ======== ========
Shares used in diluted per share 9,611 9,624 8,799 9,542 9,517 9,582 9,591 9,029
========= ========= ========= ========= ========= ========= ======== ========
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
---------- ---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Desktop products 73% 74% 74% 73% 72% 74% 72% 73%
Large System products 16% 14% 14% 14% 15% 13% 13% 16%
Other products and services 11% 12% 12% 13% 13% 13% 15% 11%
-------- -------- -------- -------- -------- -------- ------- -------
Net revenues 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues 9% 9% 8% 9% 9% 9% 8% 7%
-------- -------- -------- -------- -------- -------- ------- -------
Gross profit 91% 91% 92% 91% 91% 91% 92% 93%
-------- -------- -------- -------- -------- -------- ------- -------
Operating expenses:
Sales and marketing 46% 51% 49% 49% 50% 52% 48% 47%
Product development 16% 16% 18% 15% 17% 16% 18% 16%
General and administrative 12% 12% 11% 7% 6% 8% 9% 6%
Special general and - - 21% - - - - 1%
administrative (a)
Merger-related (b) - 2% 11% 2% - - - 6%
Acquired in-process - 2% - - - - - 10%
technology (c)
-------- -------- -------- -------- -------- -------- ------- -------
Operating expenses 74% 83% 110% 73% 73% 76% 75% 86%
-------- -------- -------- -------- -------- -------- ------- -------
Operating income 17% 8% -18% 18% 18% 15% 17% 7%
Net interest income - - - - - - - -
Other income (expense) - - - -1% -1% - 1% -1%
-------- -------- -------- -------- -------- -------- ------- -------
Income (loss) before income 17% 8% -18% 17% 17% 15% 18% 6%
taxes
Income tax expense (benefit) 6% 3% -3% 6% 6% 5% 6% 10%
-------- -------- -------- -------- -------- -------- ------- -------
Net income (loss) 11% 5% -15% 11% 11% 10% 12% -4%
======== ======== ======== ======== ======== ======== ======= =======
</TABLE>
(a) Write-off principally of some software assets capitalized more than two
years prior to 1995, charges principally from the revaluation of some
assets associated with SPSS' Macintosh and BMDP product lines in 1997 and
write-off principally of some software assets associated with SPSS' Unix
and Open VMS products duplicated through the acquisitions of Surveycraft
and Integral Solutions in 1998.
(b) Includes costs related to acquisitions accounted for as
poolings-of-interests, such as investment banking and other professional
fees, employee severance and costs of closing excess office facilities and
certain expenses associated with the closing of other acquisitions.
(c) Includes costs relating to acquired in-process technology.
54
<PAGE> 55
SCHEDULE II
SPSS INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts,
product returns, and cancellations $ 925,000 $ 1,076,000 $ 1,900,000 $ 2,195,000 $ 1,706,000
Inventory obsolescence reserve 241,000 146,000 50,000 205,000 232,000
1997
Allowance for doubtful accounts,
product returns, and cancellations $ 1,706,000 $ 447,000 $ 1,606,000 $ 2,045,000 $ 1,714,000
Inventory obsolescence reserve 232,000 100,000 (50,000) 215,000 67,000
1998
Allowance for doubtful accounts,
product returns, and cancellations $ 1,714,000 $ 724,000 $ 1,867,000 $ 2,199,000 $ 2,106,000
Inventory obsolescence reserve 67,000 50,000 -- 102,000 15,000
</TABLE>
55
<PAGE> 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants during
fiscal year 1998.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
The following table shows information as of March 17, 1999 with
respect to each person who is an executive officer or director of SPSS.
Name Age Position
- ---- --- --------
Norman Nie (2)............ 55 Chairman of the Board of Directors
Jack Noonan............... 51 Director, President and Chief Executive Officer
Edward Hamburg............ 47 Executive Vice President, Corporate Operations,
Chief Financial Officer and Secretary
Louise Rehling............ 55 Executive Vice President, Product Development
Mark Battaglia............ 39 Executive Vice President, Corporate Marketing
Ian Durrell............... 56 Executive Vice President, SPSS Market Research
Susan Phelan.............. 42 Executive Vice President, SPSS Products and
Services
Bernard Goldstein (1)(2).. 68 Director
Merritt Lutz (1)......... 56 Director
Michael Blair............. 54 Director
- ---------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Norman Nie, Chairman of the Board and co-founder of SPSS, designed
SPSS' original statistical software beginning in 1967 and has been a Director
and Chairman of the Board since SPSS' inception in 1975. He served as Chief
Executive Officer of SPSS from 1975 to 1991. In addition to his current
responsibilities as Chairman of the Board, Dr. Nie is a research professor at
Stanford University and a professor emeritus in the Political Science
Department at the University of Chicago. His research specialties include public
opinion, voting behavior and citizen participation. During the past year, he has
become a technology partner in Oak Investment Partners and is a director of
several privately-held companies. He has received three national awards for his
books in these areas. Dr. Nie received his Ph.D. from Stanford University.
Jack Noonan has served as Director and President and Chief Executive
Officer since joining SPSS in January 1992. Mr. Noonan was President and Chief
Executive Officer of Microrim Corp., a developer of
56
<PAGE> 57
database software products, from 1990 until December 1991. Mr. Noonan served as
Vice President of the Product Group of Candle Corporation, a developer of IBM
mainframe system software, from 1985 to 1990. Mr. Noonan is a Director of
ShowCase Corporation, Napersoft, Inc., and Repository Technologies, Inc. Mr.
Noonan holds an engineering degree from the Rockford School of Business and
Engineering in Rockford, Illinois.
Edward Hamburg, Executive Vice President, Corporate Operations, Chief
Financial Officer and Secretary, was elected Senior Vice President, Corporate
Operations in July 1992, Chief Financial Officer in June 1993 and Secretary in
June 1994. Dr. Hamburg previously served as Senior Vice President, Business
Development, and was responsible for product and technology acquisitions as well
as joint venture opportunities. Dr. Hamburg first joined SPSS in 1978 and served
in a variety of marketing and product management capacities. He joined the
faculty at the University of Illinois at Chicago in 1982, and returned to SPSS
in 1986. Dr. Hamburg received his Ph.D. from the University of Chicago.
Louise Rehling, Executive Vice President, Product Development, oversees
management of all stages of product development. Ms. Rehling joined SPSS in 1982
as Vice President of Development and Services and has served in her current
position since 1987. Ms. Rehling received her BS in Mathematics from the
University of Illinois and her MS in Information Sciences and her MA in
Psychology from the University of Chicago.
Mark Battaglia, Executive Vice President, Corporate Marketing, joined
SPSS in October 1988. Mr. Battaglia served as Vice President of Marketing at
London House, a publisher in the Maxwell Communications family, from June 1987
until joining SPSS. Mr.
Battaglia received his MBA in 1984 from the University of Chicago.
Ian Durrell, Executive Vice President, SPSS Market Research, joined
SPSS in February 1991. Before that time, he served as head of European marketing
for Unify Corporation, a supplier of relational database management systems, and
was a partner of Partner Development International, a strategic partnering firm
from 1987 to 1989. Mr. Durrell graduated from the Royal Military Academy,
Sandhurst, in the United Kingdom.
Susan Phelan, Executive Vice President, SPSS Products and Services,
joined SPSS in 1980 as a sales representative. She assumed her current position
in 1987. Ms. Phelan received her MBA from the University of Illinois at Chicago.
Bernard Goldstein has been a Director of SPSS since 1987. He is a
Director of Broadview International, LLC, which he joined in 1979. He is a past
President of the Information Technology Association of America, the industry
trade association of the computer service industry, and past Chairman of the
Information Technology Foundation. Mr. Goldstein was a Director of Apple
Computer Inc. until August 1997, and is currently a Director of Franklin
Electronic Publishers, Inc., Sungard Data Systems, Inc., Giga Information Group,
Inc, and several privately held companies. He is a graduate of both the Wharton
School of the University of Pennsylvania and the Columbia University Graduate
School of Business.
Fredric Harman was a Director of SPSS from October 1990 through the end
of 1998. Since June 1994 he has been a General Partner of Oak Investment
Partners, a venture capital firm. He was formerly a General Partner of Morgan
Stanley Venture Partners LP, the General Partner of Morgan Stanley Venture
Capital Fund LP. Mr. Harman joined Morgan Stanley in 1987 as an Associate of
Morgan Stanley Venture Capital Inc. and was named a Vice President in 1992. He
is also a Director of ILOG S.A., Inktomi, and
57
<PAGE> 58
several privately held companies. He received his MBA from the Harvard
University Graduate School of Business and his MS in Electrical Engineering from
Stanford University.
Merritt Lutz has been a Director of SPSS since 1988. He is currently
Senior Advisor of Morgan Stanley Dean Witter & Co. managing the Firm's strategic
technology investments and partnerships. Previously, he was President of Candle
Corporation, a worldwide supplier of systems software from 1989 to November
1993. Mr. Lutz is a Director of Interlink Electronics, Inc. and three privately
held software companies - Algorithmics, Persistence Software, and MicroFrame
Technologies. Mr. Lutz serves on the prestigious Board of Managers at the
University of Rochester-Eastman School of Music and Michigan State University
College of Arts and Letters National Advisory Council. He is a former Director
of Information Technology Association of American and the NASD Industry Advisory
Committee. He holds a bachelors and masters degree from Michigan State
University.
Michael D. Blair has been a Director of SPSS since July 1997. Since
April 1974, he has been Chairman, Chief Executive and founder of Cyborg Systems,
Inc., a human resource management software company. Mr. Blair is a Director of
Praxis International, Computer Corporation of America and Repository
Technologies, Inc. He is a board member of Information Technology Association of
America, President of the Chicago Software Association, a board member of the
American Software Association and a board member of Benefits & Compensation
Magazine. Mr. Blair holds a bachelor's degree in mathematics and physics from
the University of Missouri.
SPSS' Board of Directors is divided into three classes serving
staggered three-year terms. Mr. Goldstein and Dr. Nie are serving three-year
terms expiring at the 1999 Annual Meeting. Mr. Noonan and Mr. Blair are serving
three-year terms expiring at the 2000 annual meeting. For a discussion of the
nomination rights granted to specific stockholders of SPSS, see "Related
Transactions-Stockholders Agreement."
KEY EMPLOYEE
In addition to the executive officers and directors named above, Leland
Wilkinson is a key employee of SPSS. Dr. Wilkinson joined SPSS in September 1994
as part of SPSS' acquisition of SYSTAT. Dr. Wilkinson was the founder of SYSTAT
and from its inception served as its President and Chief Executive Officer. He
is a recognized authority in statistical analysis generally and the graphical
display of data in particular. Dr. Wilkinson was a member of the faculty of the
University of Illinois at Chicago and currently serves on the faculty of
Northwestern University. He received his Ph.D. from Yale University.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
SPSS believes that during 1998 its officers, directors and owners of
more than ten percent of its common stock complied with all filing requirements
under Section 16(a) of the Securities and Exchange Act of 1934.
58
<PAGE> 59
ITEM 11. EXECUTIVE COMPENSATION
The following tables show (a) the compensation paid or accrued by SPSS
to the Chief Executive Officer, and each of the five most highly compensated
officers of SPSS, other than the CEO, serving on December 31, 1998 (the "named
executive officers") for services rendered to SPSS in all capacities during
1996, 1997, and 1998, (b) information relating to option grants made to the
named executive officers in 1998 and (c) certain information relating to options
held by the named executive officers. SPSS made no grants of freestanding stock
appreciation rights ("SARs") in 1996, 1997, or 1998, nor did SPSS make any
awards in 1996, 1997 or 1998 under any long-term incentive plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- ----------------------------------------
AWARDS PAYOUTS
----------------------- -------
YEAR SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALL
COMPENSATION ($) ANNUAL STOCK UNDERLYING PAYOUTS OTHER
($) COMPENSATION AWARD(S) OPTIONS/SARS ($) ($)
NAME AND PRINCIPAL POSITION ($) ($)((1) (#)(2)
- ----------------------------- ------ ------------- --------- ------------- ---------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Noonan,................ 1998 $242,500 $185,679 none none 50,000 none None
President and Chief 1997 $235,000 $132,656 none none 50,000 none None
Executive Officer 1996 $235,000 $185,147 none none 70,000 none None
Ian Durrell,................ 1998 $197,000 $ 27,229 none none 25,000 none None
Executive Vice 1997 $197,000 $ 30,933 none none 25,000 none None
President, 1996 $197,000 $ 51,401 none none 25,000 none None
SPSS Market
Research(3)
Edward Hamburg,............. 1998 $156,000 $ 82,922 none none 25,000 none none
Executive Vice 1997 $156,000 $ 58,027 none none 25,000 none none
President, 1996 $156,000 $ 90,578 none none 25,000 none none
Corporate
Operations and
Chief Financial
Officer
Louise Rehling,............. 1998 $135,200 $ 66,645 none none 25,000 none none
Executive Vice 1997 $135,200 $ 91,357 none none 25,000 none none
President, 1996 $135,200 $ 64,808 none none 25,000 none none
Product Development
Mark Battaglia,............. 1998 $110,000 $ 70,262 none none 25,000 none none
Executive Vice 1997 $110,000 $ 54,342 none none 25,000 none none
President, 1996 $110,000 $ 88,432 none none 25,000 none none
Corporate Marketing
Susan Phelan,............... 1998 $120,000 $ 83,419 none none 25,000 none none
Executive Vice 1997 $110,300 $ 57,743 none none 25,000 none none
President, 1996 $100,000 $ 76,387 none none 25,000 none none
SPSS Products and
Services
</TABLE>
For the year ended December 31, 1998, non-employee directors of SPSS
were entitled to receive 5,000 conditional options. Each director was also
reimbursed by SPSS for reasonable expenses incurred in connection with services
provided as a director. During 1998, Dr. Nie received compensation of $80,800
for consultant work on a part-time basis.
- ------------------------------------------------
(1) On December 31, 1998, Dr. Hamburg held 10,000 shares, Ms. Rehling held 3,365
shares and Ms. Phelan held 1,986 shares of restricted common stock having a
market value, based on the closing price of the common stock on that date, of
$188,750 for Dr. Hamburg's shares, $63,514 for Ms. Rehling's shares and $37,486
for Ms. Phelan's shares.
(2) Amounts reflected in this column are for grants of stock options for the
common stock of SPSS. No stock appreciation rights have been issued by SPSS.
(3) Payments and options shown in the table for Mr. Durrell reflect payments and
option grants to Valletta Investments Limited, a consulting company controlled
by Mr. Durrell. Mr. Durrell does not receive any personal benefits or
perquisities, payments of salary and bonus, awards of options or other
compensation from SPSS in his individual capacity.
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<PAGE> 60
The following table shows the number of options to purchase common
stock granted to each of the named executive officers during 1998.
1998 OPTION/STOCK APPRECIATION RIGHTS GRANTS(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
NAME NUMBER OF PERCENT OF EXERCISE LATEST POTENTIAL REALIZABLE
SECURITIES TOTAL OR BASE POSSIBLE VALUE AT ASSUMED
UNDERLYING OPTIONS/SARS PRICE EXPIRATION ANNUAL
OPTIONS/SARS GRANTED TO ($/SH) DATE RATES OF STOCK PRICE
GRANTED(#) EMPLOYEES IN APPRECIATION FOR
1998 OPTION TERM (2)
5% ($) 10% ($)
---------------------------- --------------- -------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack Noonan................ 50,000 12.71% $19.250 01/01/08 $605,311 $1,533,977
Ian Durrell(3)............. 25,000 6.35% $19.250 01/01/08 $302,656 $766,989
Edward Hamburg............. 25,000 6.35% $19.250 01/01/08 $302,656 $766,989
Louise Rehling............. 25,000 6.35% $19.250 01/01/08 $302,656 $766,989
Mark Battaglia............. 25,000 6.35% $19.250 01/01/08 $302,656 $766,989
Susan Phelan............... 25,000 6.35% $19.250 01/01/08 $302,656 $766,989
</TABLE>
- ----------------------------------
(1) The options were granted as of January 2, 1998 and contained
performance-based conditions to their exercisability. These conditions have
been met.
(2) In satisfaction of applicable SEC regulations, the table shows the potential
realizable values of these options, upon their latest possible expiration date,
at arbitrarily assumed annualized rates of stock price appreciation of five and
ten percent over the term of the options. The potential realizable value columns
of the table illustrate values that might be realized upon exercise of the
options at the end of the ten-year period starting with their vesting
commencement dates, based on the assumptions shown above. Because actual gains
will depend upon the actual dates of exercise of the options and the future
performance of the common stock in the market, the amounts shown in this table
may not reflect the values actually realized. No gain to the named executive
officers is possible without an increase in stock price which will benefit all
stockholders proportionately. Actual gains, if any, on option exercises and
common stock holdings are dependent on the future performance of the common
stock and general stock market conditions. There can be no assurance that the
potential realizable values shown in this table will be achieved, or that the
stock price will not be lower or higher than projected at five and ten percent
assumed annualized rates of appreciation.
(3) Options shown in the table for Mr. Durrell are options granted to Valletta.
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<PAGE> 61
AGGREGATED OPTION/STOCK APPRECIATION RIGHT EXERCISES IN 1998 AND
YEAR-END OPTION/STOCK APPRECIATION RIGHT VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Year-End Year-End
(#)(1) ($)(1)(2)
Shares --------------------- ---------------------------
Acquired on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
Name (#) ($)(1)(4)
- --------- ----------------- ------------- --------------------- ---------------------------
<S> <C> <C> <C> <C>
Jack Noonan.................... 20,000 $394,000 231,331/97,336 $4,366,373/$1,837,217
Ian Durrell (3)................ 39,333 627,493 54,281/45,719 $1,024,554/$862,946
Edward Hamburg................. 3,600 82,208 125,014/45,719 $2,359,639/$862,946
Louise Rehling................. 10,000 $214,500 101,947/45,719 $1,924,250/$862,946
Mark Battaglia................. None N/A 108,614/45,719 $2,050,089/$862,946
Susan Phelan................... 10,000 209,500 96,948/45,719 $1,829,894/$862,946
</TABLE>
- ----------------------------------
(1) All information provided is with respect to stock options. No stock
appreciation rights have been issued by SPSS.
(2) These amounts have been determined by multiplying the aggregate number of
options by the difference between $18.875, the closing price of the common
stock on the Nasdaq National Market on December 31, 1998, and the exercise
price for that option.
(3) Options shown in the table for Mr. Durrell are options granted to Valletta.
(4) These amounts have been determined by multiplying the aggregate number of
options exercised by the difference between the closing price of the common
stock on the Nasdaq National Market on the date of exercise and the
exercise price for that option.
EMPLOYMENT AGREEMENTS
SPSS 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 SPSS gives a written termination notice
at least 90 days before the expiration of the initial term or any extension. It
also provides for a base salary of $225,000 during the initial term, together
with the same benefits provided to other employees of SPSS. The Board of
Directors annually reviews Mr. Noonan's base compensation and increased it to
$235,000 for 1993, 1994, 1995, 1996 and 1997 and to $242,500 in 1998. If SPSS
terminates Mr. Noonan's employment without cause, SPSS 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 installments. However,
if Mr. Noonan finds other employment at a comparable salary SPSS' obligation to
make these payments ceases. The employment agreement requires Mr. Noonan to
refrain from disclosing confidential information of SPSS and to abstain from
competing with SPSS during his employment and for a period of one year after
employment cases. Only Mr. Noonan, Dr. Wilkinson and Mr. Durrell, through a
management services agreement with Valletta described in "Management Services
Agreement" below, are employed through an employment or similar
61
<PAGE> 62
agreement. However, SPSS does have confidentiality and work-for-hire agreements
with many of its key management and technical personnel.
SPSS 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. The vesting of these options shall occur on the
same schedule as options granted under the Amended 1991 Stock Option Plan. Each
year the Board of Directors will review Dr. Wilkinson with regard to salary and
bonus. Dr. Wilkinson shall participate in the bonus plan to the same extent as
comparable SPSS executives. Either Dr. Wilkinson or SPSS can terminate the
employment agreement before its expiration with termination 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. If the employment agreement is
terminated by SPSS 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 SPSS and that he shall have no right,
title or interest in any of the confidential property, including confidential
property that Dr. Wilkinson has developed or develops during his employment with
SPSS. The employment agreement also requires that Dr. Wilkinson abstain from
competing with SPSS during his employment and for a period of six months
thereafter.
MANAGEMENT SERVICES AGREEMENT
SPSS has entered into a management services agreement with Valletta,
which requires that Ian Durrell's services are provided to SPSS. Either Valletta
or SPSS may terminate the agreement at any time upon 30 days' written notice. If
SPSS 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
further provides that if specified performance standards are satisfied, Valletta
is to receive annual compensation at a rate established by the Board of
Directors plus incentive compensation. For 1998, Valletta's aggregate
compensation, including bonus, was $224,229. The management services agreement
requires Valletta to refrain from disclosing confidential information about SPSS
and to abstain from competing with SPSS 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 and to act as Vice-President, International and to head SPSS'
non-western hemisphere operations.
CONSULTING AGREEMENT
SPSS has entered into a consulting agreement, dated as of January 1,
1997, with Norman H. Nie Consulting L.L.C., an Illinois Limited Liability
Company. Nie Consulting is to provide thirty (30) hours per month of consulting
services on various matters relating to the business of SPSS. This consulting
agreement provides for a one-year term with automatic one-year extensions unless
Nie Consulting or SPSS gives a written notice of termination at least 30 days
prior to the expiration of the initial term or any extension. SPSS may terminate
this consulting agreement for cause, in which event SPSS shall pay Nie
Consulting all accrued but unpaid compensation. The agreement also provides that
Nie Consulting is to receive annual compensation of $80,800 and reimbursement of
reasonable out of pocket expenses incurred in performing services under the
consulting agreement. The consulting agreement requires that the Nie Consulting
refrain from disclosing confidential information about SPSS during the term of
the
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<PAGE> 63
consulting agreement and for a period of five years after its expiration. In
addition, the consulting agreement requires that Nie Consulting abstain from
competing with SPSS during his consultancy and for a period of one-year after
the consultancy ceases.
CHANGE OF CONTROL AGREEMENTS
On May 1, 1998, SPSS entered into change of control agreements with its
named executive officers. These agreements provide certain benefits to any one
or more officers who is terminated or constructively terminated following a
change of control. The agreements provide that, if the executive is terminated
without cause or constructively terminated within two years following a change
of control, then the executive may receive benefits including a severance
package equal to the greater of (a) the aggregate cash compensation received in
the immediately preceding fiscal year, or (b) two times the executive's base
salary received in the immediately preceding fiscal year; the accelerated
vesting of all previously unvested options; and participation in the same health
and welfare benefits he or she received at any time within 120 days of the
change of control for eighteen months following that date of such termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Goldstein, Harman and Lutz were directors and members of the
Compensation Committee during the last fiscal year. Messrs. Goldstein and Lutz
continue to be directors and members of the Compensation Committee. Mr. Harman
resigned as a director effective January 1, 1999. None of the members of the
Compensation Committee has ever been an officer or employee of SPSS or any of
its subsidiaries.
REPORT OF THE COMPENSATION COMMITTEE
To: The Board of Directors
The Compensation Committee of the Board of Directors is composed
entirely of directors who have never served as officers of SPSS. The
Compensation Committee develops and administers the compensation programs for
SPSS' executive officers. After consideration of the Compensation Committee's
recommendations, the entire Board of Directors reviews and approves the base
salaries, bonuses and the stock option and benefit programs for SPSS' executive
officers. In 1998, the Board approved the Compensation Committee's
recommendations in all material respects.
Compensation Philosophy. SPSS has three principal objectives in its
executive compensation programs:
1. It strives to relate its total compensation for senior
management to the achievement of financial benchmarks designed to build
shareholder value.
2. It rewards outstanding individual performance.
3. It strives to structure its entire compensation package in
a manner which is competitive with other executive compensation
packages in the software industry, so that it will attract and retain
highly capable key executives responsible for the success of SPSS and
provide fair compensation for the responsibilities undertaken by those
executives.
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<PAGE> 64
These goals are met through a combination of salary, bonuses, stock options and
other benefits. SPSS is committed to increasing the proportion of the senior
executives' compensation which is performance-based, and therefore variable, and
to focus on building shareholder value as the primary measure of performance. To
the extent practicable, the Compensation Committee's objective is to align the
executive officers' financial interests with those of shareholders by focusing
on specific financial objectives that the Compensation Committee believes will
enhance shareholder value and through the grant of additional options pursuant
to SPSS' option plan, the opportunity for management to purchase additional
shares on advantageous terms under SPSS' Employee Stock Purchase Plan and
through present stock ownership and options.
The Compensation Committee focuses principally on SPSS' financial
performance--specifically operating and net income--in determining the amount of
bonuses for the executive officers. Therefore, bonuses for these officers are a
function of SPSS' overall financial performance relative to budgeted goals. In
keeping with SPSS' commitment to increasing the proportion of the senior
executives' compensation which is performance-based, base salary levels are
designed to increase in comparatively small amounts and bonus compensation is
designed so that it can increase or decrease significantly depending on SPSS'
overall financial performance.
The Compensation Committee works with the Chief Executive Officer (the
"CEO") to determine the base salary of the other executive officers, to
establish targets for the annual bonus program and to allocate the bonus pool
among the executive officers. Consistent with the Compensation Committee's
philosophy of shifting the proportion of compensation away from fixed to
variable types of compensation, the Compensation Committee has targeted growth
in total compensation to come from the bonus and other incentive forms of
compensation. At the beginning of each year, the Compensation Committee
establishes certain budgeted objectives for operating income. The total amount
allocated to the annual bonus pool is dependent upon the degree to which
budgeted goals are achieved.
Under SPSS' Amended and Restated 1995 Equity Incentive Plan, the
Compensation Committee is authorized to make grants of stock options to
executive officers. The Compensation Committee normally approves grants once a
year and occasionally in connection with significant corporate events. During
1998, the Compensation Committee awarded stock options to executive officers. In
determining the size of the option grants, the Compensation Committee considers
the impact of the grants on existing shareholders' stock ownership positions and
the prospective value of the options as a performance incentive. The number of
options previously awarded to and held by executive officers is reviewed and is
one factor in determining the size of current option grants.
The Compensation Committee has established a stock option program for
which only policy-making senior executives of SPSS are eligible. Vesting of the
options granted to the executive officers as of January, 1998 was contingent
upon SPSS achieving certain 1998 revenue and profit levels established by the
Board of Directors. Such options are customarily granted in the first half of
the calendar year after budgetary targets have been established. These options
are earned only if SPSS exceeds, by a significant percentage established by the
Compensation Committee, the budgeted performance goals for SPSS operating and
net income approved by the Board. In the event of a major corporate event, the
Compensation Committee may change these goals.
In addition to SPSS performance, the Compensation Committee also takes
into account exceptional individual performance in determining bonus awards,
although it does not assign a specified percentage of senior executive bonus
compensation to this.
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<PAGE> 65
Chief Executive Officer Compensation. The Compensation Committee also
determines the CEO's base salary and bonus, employing largely the same
principles described above, except that the amount of the CEO's bonus is purely
a function of the financial performance of SPSS measured against the operating
and net income goals established by the Compensation Committee and approved by
the Board at the beginning of each year. The Compensation Committee believes
that it has established a total compensation package which compares favorably to
industry standards. The Compensation Committee considers the total salary and
incentive compensation provided to chief executives of similar companies,
although it does not target a specific percentile range within this group of
similar companies' chief executive compensation in determining the CEO's
compensation.
The Compensation Committee recommends stock option grants reflecting
the importance of Mr. Noonan's contribution to SPSS and the importance of
aligning Mr. Noonan's interest in SPSS with that of stockholders. In 1998, Mr.
Noonan received twice the number of stock options received by the other
policy-making senior executives. The Compensation Committee recommended grants
to Mr. Noonan of stock options to acquire 50,000 shares of common stock at
$19.25 per share effective January 2, 1998. These options vest in the same
manner as the stock options as the case may be, for the other senior executives.
Mr. Noonan's bonus is determined in the same manner as the other
policy-making senior executives, except that no portion of Mr. Noonan's bonus is
based on exceptional individual performance. It is the Compensation Committee's
view that the CEO's compensation should be based solely on the financial
performance of SPSS and that, for the CEO, exceptional individual performance is
so closely aligned with SPSS financial performance that the CEO's bonus should
be based solely on overall SPSS financial performance.
Tax Considerations. To the extent readily determinable and as one of
the factors in its consideration of compensation matters, the Compensation
Committee considers the anticipated tax treatment to SPSS and to the executive
officers of various payments and benefits. Some types of compensation payments
and their deductibility (e.g., the spread on exercise of non-qualified options)
depend upon the timing of an executive's vesting or exercise of previously
granted rights. Interpretations of and changes in the tax laws and other factors
beyond the Compensation Committee's control also affect the deductibility of
compensation. For these and other reasons, SPSS will not necessarily and in all
circumstances limit executive compensation to the amount which is permitted to
be deductible as an expense of SPSS under Section 162(m) of the Internal Revenue
Code. The Compensation Committee will consider various alternatives to
preserving the deductibility of compensation payments and benefits to the extent
reasonably practicable and to the extent consistent with its other compensation
objectives.
Compensation Committee of SPSS Inc.
Bernard Goldstein
Merritt Lutz
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<PAGE> 66
PERFORMANCE GRAPH
The following graph shows the changes in $100 invested since
December 31, 1993, in SPSS' common stock, the Nasdaq 100 Stocks Index and S&P
Computer Software and Services Index, a specialized industry focus group,
assuming that all dividends were reinvested.
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/29/95 12/29/96 12/29/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SPSS (NASDAQ: SPSS) $100.00 $141.10 $213.70 $305.48 $210.96 $206.85
NASDAQ 100 Stock Index $100.00 $101.50 $144.67 $270.48 $248.77 $460.98
S&P Computer Software & Services Index $100.00 $117.92 $165.44 $195.81 $357.88 $648.29
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of March 17, 1999, the number and
percentage of shares of common stock beneficially owned by:
- each person known by SPSS to own beneficially more than 5% of the
outstanding shares of the common stock;
- each director of SPSS;
- each named executive officer of SPSS; and
- all directors and executive officers of SPSS 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 Mr. Lutz is the office of Morgan Stanley Dean
Witter & Co. at 750 Seventh Avenue, 16th floor, New York, New York 10019. 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 for Michael
Blair is the office of Cyborg Systems, Inc., Two North Riverside Plaza, 12th
floor, Chicago, Illinois 60606. The business address of Fidelity Management &
Research Company is 82 Devonshire Street, Boston, Massachusetts 02109. The
business address for the T. Rowe Price Associates, Inc. is 100 East Pratt
Street, Baltimore, Maryland 21202. The business address of each other person
listed below is 233 South Wacker Drive, Chicago, Illinois 60606.
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<PAGE> 67
<TABLE>
<CAPTION>
Shares
Beneficially Owned
------------------
Name Number Percent
- ---- ------ -------
<S> <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, Inc.(1).................... 1,144,519 12.5%
Fidelity Management & Research Company(2)............................ 864,200 9.5%
T. Rowe Price Associates, Inc. (3)................................... 470,200 5.2%
Jack Noonan(4)....................................................... 270,396 2.9%
Bernard Goldstein(5)................................................. 48,386 *
Louise Rehling(6).................................................... 119,539 1.3%
Edward Hamburg(7).................................................... 146,541 1.6%
Mark Battaglia(8).................................................... 123,024 1.3%
Susan Phelan(9)...................................................... 112,961 1.2%
Ian Durrell(10)...................................................... 68,308 *
Merritt M. Lutz(11).................................................. 32,275 *
Michael D. Blair(12)................................................. 6,049 *
All directors and executive officers as
a group (10 persons)(13)........................................... 1,879,843 19.5%
</TABLE>
- ----------------------------------
* The percentage of shares beneficially owned does not exceed 1% of the Common
Stock.
(1) Includes 82,886 shares which are through options exercisable within 60
days; 110,433 shares held of record by the Norman and Carol Nie
Foundation, Inc.; and 951,200 shares held by the Nie Trust. Dr. Nie
shares voting and investment power over the 110,433 shares held by the
Nie Foundation with Carol Nie.
(2) Fidelity Management & Research Company, a wholly-owned subsidiary of
FMR Corp. and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of 864,200
shares of SPSS common stock as a result of acting as investment adviser
to several investment companies registered under Section 8 of the
Investment Company Act of 1940. The ownership of one investment
company, Fidelity Low-Priced Stock Fund, amounted to 864,200 shares of
SPSS common stock. FMR Corp. has the power to dispose of the shares of
SPSS common stock. The Board of Trustees directs the voting of the
shares of SPSS common stock. This information was taken from FMR
Corporation's Schedule 13G, filed on February 1, 1999.
(3) T. Rowe Price Associates, Inc. is the beneficial owner of 470,200
shares of SPSS common stock and an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940. This information
was taken from T. Rowe Price" Schedule 13G dated February 12, 1999.
(4) Includes 261,568 shares through options exercisable within 60 days.
(5) Includes 12,942 shares through options exercisable within 60 days.
(6) Includes 200 shares held in the Stella S. Hechtman Trust. Ms. Rehling
is the Trustee and has the voting and investment power over the 200
shares held in the trust. She disclaims beneficial ownership of these
shares. Includes 115,974 shares through options exercisable within 60
days.
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<PAGE> 68
(7) Includes 136,541 shares through options exercisable within 60 days.
(8) Includes 122,641 shares through options exercisable within 60 days.
(9) Includes 110,975 shares through options exercisable within 60 days.
(10) Mr. Durrell is the beneficial owner of these shares, which consist
solely of 68,308 shares through options exercisable within 60 days held
of record by Valletta.
(11) Includes 12,942 shares through options exercisable within 60 days.
Mr. Lutz shares voting and investment power over 6,000 of these shares
with Mary C. Lutz.
(12) Includes 6,049 shares through options exercisable within 60 days.
(13) Includes 930,826 shares through options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH NORMAN NIE
Dr. Nie received 5,000 conditional options for his services as Chairman
of the Board in 1998 and $80,800 for product development work on a part-time
basis. Dr. Nie is a limited partner in Computer Software Development Company, a
research and development limited partnership to which SPSS incurred royalty
expense of $255,000 in 1996, $249,000 in 1997 and $234,000 in 1998.
STOCKHOLDERS AGREEMENT
In connection with SPSS' initial public offering, SPSS and the
individuals and entities who were stockholders before the initial public
offering entered into an agreement containing registration rights with respect
to outstanding capital stock of SPSS and granting to each of the Nie Trust and
Morgan Stanley Venture Capital Fund, so long as they own beneficially more than
12.5% of the capital stock of SPSS, the right to designate one nominee (as part
of the management slate) in each election of directors at which directors of the
class specified for the holder are to be elected. Since the completion of the
February 1995 offering, Morgan Stanley Venture Capital Fund owned less than
12.5% and currently owns no capital stock of SPSS.
As required by the stockholders agreement, the holders of restricted
securities constituting more than seven percent of the outstanding shares at any
time may require SPSS to register under the Securities Act all or any portion of
the restricted securities held by the requesting holder or holders for sale in
the manner specified in the notice. SPSS is not bound to honor the request
unless the proceeds from the registered sale can reasonably be expected to
exceed $5,000,000. SPSS estimates that the cost of complying with demand
registration rights would be approximately $50,000 for a single registration.
All of the stockholders who acquired their shares before the initial
public offering have piggyback registration rights, which entitle them to seek
inclusion of their common stock in any registration by SPSS, whether for its own
account or for the account of other security holders or both (except with
respect to registration on Forms S-4 or S-8 or another form not available for
registering restricted securities for sale to the public). In the event of a
request to have shares included in a registration statement filed by SPSS for
its
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<PAGE> 69
own account, SPSS' underwriters may generally reduce, pro rata, the amount of
common stock to be sold by the stockholders if the inclusion of all such
securities would be materially detrimental to SPSS' offering.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1) Financial statements commence on page 32:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Income for the years ended December
31, 1996, 1997 and 1998
Consolidated Statements of Comprehensive Income for the years
ended December 31, 1996, 1997 and 1998.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule -- see page 55:
Schedule II Valuation and qualifying accounts
Schedules not filed:
All schedules other than that indicated in the index
have been omitted as the required information is
inapplicable or the information is presented in the
financial statements or related notes.
(3) Exhibits required by Item 601 of Regulation S-K. (Note:
Management contracts and compensatory plans or arrangements
are underlined in the following list.)
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<PAGE> 70
<TABLE>
<CAPTION>
Incorporation
Exhibit by Reference
Number Description of Document (if applicable)
- ------ ----------------------- ---------------
<S> <C> <C>
2.1 Agreement and Plan of Merger among SPSS Inc., @2.1
SPSS ACSUB, Inc., Clear Software, Inc. and the
shareholders named therein, dated September 23, 1996.
2.2 Agreement and Plan of Merger among SPSS Inc., @@Annex A
SPSS Acquisition Inc. and Jandel Corporation,
dated October 30, 1996.
2.3 Asset Purchase Agreement by and between SPSS Inc. ##2.3
and DeltaPoint, Inc., dated as of May 1, 1997
2.4 Stock Purchase Agreement among the Registrant, @@@2.1
Edward Ross, Richard Kottler, Norman Grunbaum,
Louis Davidson and certain U.K.-Connected Shareholders
or warrant holders of Quantime Limited named therein,
dated as of September 30, 1997, together with a list briefly
identifying the contents of omitted schedules.
2.5 Stock Purchase Agreement among the Registrant, @@@2.2
Edward Ross, Richard Kottler, Norman Grunbaum,
Louis Davidson and certain Non-U.K. Shareholders or
warrant holders of Quantime Limited named therein, dated
as of September 30, 1997, together with a list briefly
identifying the contents of omitted schedules.
2.6 Stock Purchase Agreement by and among SPSS Inc. and @@@@2.1
certain Shareholders of Quantime Limited listed on the
signature pages thereto, dated November 21, 1997.
2.7 Stock Purchase Agreement by and among Jens Nielsen, @@@@2.2
Henrik Rosendahl, Ole Stangegaard, Lars Thinggaard,
Edward O'Hara, Bjorn Haugland, 2M Invest and the
Shareholders listed on Exhibit A thereto, dated November 21,
1997.
2.8 Stock Purchase Agreement by and among SPSS Inc. and #### 2.1
the Shareholders of Integral Solutions Limited listed
on the signature pages hereof, dated as of
December 31, 1998.
2.9 Share Purchase Agreement by and among SPSS Inc.,
Surveycraft Pty Ltd. and Jens Meinecke and
Microtab Systems Pty Ltd., dated as of
November 1, 1998.
</TABLE>
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<TABLE>
<S> <C> <C>
3.1 Certificate of Incorporation of SPSS * 3.2
3.2 By-Laws of SPSS * 3.4
4.1 Credit Agreement *** 4.1
4.2 First Amendment to Credit Agreement xxxx 4.2
4.3 Second Amendment to Credit Agreement ### 4.3
10.1 Employment Agreement with Jack Noonan + 10.1
10.2 Agreement with Valletta ** 10.2
10.3 Agreement between SPSS and ** 10.5
Prentice Hall
10.4 Software Distribution Agreement between ** 10.6
SPSS and IBM
10.5 HOOPS Agreement ** 10.7
10.6 Stockholders Agreement * 10.8
10.7 Agreements with CSDC * 10.9
10.8 Amended 1991 Stock Option Plan * 10.10
10.9 SYSTAT Asset Purchase Agreement ++10.9
10.10 Employment Agreement with Leland Wilkinson ++10.10
10.11 1994 Bonus Compensation +++10.11
10.12 Lease for Chicago, Illinois Office +++10.12
10.13 Amendment to Lease for Chicago, Illinois Office +++10.13
10.14 1995 Equity Incentive Plan x 10.14
10.15 1995 Bonus Compensation xx 10.15
10.16 Lease for Chicago, Illinois Office xx 10.16
10.17 Amended and Restated 1995 Equity Incentive Plan xxx 10.17
10.18 1996 Bonus Compensation xxxx 10.18
</TABLE>
71
<PAGE> 72
<TABLE>
<S> <C> <C>
10.19 Software Distribution Agreement between the xxxx 10.19
Company and Banta Global Turnkey
10.20 Lease for Chicago, Illinois in Sears Tower # 10.20
10.21 1997 Bonus Compensation ### 10.21
10.22 Norman H. Nie Consulting L.L.C. Agreement ### 10.22
10.23 1998 Bonus Compensation
21.1 Subsidiaries of SPSS
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
</TABLE>
- -------------------------------
@ Previously filed with SPSS Inc.'s Report on Form 8-K, dated
September 26, 1996, filed on October 11, 1996, as amended on
Form 8-K/A-1, filed November 1, 1996. (File No. 000-22194)
@@ Previously filed with Amendment No. 1 to Form S-4 Registration
Statement of SPSS Inc. filed on November 7, 1996. (File No. 333-15427)
@@@ Previously filed with SPSS Inc.'s Report on Form 8-K, dated September
30, 1997, filed on October 15, 1997. (File No. 000-22194)
@@@@ Previously filed with the Form S-3 Registration Statement of SPSS Inc.
filed on November 26, 1997. (File No. 333-41207)
* Previously filed with Amendment No. 2 to Form S-1 Registration
Statement of SPSS Inc. filed on August 4, 1993. (File No. 33-64732)
** Previously filed with Amendment No. 1 to Form S-1 Registration
Statement of SPSS Inc. filed on July 23, 1993. (File No. 33-64732)
*** Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
Quarterly period ended September 30, 1993. (File No. 000-22194)
+ Previously filed with the Form S-1 Registration Statement of SPSS Inc.
filed on June 22, 1993. (File No. 33-64732)
++ Previously filed with the Form S-1 Registration Statement of SPSS Inc.
filed on December 5, 1994. (File No. 33-86858)
+++ Previously cited with the Form 10-K Annual Report of SPSS Inc. for the
year
72
<PAGE> 73
ended December 31, 1994. (File No. 000-22194)
x Previously filed with SPSS' 1995 Proxy Statement. (File No. 000-22194)
xx Previously filed with the Form 10-K Annual Report of SPSS Inc. for the
year ended December 31, 1995. (File No. 000-22194)
xxx Previously filed with SPSS' 1996 Proxy Statement. (File No. 000-22194)
xxxx Previously filed with the Form 10-K Annual Report of SPSS Inc. for the
year ended December 31, 1996. (File No. 000-22194)
# Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for
the quarterly period ended March 31, 1997. (File No. 000-22194)
## Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for
the quarterly period ended June 30, 1997. (File No. 000-22194)
### Previously filed with Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 1997. (File No. 000-22194)
#### Previously field with SPSS Inc.'s Report on Form 8-K, dated
December 31, 1998, filed on January 15, 1999, as amended on Form 8-K/A
filed March 12, 1999. (File No. 000-22194)
(b) SPSS filed the following reports on Form 8-K during the fourth
quarter of fiscal year 1997.
(i) Report on Form 8-K, dated September 30, 1997, filed on October 15,
1997. The Report on Form 8-K reported that on September 30, 1997, SPSS
Inc. acquired approximately 97% of the outstanding shares of capital
stock of Quantime from certain shareholders and warrant holders of
Quantime, for 863,084 shares of SPSS common stock, valued at
approximately $25 million. The stock acquisition, accounted for as a
pooling of interests, occurred through two stock purchase agreements,
one between SPSS, certain insiders of Quantime and certain Shareholders
in the United Kingdom and another between SPSS, the Quantime insiders
and certain Shareholders outside the United Kingdom, each dated
September 30, 1997. Quantime is a privately-held developer of market
research software products. SPSS will continue to operate the Quantime
business from the Quantime offices in London, England. The Report on
Form 8-K was filed under Item 2.
73
<PAGE> 74
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 31, 1999.
SPSS Inc.
By: /s/ Jack Noonan
--------------------------------------
Jack Noonan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on March 31, 1999.
Signature Title(s)
- --------- --------
/s/ Norman H. Nie Chairman of the Board of
- -------------------------------- Directors
Norman H. Nie
/s/ Jack Noonan President, Chief Executive
- -------------------------------- Officer and Director
Jack Noonan
/s/ Edward Hamburg Executive Vice President,
- -------------------------------- Corporate Operations,
Edward Hamburg Chief Financial Officer and
Secretary
/s/ Robert Brinkmann Vice President, Finance and
- -------------------------------- Controller
Robert Brinkmann
74
<PAGE> 75
/s/ Bernard Goldstein Director
- --------------------------------
Bernard Goldstein
/s/ Merritt Lutz Director
- --------------------------------
Merritt Lutz
/s/ Michael Blair Director
- --------------------------------
Michael Blair
75
<PAGE> 76
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
- ------ -------------------- -----------
2.9 Share Purchase Agreement by and among SPSS Inc.,
Surveycraft Pty Ltd. and Jens Meinecke and Microtab
Systems Pty Ltd., dated as of November 1, 1998...........
10.23 1998 Bonus Compensation..................................
21.1 Subsidiaries of the Company..............................
23.1 Consent of Independent Public Accountants................
27.1 Financial Data Schedule..................................
76
<PAGE> 1
EXHIBIT 2.9
FINAL
================================================================================
SHARE PURCHASE AGREEMENT
By and Among
SPSS INC.
and
SURVEYCRAFT PTY LTD.
and
JENS MEINECKE
and
MICROTAB SYSTEMS PTY LTD.
Dated as of November 1, 1998
================================================================================
<PAGE> 2
SHARE PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of November 1, 1998, (the
"Agreement"), by and among SPSS INC., a Delaware corporation, having an address
at 233 South Wacker Drive, Chicago, Illinois 60606, United States of America
("SPSS"), SURVEYCRAFT PTY LTD., a corporation organized under the laws of
Australia, having an address at 13 Were Street, Montmorency Victoria 3094,
Australia ("Surveycraft"), JENS MEINECKE, an individual, having an address at
Unit 4/10 Cromwell Road, South Yarra, Victoria 3141, Australia ("Meinecke") and
MICROTAB SYSTEMS PTY LTD, ACN 062 169 117, as trustee for the MICROTAB UNIT
TRUST, having an address at 2 Tanya Way, Eltham, Victoria 3095, Australia
("Microtab") (Meinecke and Microtab are hereinafter collectively referred to as
the "Shareholders").
W I T N E S S E T H:
WHEREAS, Surveycraft is engaged in the business of developing and
distributing software;
WHEREAS, the respective Boards of Directors of each of SPSS and
Surveycraft have determined that it is advisable and for the benefit of their
corporations and their respective shareholders that Surveycraft be acquired by
SPSS by means of the acquisition from the Shareholders by SPSS of all of the
issued capital shares of Surveycraft (the "Shares"), in exchange for cash
pursuant to the terms and conditions set forth herein (the "Acquisition");
WHEREAS, the Shareholders own all of the issued shares in Surveycraft
and have power to sell such shares;
WHEREAS, the parties intend that, for federal income tax purposes, this
transaction qualify for an election under Section 338 of the Internal Revenue
Code of 1986, as amended (the "Code");
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 are hereby acknowledged, and in reliance upon
the representations and warranties contained herein, the parties hereto agree as
follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
1.1 Purchase and Sale of the Shares. Subject to the terms and
conditions contained in this Agreement, on the Closing Date (as hereinafter
defined), the Shareholders shall sell, assign,
<PAGE> 3
transfer and deliver the Shares to SPSS, and SPSS shall purchase the Shares from
the Shareholders, for an aggregate purchase price consisting of the items and
amounts set forth in Section 1.3 hereof (the "Purchase Price") payable pursuant
to the terms provided in Section 1.3 hereof.
1.2 Closing. Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated hereby (the "Closing") shall take place
via facsimile at _____, Australian Eastern Summer Time, on November 13, 1998
(the "Closing Date") at the offices of Ross & Hardies, Chicago, Illinois 60601
U.S.A. and Moores Solicitors, 9 Prospect Street, Box Hill, Victoria Australia
3128, or such other place or time as the parties may agree.
1.3 Payment of Purchase Price. Upon satisfaction of all the terms and
conditions set forth in this Agreement, on the Closing Date SPSS shall deliver
the Purchase Price consisting of ONE MILLION SEVEN HUNDRED TWENTY-TWO THOUSAND
FIVE HUNDRED EIGHTY SEVEN U.S. DOLLARS (U.S. $1,722,587), to be paid as follows:
(a) by November 16, 1998, Australian Eastern Summer Time, SPSS shall deliver to
the Shareholders ONE MILLION FIVE HUNDRED FIFTY THOUSAND THREE HUNDRED
TWENTY-EIGHT U.S. DOLLARS (U.S. $1,550,328) by wire transfer of immediately
available funds to an account designated by the Shareholders by written notice
to SPSS given on or before the Closing Date, to be allocated between the
Shareholders as set forth in Schedule 1.3 hereof, and (b) by November 16, 1998,
Eastern Standard Time, SPSS shall deliver to the Escrow Agent (as defined
herein) ONE HUNDRED SEVENTY-TWO THOUSAND TWO HUNDRED FIFTY-NINE U.S. DOLLARS
(U.S. $172,259) (the "Escrowed Amount") by wire transfer of immediately
available funds to an account designated by the Escrow Agent by written notice
to SPSS given on or before the Closing Date, to be held in escrow in accordance
with Article II hereof.
1.4 Tax and Accounting. The parties hereto shall each use their best
efforts to cause the transactions contemplated hereunder to qualify for an
election pursuant to Section 338 of the Code.
ARTICLE II
ESCROW
2.1 Appointment of Escrow Agent. Moores Solicitors, a partnership
organized under the laws of Australia, is hereby appointed to act as escrow
agent ("Escrow Agent") hereunder, and Escrow Agent hereby accepts such
appointment in accordance with the terms set forth in this Section 2. The Escrow
Agent shall hold the funds for the benefit of SPSS and shall act strictly in
accordance with the terms and conditions of this Section 2, which sets out the
duties and obligations of the Escrow Agent.
- 2 -
<PAGE> 4
2.2 Deposit of Escrowed Amount. Surveycraft and the Shareholders,
and each of them, hereby deposit with Escrow Agent, and Escrow Agent
acknowledges receipt of, the amounts set forth on Schedule 2.1 hereof (the
"Escrowed Amount"). The Escrow Agent shall hold the Escrowed Amount in a demand
deposit account with an institutional lender (the "Escrow Account"). The
Escrowed Amount shall be held as collateral to satisfy claims for
indemnification against Surveycraft and the Shareholders by SPSS under this
Agreement.
2.3 Release of Escrowed Amount.
(a) In the event the Shareholders are obligated to
make any Indemnification Payment under Section 12 of this Agreement, SPSS shall
give the Escrow Agent written notice of such Indemnification Payment or event
setting forth in reasonable detail the amount of any such Indemnification
Payment and the basis for such claim. Upon receipt of such notice, the Escrow
Agent shall release from the Escrow Account and deliver to SPSS an amount equal
to the Indemnification Payment, up to the Escrowed Amount. Surveycraft, the
Shareholders and SPSS hereby agree that from the date hereof, up to February 28,
1999, any Indemnification Payment to which SPSS is entitled shall be made first
out of the Escrow Account (to the extent sufficient funds therefor remain in the
Escrow Account). If the Escrow Account does not contain funds sufficient to
satisfy any Indemnification Payment, the Shareholders shall pay the deficiency
to SPSS.
(b) Any amounts remaining in the Escrow Account after
payments therefrom are made to SPSS in accordance with this Agreement, if any,
will be delivered to the Shareholders, in amounts proportionate to each
Shareholder's interest in Surveycraft prior to Closing as shown on Schedule 1.3,
promptly (and in any event within five (5) business days) after February 28,
1999.
2.4 Grant of Security Interest. Surveycraft and the Shareholders,
and each of them, hereby pledge, assign, and grant to SPSS, as security for any
post-Closing claims for breaches under this Agreement, all of Surveycraft's and
the Shareholders' right, title, and interest in and to the Escrowed Amount, and
Surveycraft and the Shareholders, and each of them, agree that SPSS shall have a
security interest in the Escrowed Amount, as such term is defined under the laws
of Victoria, Australia. All of the rights and remedies available to SPSS under
such laws are in addition to SPSS' rights set forth herein and the security
interest pledged, assigned and granted to SPSS hereunder is not intended in any
way to limit the aforesaid rights and remedies of SPSS.
2.5 No Further Pledge or Encumbrance. Surveycraft and the
Shareholders, and each of them, shall not further pledge, assign or grant any
security interest in the Escrowed Amount or permit any lien or encumbrance to
attach thereto, or any levy to be made thereon.
2.6 Further Agreements, etc. Surveycraft and the Shareholders, and
each of them, (a) shall execute any instruments or take any steps reasonably
required by SPSS in order that notice of the security interest granted by
Surveycraft and the Shareholders to SPSS pursuant to this Section shall be given
to all appropriate parties and/or as may be required to enable SPSS to enforce
its rights under this Section; (b) shall execute, at the request of SPSS, all
financing
- 3 -
<PAGE> 5
statements and other instruments and documents required by SPSS to perfect the
security interest intended to be created pursuant to the provisions of this
Section; (c) authorize SPSS, to the extent SPSS may lawfully do so, to execute
and file at any time financing statements or their equivalent under the laws of
Victoria, Australia without the signature of Surveycraft or the Shareholders
with respect to any security interest granted to SPSS pursuant to this Section.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SURVEYCRAFT
AND THE SHAREHOLDERS
Surveycraft and the Shareholders, jointly and severally, represent and
warrant to SPSS as follows:
3.1 Organization and Qualification. (a) Surveycraft is a
corporation duly organized, validly existing and in good standing under the laws
of Australia 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. Surveycraft Systems, Inc. ("Surveycraft
U.S."), is wholly owned by Surveycraft and is a corporation duly organized,
validly existing under the laws of the State of Ohio, is in good standing and
qualified to transact business in the State of Ohio, 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. Surveycraft
Limited ("Surveycraft U.K.") is wholly owned by Surveycraft and is a corporation
duly organized validly existing under the laws of England and has the power to
own or lease the properties and other assets which it presently owns or leases
and to carry out its business as presently conducted. (Surveycraft U.S. and
Surveycraft U.K. are hereinafter, each a "Subsidiary," and collectively, the
"Subsidiaries.")
(b) The copy of the Memorandum of Association and all
amendments thereto, and of the Articles of Association, as amended to date, of
Surveycraft, as certified by Noel Stanley Adams ("Adams") as Surveycraft's
Director, being delivered herewith to SPSS, are true, complete and correct
copies as amended and presently in effect. The copies of any organizational and
governing documents of Subsidiaries as certified by the appropriate government
authorities, being delivered herewith, are true, complete and correct copies as
amended and presently in effect. All minutes and consents of the shareholders
and directors of Surveycraft and Subsidiaries are contained in the minute books
of Surveycraft and Subsidiaries, 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 except for resolutions to be
enacted at closing for the purposes of effecting the transactions contemplated
by this agreement.
- 4 -
<PAGE> 6
(c) Surveycraft and Subsidiaries are each duly licensed or
qualified to do business as a foreign corporation, and are each in good
standing, in every domestic and foreign jurisdiction in which each of
Surveycraft and Subsidiaries are required to be so licensed or qualified.
3.2 Authority. Surveycraft and the Shareholders, on their own
behalf, as appropriate, have 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 each of
theShareholders and the Board of Directors of Surveycraft and no other
proceedings (corporate or otherwise) on the part of the Shareholders or
Surveycraft 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 each of the Shareholders and Surveycraft, and constitute legal, valid and
binding agreements of Surveycraft and the Shareholders.
3.3 Capitalization. The entire authorized capital stock of
Surveycraft and the number of Shares thereof which are issued are as follows:
<TABLE>
<CAPTION>
================================================================================
NUMBER OF
AUTHORIZED SHARES NUMBER
OF SURVEYCRAFT CLASS ISSUED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
500,000 Ordinary 300,000
================================================================================
100,000 A 33,333
================================================================================
100,000 B -0-
================================================================================
100,000 C -0-
================================================================================
100,000 D -0-
================================================================================
100,000 E -0-
================================================================================
</TABLE>
All of the issued Shares of Surveycraft's capital stock are owned by the
Shareholders in the respective amounts set forth in Schedule 3.3 hereto, and the
Shareholders each have the power to sell such Shares. Surveycraft owns all of
the issued and outstanding shares of the Subsidiaries' capital stock (the
"Subsidiary Shares"). The Shares and Subsidiary Shares are subject to no
restrictions on transferability other than restrictions imposed by the 1933 Act,
applicable United States state securities laws and Australian securities laws.
All of the issued Shares of capital stock of Surveycraft and Subsidiaries are
duly authorized and validly issued, fully paid and
- 5 -
<PAGE> 7
non-assessable, and were not issued in violation of any preemptive rights. There
are no Shares of capital stock in treasury, and there are no Shares or
Subsidiary Shares reserved for issuance. There are no outstanding options,
warrants, conversion or other rights to acquire from any of the Shareholders or
Surveycraft, or any plans, contracts or commitments providing for the issuance
of, or the granting of, rights by the Shareholders or Surveycraft to acquire:
(i) any capital stock of Surveycraft or Subsidiary Shares (in each case whether
issued or unissued) or (ii) any securities convertible into or exchangeable for
any capital stock of Surveycraft or Subsidiary Shares. There are no agreements
or understandings with respect to the voting, holding or selling of any Shares
of capital stock of Surveycraft or Subsidiary Shares, or any contractual
obligations of Surveycraft or any of the Shareholders with respect to
Surveycraft's capital stock or Subsidiary Shares. There are no voting trusts,
proxies or powers of attorney currently in effect with respect to the Shares or
Subsidiary Shares. No person has any right to require Surveycraft or Subsidiary
to register any of its securities under the 1933 Act or pursuant to applicable
Australian law.
3.4 Title to Shares. 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 Closing
Date, SPSS will acquire good and marketable title to the Shares and Subsidiary
Shares, free and clear as aforesaid, including without limitation, any of the
foregoing set forth in the Articles of Association of Surveycraft. The Shares
represent the only equity interest of the Shareholders in Surveycraft.
3.5 Consents and Approvals. Except as set forth in Schedule 3.5
hereto, 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 Surveycraft and the Shareholders to consummate the transactions
contemplated hereby and fully perform their respective obligations hereunder.
3.6 Absence of Conflicts. The execution, delivery and performance by
Surveycraft and the Shareholders of this Agreement and the consummation by
Surveycraft and the Shareholders 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 Surveycraft or
the Shareholders are or were subject, (ii) violate any order, judgment or decree
which is or was applicable to either Surveycraft or the Shareholders; (iii)
conflict with or result in a breach or default under any term or condition of
the Memorandum of Association or Articles of Association of Surveycraft, or any
agreement or other instrument to which either Surveycraft or the Shareholders
are 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
Surveycraft to be accelerated or increase any such liability or obligation.
3.7 Financial Statements. Surveycraft shall, within seven (7) days
after Closing, deliver to SPSS true and correct copies of the unaudited balance
sheets of Surveycraft and Subsidiaries, as of September 30, 1998 and the related
unaudited statements of income, statements of retained earnings (collectively,
the "Financial Statements"). Except as disclosed on Schedule 3.7, the Financial
Statements (i) have been prepared in accordance with generally accepted
Australian
- 6 -
<PAGE> 8
accounting principles applied on a consistent basis, are correct and complete
and are in accordance with the books and records of Surveycraft and
Subsidiaries, (ii) present fairly the financial position and condition of
Surveycraft and Subsidiaries 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 Australian
accounting principles would be required to be disclosed for financial statement
purposes. A dividend to the extent of retained profits for the consolidated
entity (Surveycraft, Surveycraft U.S. and Surveycraft U.K.) will be declared as
of October 31, 1998 and distributed in accordance with the share registry of
Surveycraft on that date; provided, however, that such dividend will be subject
to SPSS' approval and will be calculated taking into account all necessary
accruals, including, but not limited to Surveycraft's long service leave
obligations and all professional fees incurred by Surveycraft and the
Shareholders in conjunction with the transactions contemplated hereunder.
Subject to applicable reserves for bad debts shown on Surveycraft's and
Subsidiaries 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 Closing Date will be
(a) valid, genuine and subsisting, (b) subject to no known defenses, setoffs or
counterclaims and (c) current and collectible.
3.8 Absence of Undisclosed Liabilities. Except as and to the extent
reserved for in the Financial Statements or as set forth in Schedule 3.8 hereto,
neither Surveycraft nor either 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 September 30, 1998, which have not yet been accrued or booked. Surveycraft
does not know of any basis for the assertion of any claim or liability relating
to the businesses of Surveycraft or either Subsidiary, nor is Surveycraft or
either Subsidiary aware of any occurrence or fact that has or might have an
adverse effect on the businesses of Surveycraft or either Subsidiary. Except as
disclosed in Schedule 3.8, as of the date of this Agreement, neither Surveycraft
nor either Subsidiary has outstanding debt to any bank or other lender.
3.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 3.9 hereto, since September 30, 1998, there has not been (a) any
damage, destruction or casualty loss to the properties or assets of Surveycraft
or either Subsidiary (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 Surveycraft or
either Subsidiary or any fact or condition which could cause such a change,
other than any change, fact or condition related solely to the transactions
contemplated hereby; (c) any entry into any transaction, commitment or agreement
(including, without limitation, any borrowing) in excess of U.S. $10,000.00, or
outside the ordinary course of business of Surveycraft or either Subsidiary; (d)
any direct or indirect redemption, repurchase or other acquisition for value by
Surveycraft of its capital stock or any
- 7 -
<PAGE> 9
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
Surveycraft's capital stock; (e) any increase in the rate or terms of
compensation payable or to become payable by Surveycraft or either 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 Surveycraft or either 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)
any amendment or termination of any material contract or agreement to which
Surveycraft or either Subsidiary is a party or any termination or waiver of any
other rights of value to the businesses of Surveycraft or either Subsidiary; (h)
any capital expenditure for additions to property or equipment by Surveycraft or
either Subsidiary in excess of U.S. $10,000.00; (i) any split, combination,
exchange or reclassification of shares of capital stock of Surveycraft or either
Subsidiary; (j) any issuance of capital stock of Surveycraft or either
Subsidiary or of securities convertible into or rights to acquire any such
capital stock; (k) any failure by Surveycraft or either Subsidiary to pay
accounts payable or other obligations in the ordinary course of business; (l)
the incurrence of any obligations or liability (absolute or contingent) or the
making of any capital expenditure not in the ordinary course of business or in
excess of U.S. $10,000.00; (m) any pledge of any of the assets or properties of
Surveycraft or either 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; (n) the incurrence of any
liability or obligation by Surveycraft or either Subsidiary, except for
liabilities incurred in the ordinary course of business; (o) any actual or
threatened termination or cancellation of, or modification or change in, any
business relationship with any customer or customers of Surveycraft or either
Subsidiary or other agreement or arrangement involving or related to the assets
or properties of the businesses of Surveycraft or either Subsidiary; (p) any
cancellation of a debt due to or a claim of Surveycraft or either Subsidiary,
other than by payment or other satisfaction; (q) any failure of Surveycraft or
either Subsidiary to perform under, or any default by Surveycraft under, any
agreement, obligation or covenant to which Surveycraft or either Subsidiary is
or was bound; (r) any change in any method of accounting or accounting practice,
principle or procedure; (s) any action or inaction which might cause Surveycraft
or either Subsidiary to incur any tax liability out of the ordinary course of
business ; (t) any other event or condition of any character which materially
and adversely affects the businesses of Surveycraft or either Subsidiary; or (u)
any agreement, whether in writing or otherwise, to take any action described in
this Section 3.9.
3.10 Real and Personal Property; Inventories. Schedule 3.10(a) hereto
correctly identifies (i) each lease or rental of real property held or paid by
each of Surveycraft and each Subsidiary; and (ii) each parcel of real property,
and each interest (other than such leases or rentals) in real property, used in
the operations of the businesses of each of Surveycraft and each Subsidiary.
Except as set forth in Schedule 3.10(a) hereto, (a) any structures described in
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<PAGE> 10
Schedule 3.10(a) and Surveycraft's and either Subsidiary's use thereof conform
in all material respects with all applicable ordinances, requirements,
regulations, zoning laws, restrictive covenants, conditions and restrictions and
do not encroach on property of others, and are not encroached upon by structures
of others; and (b) 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. Schedule 3.10(b) hereto describes all material
tangible or intangible personal property and assets of Surveycraft and each
Subsidiary. Surveycraft and each Subsidiary have good and marketable title to,
and are in possession of or have control over, all of their respective 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 except to the extent described in Schedule 3.10(b) hereto. Each item
of such tangible personal property and assets is in good working order or
condition, reasonable wear and tear excepted.
The inventories of Surveycraft and each Subsidiary are 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 Surveycraft's and Subsidiary's
businesses and there has been no material adverse change in such inventories
since September 30, 1998.
3.11 Patents, Trademarks, Etc.
Schedule 3.11 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 and all registered designs
and design rights (collectively, the "Intellectual Property"), presently owned
or held by each of Surveycraft and each Subsidiary or under which Surveycraft or
either Subsidiary owns or holds any license, or in which Surveycraft or either
Subsidiary owns or holds any direct or indirect interest; and no others are
necessary for the conduct of the present business of Surveycraft or either
Subsidiary. None of the products manufactured, distributed or sold by
Surveycraft or either 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 Surveycraft's and
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 Surveycraft and
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 been asserted by any individual or entity with respect to
the Intellectual Assets or challenging or questioning the effectiveness of any
license or agreement with respect thereto, and there exists no basis for any
such claim. Neither Surveycraft nor Subsidiary is using confidential
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information or trade secrets of any former employer of any past or present
employees engaged in businesses of Surveycraft or either Subsidiary. The items
described in the schedules attached hereto and the other Intellectual Assets are
reasonably adequate to conduct the businesses of each of Surveycraft and each
Subsidiary as presently conducted. Upon consummation of the transaction
contemplated hereby, SPSS will acquire good and marketable title to all of the
Intellectual Assets and the goodwill associated therewith.
3.12 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 Surveycraft
or either Subsidiary either (a) were at such time parties to "work-for-hire"
arrangements or agreements with either Surveycraft or Subsidiary, in accordance
with applicable law, that has accorded Surveycraft or either 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 Surveycraft or either Subsidiary, as
assignee, that have conveyed to Surveycraft or either Subsidiary full, effective
and exclusive ownership of all intellectual property thereby arising. Neither
Surveycraft nor either Subsidiary owns or has any right, license or interest,
whether as a licensee, licenser or otherwise, in any copyrights, patents,
applications for copyrights or patents, trade secrets, inventions, processes and
designs or in any trademarks, service marks, trade names, or applications for
them, except as listed or described in Schedule 3.12. No employee of Surveycraft
or either 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 Surveycraft or either
Subsidiary or to use trade secrets or proprietary information of others.
3.13 Contracts and Commitments.
(a) Other than standard form customer and distributor
contracts entered into in the ordinary course of business, and except as set
forth in Schedules 3.10(a), 3.13(a), 3.14, 3.15, and 3.33 hereto, neither
Surveycraft nor either Subsidiary is a party to any agreements, contracts,
guarantees, commitments, restrictions or instruments of any kind ("Contracts").
True and correct copies of all Contracts listed on Schedules 3.10(a), 3.13(a),
3.14, 3.15, and 3.33 hereto have been made available to SPSS at a reasonable
time prior to Closing. All of the Contracts are valid and binding obligations of
Surveycraft or either 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. 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 Surveycraft and
each Subsidiary in the conduct of their respective businesses are attached to
Schedule 3.13(a). All non-standard form customer and distributor contracts are
listed on Schedule 3.13(a). Neither Surveycraft nor either Subsidiary has agreed
with any customer or distributor to make any variation in any such contract
which could have a material adverse effect on Surveycraft's or either
Subsidiary's assets, properties, businesses, financial condition or prospects.
As used herein, Amaterial adverse effect" shall mean any adverse effect in
excess of $100,000.00.
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(b) Neither Surveycraft nor either Subsidiary has given any
power of attorney (whether revocable) or irrevocable to any individual or
entity.
(c) Neither Surveycraft nor either Subsidiary is in default,
and there is no basis for any valid claim of default, in any respect under any
of the Contracts.
3.14 Source Code. Except as set forth in Schedule 3.14, Surveycraft
and Subsidiaries own all rights, title and interest in and to the source codes
for all of their respective software products and have not distributed any
copies of such source codes to any third parties, except for copies of the
source code relating to products which are now obsolete, and have not agreed to
pay to any individual or entity any royalty, commission or other amount on
account of sales of their software products.
3.15 Rights in Source Code. Except as set forth on Schedule 3.15,
neither Surveycraft nor either Subsidiary has granted to any individual or
entity any rights or security interests with respect to the source codes for
Surveycraft's or either Subsidiary's software products; provided, however, that
in some circumstances a licensee of Surveycraft's software may have a right to
obtain the source code of that software in the event that Surveycraft is unable
to provide technical support or service of such software by Surveycraft due to
insolvency. Surveycraft is not insolvent.
3.16 Adequacy of Documentation. Except as set forth in Schedule
3.16, the technical documentation includes the source code, system
documentation, for all of the software products currently maintained by or
licensed to Surveycraft or either Subsidiary, as well as any pertinent
commentary or explanation (the "Technical Documentation"), provided, however,
that in connection with Surveycraft's ongoing software development, certain
Technical Documentation may, in the ordinary course of business, not be current
with the corresponding software.
3.17 Third-Party Licenses.
(a) Neither Surveycraft nor either Subsidiary is (i) except as
set forth on Schedule 3.17(a)(i), a licensee under a license from a third party
with respect to the source code used in Surveycraft's or either Subsidiary's
software; or (ii) except as set forth on Schedule 3.17(a)(ii), bound by an
obligation to pay royalties to a third party with respect to source code used in
Surveycraft's or either Subsidiary's software.
(b) Neither Surveycraft nor either Subsidiary has breached or
caused to exist a default under any license referred to in Schedule 3.17(a)(i)
or (ii) and there is no basis for any valid claim or default under any such
license.
3.18 Third-Party Interests or Marketing Rights in Software
Programs. All of Surveycraft's and Subsidiaries' 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 Surveycraft or either Subsidiary and related user
documentation, for internal
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purposes only. There are no contracts, agreements, licenses or other commitments
or arrangements in effect with respect to the development, marketing,
distribution, licensing, or promotion of Surveycraft's or either Subsidiary's
software products or any other inventory, the Technical Documentation, or
Surveycraft's or either Subsidiary's Intellectual Assets with any independent
salesperson, distributor sublicensor, or other remarketer or sales organization,
except for Contracts identified in Schedules 3.3 and 3.14 and 3.17.
3.19 No Virus Warranties. To the best of Surveycraft's and the
Shareholders' knowledge, the software products, as delivered to SPSS, shall be
free of any passwords, keys, security devices or trap doors, and 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
Surveycraft's or either Subsidiary's software products. Notwithstanding the
foregoing, certain of Surveycraft's software is equipped with a "time-out code"
and/or a dongle security devices to prevent end-users access to such software if
license fees owed to Surveycraft by such end users are unpaid.
3.20 Software: Physical Media. Except as set forth on Schedule 3.20,
and subject to the provisions of Section 3.16, to the best of Surveycraft's
knowledge, Surveycraft's and Subsidiaries' software products, other than that
currently under development, will operate in accordance with the Technical
Documentation. The software products and any licenses or other rights connected
therewith, express or implied, will not infringe any other person's intellectual
property rights. To the best of Surveycraft's knowledge, each copy of the
software product is free from physical defects in the media that tangibly
embodies the copy. Attached as Schedule 3.20 is, to the best of Surveycraft's
knowledge, a complete list of all known replicable program faults or errors
existing in each of the software products currently sold by Surveycraft or
Subsidiaries. Schedule 3.20 includes the estimated number of labor hours
required to correct each such fault or error in the software and the impact of
each such fault or error in the software on the functionality of Surveycraft's
and Subsidiaries' software products based on a ten point scale, with ten being
the highest. Notwithstanding anything herein to the contrary, no major
development efforts are required to render the software programs functional.
3.21 Non-Infringement. Surveycraft's and each Subsidiary's software
products and any licenses by Surveycraft or either Subsidiary or other rights
connected therewith, express or implied, will not infringe on any other person's
intellectual property rights.
3.22 Government Contracts. Surveycraft 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 Surveycraft or either
Subsidiary, their respective businesses or any of their respective 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 Surveycraft or either
Subsidiary, its businesses, or any of its assets and
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any Government Contract Party or (b) any suspension, debarment or contract
termination, or proceeding related thereto. Surveycraft has no knowledge of any
act or omission related to the marketing, licensing, or selling of any
technology related to Surveycraft or either Subsidiary, or its business that has
led to or could have any material adverse affects on either Surveycraft's or
Subsidiary's rights or on any of its assets. All of Surveycraft's and
Subsidiaries' development of technology was developed exclusively at private
expense. For purposes of this Section 3.22, the term "Government Contract Party"
means any independent or executive agency, division, subdivision, audit group or
procuring office of any government, including any prime contractor of any
government and any higher level subcontractor of a prime contractor of any
government, and including any employees or agents thereof, in each case acting
in such capacity.
3.23 Insurance. Each of Surveycraft and each Subsidiary keeps all of
its businesses, operations and properties insured against loss or damage, with
responsible insurers. Schedule 3.23 hereto is a description of all insurance
policies held by each of Surveycraft and each Subsidiary concerning its
businesses, operations and properties, true, complete and correct copies of
which have been previously provided to SPSS. All such policies are set forth in
Schedule 3.23, and such insurance is adequate and appropriate in accordance with
sound business practices. Each of the insurance policies referred to in Schedule
3.23 is in force and the premiums with respect thereto are fully paid. No
insurer has denied coverage or reserved rights for any claim made by Surveycraft
or any other individual or entity under any insurance policies.
3.24 Litigation and Administrative Proceedings. Except as set forth
in Schedule 3.24 hereto, 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 Surveycraft or either Subsidiary or
which seeks to enjoin or obtain damages in respect of the transactions
contemplated hereby. Surveycraft 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 Schedule 3.24
could, if adversely decided, have a material adverse effect on the business,
properties, condition (financial or otherwise) or prospects of Surveycraft or
either Subsidiary.
3.25 Tax Matters. For purposes of this Agreement:
(a) The term "Taxes" means all federal, state, territory, local and
foreign taxes imposed by the Australian taxing authority or by any other taxing
authority, including without limitation all income (including capital gains),
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding (including
deduction pursuant to the royalty withholding obligation), payroll, employment,
excise, severance, financial institutions, duty, debit, municipal rates,
franking deficit, franking additional, pay-as-you-earn remittances, prescribed
payments, stamp, occupation, premium, property, windfall profits, customs,
duties, fringe benefits or other taxes, fees, assessments, imports, duties and
levies, fines 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;
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(b) The term "Returns" means all returns, declarations, reports,
statements, elections and other documents required to be filed or made in
respect of Taxes, and the term "Return" means any one of the foregoing Returns;
3.25.1 All Returns Filed. All Returns required to be filed
by or on behalf of Surveycraft or either Subsidiary on or before the Closing
Date have been filed, or proper extensions for the filing of such Returns have
been filed, and such Returns are complete and accurate and disclose all Taxes
(and other charges) for the periods covered thereby. Except as set forth in
Schedule 3.25.1, 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.
3.25.2 All Taxes Paid. All Taxes (and other charges) shown
on such Returns or otherwise required to be paid, and any deficiency
assessments, penalties, interest and other charges with respect thereto, have
been paid, and there is otherwise no current liability for any unpaid Taxes (or
other charges) due in connection with such Returns or otherwise. There are no
tax liens on any of the assets or properties of Surveycraft or either
Subsidiary, and, to the best knowledge of the Shareholders and Surveycraft, no
basis exists for the imposition of any such liens.
3.25.3 Examinations, Etc. No state, local, foreign or other
Returns of Surveycraft or either Subsidiary for tax years that remain open under
any applicable statute of limitations have been examined by pertinent tax
authorities and no deficiencies have been asserted or assessments made as a
result of examinations (including all penalties and interest). Neither
Surveycraft nor either Subsidiary has been notified that any issues have been
raised by (or are currently pending before) any 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 Surveycraft or either Subsidiary,
taken as a whole, if decided adversely to Surveycraft or either Subsidiary, nor
are there any such issues which have not been so raised but, if so raised by any
taxing authority in connection with any of the Returns could, in the aggregate,
reasonably be expected to have a material adverse effect on the financial
condition of Surveycraft or either Subsidiary.
3.25.4 Franking Accounts. In relation to each of Surveycraft
and each Subsidiary, all credits and debits to any franking account maintained
by each of Surveycraft and each Subsidiary have been duly and properly recorded
in accordance with the Tax Act (as hereinafter defined) giving rise to a
franking account balance in conformity with the Tax Act, and there are no
existing or pending statutory franking debits in relation to dividend streaming
arrangements, on-market share buy-back purchases or otherwise. For purposes of
this Section 3.25, "Tax Act" means the following Australian acts and
regulations. The Income Tax Assessment Act 1936, the Income Tax Assessment 1997,
the Taxation Administration Act 1953, the Income Tax Rates Act 1986 and other
rating acts, the Income Tax Regulations and related Commonwealth income taxation
legislation and regulations.
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3.25.5 Capital Gains. Neither Surveycraft or any of the
Subsidiaries has sought capital gains tax relief under either section 160ZZ0 of
the Income Tax Assessment Act 1936 or Subdivision 126-B of the Income Tax
Assessment Act 1997 with respect to any asset acquired by any of them and which
is still owned by the relevant company at the date of this Agreement.
3.26 Compliance with Laws. Except as disclosed in Schedule 3.26,
neither Surveycraft nor either Subsidiary has in the past been or is presently
in violation of, in respect of its respective operations, real property,
machinery, equipment, all other property, practices and all other aspects of its
businesses, any applicable law (whether statutory or otherwise), rule,
regulation, order, ordinance, judgment or decree of any governmental authority
(federal, state, local or otherwise) (collectively, "Laws"). Except as disclosed
in Schedule 3.26, neither the Shareholders nor Surveycraft nor either Subsidiary
has received any notification of any asserted present or past failure of
Surveycraft or either Subsidiary to comply with any of such Laws.
3.27 Environmental Matters. (a) Except as otherwise disclosed in
Schedule 3.27 hereto, (i) Surveycraft and its predecessors and the subsidiaries
of either, if any, have obtained all Environmental Permits (as defined herein)
that are required with respect to the business, operations and properties of
Surveycraft and its predecessors and the subsidiaries of either; (ii)
Surveycraft and its predecessors and their respective subsidiaries have been,
and Surveycraft is, in compliance with all terms and conditions of all
Environmental Laws (as defined herein) and Environmental Permits; (iii) neither
Surveycraft nor its predecessors or their respective subsidiaries have received
any notice from a governmental authority or third party of any violation of or
potential liability arising under any Environmental Law or Environmental Permit
in connection with the business of Surveycraft or its predecessors or their
respective subsidiaries or the operation thereof, nor is any such notice pending
or to the best of Surveycraft's knowledge, threatened; (iv) no underground or
above ground storage tanks are or have been located on the real properties
described in Schedule 3.10(a) attached hereto or previously owned or operated by
Surveycraft; and (v) Surveycraft 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. Surveycraft has delivered to SPSS all
environmental records and material safety data sheets relating to its business
and operations.
(b) Except as set forth in Schedule 3.27, there is no
condition or any set of facts or circumstances that could give rise to an
Environmental Claim (as defined herein).
(c) Except as set forth in Schedule 3.27, to the best of the
Shareholders' and Surveycraft's knowledge, there have been no releases of
Hazardous Material into the soil, surface water or ground water at its
production facility.
(d) For purposes of this Agreement, the following terms shall
have the respective meanings set forth herein:
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"Environmental Permit" shall mean any permit, license,
approval or other authorization with respect to the business of Surveycraft or
its predecessors or their respective subsidiaries or the operation thereof under
any applicable Environmental Law (as defined herein), including laws,
regulations or other requirements relating to emissions, discharges or releases
of Hazardous Material (as defined herein) into ambient air, surface water,
ground water, or land, or otherwise arising from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
Hazardous Material by Surveycraft or its predecessors or their respective
subsidiaries or the employees, representatives, contractors or actual agents of
any of such entities.
"Environmental Claim" shall mean any action, lawsuit, claim or
proceeding relating to the business of Surveycraft or its predecessors or their
respective subsidiaries or the operation thereof which seeks to impose
liability, for (i) violation of any Environmental Law, (ii) release of any
Hazardous Material, (iii) noise, (iv) pollution or contamination of the air,
surface water, groundwater or land; (v) solid, gaseous or liquid waste
generation, handling, treatment, storage, disposal or transportation; (vi)
exposure to hazardous or toxic substances; or (vii) the manufacture, processing,
distribution in commerce, use (by Surveycraft or its predecessors or their
respective subsidiaries or the employees, representatives, contractors or actual
agents of any of such entities), or storage (by Surveycraft or its predecessors
or their respective subsidiaries or the employees, representatives, contractors
or actual agents of any of such entities) of chemical substances. An
"Environmental Claim" includes, but is not limited to, a proceeding to issue,
modify or terminate a permit or license, or to adopt or amend a law or
regulation to the extent that such a proceeding attempts to redress violations
of the applicable permit, license, law or regulation which occurred on or prior
to the Closing Date as alleged by any United States, state or local executive,
legislative, judicial regulatory or administrative agency, board or authority or
the Australian or United Kingdom equivalent thereof.
"Hazardous Material" shall mean the following: (i) All
"hazardous substances," as such term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.A. Sec.
9601(14) or the equivalent Australian or United Kingdom law; (ii) all "hazardous
wastes," as such term is defined in the Resource Conservation and Recovery Act,
42 U.S.C.A. Sec. 6903(5) or the equivalent Australian or United Kingdom law;
(iii) all materials that are classified as hazardous or toxic under any
Environmental Law, as defined below; (iv) petroleum products, including
gasoline, diesel fuel, fuel oil, crude oil, and motor oil, and the constituents
of those products; or (v) medical wastes.
"Environmental Laws" shall mean, without limitation, the
following: the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C.A. Sec. 9601 et seq.); the Resource Conservation and Recovery Act
(42 U.S.C.A. Sec. 6901 et seq.); the Clean Water Act (33 U.S.C.A. Sec. 1251 et
seq.); the Clean Air Act (42 U.S.C.A. Sec. 7401 et seq.); the Toxic Substance
Control Act (15 U.S.C.A. Sec. 2601 et seq.); the Occupational Safety and Health
Act (29 U.S.C. 651 et seq.); and all other federal, state and local statutes and
ordinances pertaining to protection of the environment, health or safety, and
all amendments made to, and regulations
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promulgated under, the foregoing laws effective at the time of Closing, or any
equivalent Australian or United Kingdom law.
3.28 Employee Benefits.
3.28.1 Attached hereto as Schedule 3.28 is a written list of all
employee benefit plans relating to employee benefits with respect to which each
of Surveycraft and each Subsidiary has incurred or may incur any future or
contingent obligations, commitments, whether legal or voluntary, including,
without limitation, all plans, agreements or arrangements relating to deferred
compensation, superannuation fund, 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, disability and life insurance benefits and all other employee benefits
or fringe benefits whether or not committed to writing (collectively referred to
as the "Plans").
3.28.2 Each Subsidiary has, with respect to each Plan, delivered to
SPSS true and complete copies of: (i) all plan texts and agreements and related
trust indentures or annuity contracts; (ii) all material employee communications
relating to each Plan; (iii) the annual reports (including all schedules
thereto) for the most recent three (3) plan years; (iv) the actuarial valuations
for the most recent three (3) plan years; (v) the audited financial statement
and opinions for the most recent three (3) plan years and all communications
with any governmental entity or agency.
3.28.3 Other than claims in the ordinary course of business for
benefits under the Plans, and except as disclosed on Schedule 3.28 there are no
actions, suits, claims or proceedings, pending or threatened, nor does there
exist any basis therefor, which may result in any liability with respect to any
Plan to Surveycraft, either Subsidiary or any Plan or trust thereof.
3.28.4 Each of Surveycraft and each Subsidiary has complied with all
applicable industry awards and agreements, all employment contracts and all
statutory requirements in respect to their respective Plans and their respective
employees and has administered and operated all such Plans in accordance with
their respective terms.
3.28.5 Each of Surveycraft and each Subsidiary has complied with, and
will up to and including the Closing Date continue to comply with, all of its
Superannuation Commitments (as defined herein) and will not increase its
Superannuation Commitments prior to the Closing Date without the written consent
of SPSS.
For the purpose of this Section, "Superannuation Commitment"
means any legal liability (whether arising under an industrial award, or
agreement or otherwise) or voluntary commitment to make contributions to any
superannuation fund, pension scheme or other arrangement which will provide
directors or employees of Surveycraft or any Subsidiary or their respective
dependents with pensions, annuities, lump sum or any other payments upon
retirement or earlier death or otherwise.
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3.28.6 Each of Surveycraft and each of the Subsidiaries has duly made
all necessary payments on behalf of its employees and other persons in order to
avoid incurring any liability to pay any levy, including, without limitation,
the superannuation guarantee charge under the Superannuation Guarantee Charge
Act 1992 (Cth) in Australia.
3.29 Licenses and Permits. Surveycraft and Subsidiaries have all
governmental licenses and permits and other governmental authorizations and
approvals required for the conduct of its businesses as presently conducted
("Permits"). Schedule 3.29 hereto includes a list of all Permits.
3.30 Relations With Suppliers and Customers. Neither Surveycraft nor
either Subsidiary nor the Shareholders is required to provide any bonding or
other financial security arrangements in connection with any transaction with
any customer or supplier. Neither Surveycraft nor either Subsidiary nor the
Shareholders has received any notice that any customer or supplier of
Surveycraft or either Subsidiary will cease to do business with Surveycraft or
either Subsidiary or refuse to do business with SPSS after the consummation of
the transactions contemplated hereby.
3.31 Interests in Competitors, Suppliers and Customers. Neither the
Shareholders nor any officer or director of Surveycraft or Subsidiary nor any
entity controlled by or under common control with Surveycraft or either
Subsidiary has any ownership interest in any competitor, supplier or customer of
Surveycraft or either Subsidiary or any property used in the operation of either
of their businesses.
3.32 Employment Matters. Schedule 3.32 hereto is a list of all oral
and written employment or consulting contracts or other agreements or
arrangements providing for remuneration to which Surveycraft or either
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 U.S. $20,000.00 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.
3.33 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 Surveycraft or either
Subsidiary arising out of any statute, ordinance or regulation relating to
discrimination in employment or employment practices or occupational safety and
health standards which, if upheld, would have an adverse effect on the assets,
properties, businesses or conditions, financial or otherwise, of Surveycraft or
either Subsidiary. There is no pending or threatened equal employment
opportunity enforcement action or labor dispute, strike, or work stoppage
affecting any businesses Surveycraft or either Subsidiary. Neither Surveycraft
nor either 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
Surveycraft's knowledge threatened, any labor dispute, strike or work stoppage
which affects or which may affect either Surveycraft's or Subsidiary's
businesses or which
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may interfere with the continued operations of Surveycraft or either
Subsidiary. No present or former employee of Surveycraft or either 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, except as set forth on Schedule 3.33, or (d) any violation
of any statute, ordinance or regulation relating to minimum wages or maximum
hours of work.
3.34 Related Transactions. Neither Surveycraft nor either 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 Surveycraft or either
Subsidiary, except normal compensation arrangements with officers, all of which
are reasonable in amount and, except as listed on Schedule 3.34, terminable by
Surveycraft or a Subsidiary on 30 days' notice.
3.35 Brokers and Finders. Neither Surveycraft nor either Subsidiary
nor the Shareholders (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.
3.36 Questionable Payments. Neither Surveycraft nor Subsidiary nor
the Shareholders, nor any director, officer, agent, employee or other person
associated with or acting on behalf of Surveycraft or either Subsidiary has
directly or indirectly: (a) used any corporate 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, or any similar
Australian law; (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 Surveycraft or either Subsidiary; (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.
3.37 Books and Records. The books and records of each of Surveycraft
and each Subsidiary have been maintained in accordance with commercially
reasonable business and bookkeeping practices and accurately reflect in all
respects the business, assets, properties, rights, obligations, liabilities and
operations of each of Surveycraft and each Subsidiary.
3.38 Bank Accounts; Safe Deposit Boxes. Schedule 3.38 hereto sets
forth the names and locations of all banks in which Surveycraft or either
Subsidiary have accounts or safe deposit boxes and the names of all persons
authorized to draw thereon or to have access thereto.
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3.39 Full Disclosure. Surveycraft and the Shareholders have disclosed
in writing in, or pursuant to, this Agreement all facts material to the
business, operations, assets or condition (financial or otherwise) of each of
Surveycraft and each Subsidiary. No representation or warranty to SPSS contained
in this Agreement, and no statement contained in the disclosure schedules to
this Agreement, any certificate, list or other writing furnished to SPSS
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.
3.40 Effect of Certificates. All representations and warranties made
in certificates of Surveycraft and the officers of Surveycraft and/or the
Shareholders delivered hereunder shall be deemed to be additional
representations and warranties of Surveycraft and the Shareholders,
respectively.
3.41 Year 2000 Compliance. Surveycraft's products are designed to be
used prior to, during and after the calendar Year 2000 A.D., and during each
such time period will accurately receive, provide and process date/time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and 2000,
and leap-year calculations and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of date/time data.
3.42 Product Warranties and Liabilities. Neither Surveycraft nor
either 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 Schedule 3.42, with modifications
that, in the aggregate, would not have a material adverse effect on business,
prospects or financial condition of Surveycraft or either Subsidiary.
Surveycraft does not have any knowledge of any fact or the occurrence of any
event forming the basis of any present or future claim against Surveycraft or
either 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 and as set forth in Schedule 3.42.
3.43 Material Misstatements or Omissions. No representation or
warranty by either Surveycraft or the Shareholders in this Agreement nor any
documents, exhibits, certificates or schedules furnished to SPSS 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 SPSS hereunder are true and complete copies of the originals thereof in all
material respects.
3.44 Trust Warranties.
3.44.1 Microtab is and will at the Closing Date be the
trustee of the Microtab Unit Trust and holds the Shares and conducts the
business of the Microtab Unit Trust in that capacity.
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3.44.2 The distribution date or vesting day referred to in
the trust deed constituting the Microtab Unit Trust has not arrived or been
appointed and will not arise or be appointed on or prior to the Closing Date.
3.44.3 Microtab in its capacity as trustee of the Microtab
Unit Trust has the power to sell the Shares and to enter into and complete this
Agreement, and all necessary consents and notices in relation to the exercise by
Microtab of such power have been given prior to the date hereof and will not be
revoked on or prior to the Closing Date.
3.44.4 There has been no exercise of any power to vary the
Microtab Unit Trust or any of the provisions of the trust deed constituting the
Microtab Unit Trust and no such power will be exercised prior to the Closing
Date.
3.44.5 Microtab has full right and authority to sell the
Shares free of any restriction whatsoever.
3.44.6 The copy of the trust deed constituting the Microtab
Unit Trust delivered to the Purchaser prior to the date hereof is a true copy.
3.44.7 Subject to 2.44.1 to 2.44.6 above neither Shareholder
is or will at the Closing Date be the trustee of any trust other than in the
case of Microtab Systems Pty Ltd. the Microtab Unit Trust and does not now and
will not at the Closing Date hold any of the Shares in that capacity.
3.45 National Australia Bank Charge.
3.45.1 Other than the National Australia bank fixed and
floating charge ASIC number 439267 created on 3 May 1994 (ANAB Charge"), there
are no other encumbrances affecting any of the Shares or any of the asset and
undertaking of Surveycraft.
3.45.2 In respect of the NAB Charge, all of the property
the subject of that charge was released prior to Closing.
3.45.3 To the extent that the consent of National Australia
Bank Limited is required under the terms of the NAB Charge to the sale of the
Shares, that consent has been obtained and a copy provided to SPSS.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SPSS
SPSS represents and warrants to Surveycraft and the Shareholders as
follows:
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4.1 Organization and Qualification. SPSS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby.
4.2 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 no other corporate proceedings on the part of SPSS are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by SPSS and constitutes legal, valid and binding agreements of SPSS.
4.3 Consents and Approvals. Except as set forth on Schedule 4.3, 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 SPSS to
consummate the transactions contemplated hereby and fully perform its
obligations hereunder.
4.4 Absence of Conflicts. The execution, delivery and performance by
SPSS of this Agreement and the consummation by SPSS 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 SPSS is or was subject, (ii) violate any order, judgment or decree
which is or was applicable to SPSS or (iii) conflict with, or result in a breach
or default under, any term or condition of the Certificate of Incorporation or
By-Laws of SPSS or any agreement or other instrument to which it is a party or
by it is bound.
4.5 Capitalization. The authorized capital stock of SPSS consists of
50,000,000 shares of Common Stock, of which, as of November 1, 1998,
approximately 9,028,753 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 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.
4.6 Reports and Financial Statement. SPSS has previously furnished
Surveycraft with true and complete copies of its (i) Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 as filed with the Securities and
Exchange Commission ("SEC"), (ii) its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, and (iii) its Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 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.
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4.7 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, to the best knowledge of SPSS,
threatened against or affecting SPSS which seeks to enjoin or obtain damages in
respect of the transactions contemplated hereby.
4.8 Brokers and Finders. SPSS has not 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.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Business.
(a) Conduct of Business by Surveycraft. During the period from the
date of this Agreement to the Closing Date, Surveycraft 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, 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 Closing Date and shall cause Subsidiaries
to do the same. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Closing Date, neither Surveycraft
nor either 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 Surveycraft
or either Subsidiary or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) 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 Memorandum of Association, Articles of
Association 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 Surveycraft or either Subsidiary,
except purchases of inventory in the ordinary course of business
consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties or
assets, except in the ordinary course of business;
(vi) (x) incur any indebtedness, except for short term
borrowings incurred in the ordinary course of business consistent with
past practice, (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 of U.S.$5,000 or in the aggregate are in excess of U.S.$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 unassorted,
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
Surveycraft or either Subsidiary is a party or waive, release or assign
any material rights or claims thereunder;
(xi) knowingly take any action that would prevent SPSS from
making an election under Section 338 of the Code (and any comparable
election under state, local or foreign tax law) with respect to the
acquisition of Surveycraft by SPSS;
(xii) take any action to institute any new severance or
termination pay practices with respect to any directors, officers or
employees of Surveycraft or either Subsidiary or to increase the
benefits payable under its severance or termination pay practices in
effect on the date hereof;
(xiii) 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
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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. Neither the Shareholders nor
Surveycraft shall, 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
Surveycraft or either Subsidiary, (ii) sale of 10% or more of the issued shares
of capital stock of Surveycraft or any shares of the capital stock of either
Subsidiary or similar transactions involving Surveycraft or either Subsidiary,
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. Surveycraft
and the Shareholders 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. Surveycraft and the
Shareholders shall give prompt notice to SPSS, and SPSS shall give prompt notice
to Surveycraft and the Shareholders 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 untrue or
inaccurate at any time from the date hereof to the Closing Date and (ii) any
failure of Surveycraft and any of the Shareholders on the one hand or SPSS 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, 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.
ARTICLE VI
COVENANTS OF SURVEYCRAFT AND THE SHAREHOLDERS
Surveycraft and each of the Shareholders, jointly and severally,
covenant as follows:
6.1 Consents and Approvals. Surveycraft and the Shareholders 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
Surveycraft and the Shareholders 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 SPSS and its counsel.
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6.2 Closing Returns. SPSS will cooperate with the Shareholders to
file, or cause to be prepared and filed, on a timely basis all Returns of
Surveycraft and Subsidiary due after the Closing Date and attributable to
periods ending on or before the Closing Date (the "Pre-Closing Periods"),
including without limitation, any tax returns for the short period ending on the
Closing Date (the "Closing Returns"), which Closing Returns shall include any
income or gains attributable to the Section 338 election. SPSS shall direct the
preparation and filing of the Closing Returns; provided, however, that the
Shareholders shall be responsible for paying any Taxes shown on such Closing
Returns or otherwise attributable to the Pre-Closing Periods in accordance with
Section 12.2(a).
6.3 Access to Information.
(a) Surveycraft and the Shareholders shall allow SPSS to have complete
access at all reasonable times to its officers, employees, agents, properties,
books and records, and shall furnish SPSS all financial, operating and other
data and information as SPSS, through its officers, employees or agents, may
reasonably request.
(b) No investigation pursuant to this Section 6.3 shall affect, add
to or subtract from any representations or warranties or the conditions to the
obligations of the parties hereto to effect the Acquisition.
6.4 338 Election. The Shareholders agree to cooperate with SPSS in
making an election under Section 338 of the Code (and any comparable election
under state, local or foreign tax law) with respect to the acquisition of
Surveycraft by SPSS. The Shareholders will cooperate fully in the making of such
election.
6.5 Correction of Shareholder Records. The Shareholders shall
cooperate with SPSS in making all corrections to the Shareholders' records of
Surveycraft, U.K. with the United Kingdom Registrar of Companies to reflect the
change of name of Microtab Systems Pty Ltd. to Surveycraft Limited as holder of
all of the capital stock of Surveycraft U.K. The Shareholders shall likewise
cooperate with SPSS with respect to reflecting such change in the internal
company records of Surveycraft U.K.
6.6 Further Assurances. The Shareholders shall from time to time,
at the request of SPSS and without further cost or expense to SPSS, execute and
deliver such other documents and take such other actions as shall be reasonably
necessary or appropriate to consummate fully the transactions contemplated
hereby.
ARTICLE VII
COVENANTS OF SPSS
SPSS covenants as follows:
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7.1 Retention of Records. After the Closing Date, SPSS will retain
all of Surveycraft's books and records in accordance with SPSS' policies for
retention of its own books and records, and upon reasonable notice and during
SPSS' regular business hours and at reasonable intervals, will provide the
Shareholders, and their respective agents and representatives designated in
writing, access to such books and records, concerning periods prior to the
Closing Date.
7.2 Consulting Agreement. SPSS shall enter into a consulting
agreement with Adams (the "Consulting Agreement"), substantially in the form
attached hereto as Exhibit A.
7.3 Further Assurances. SPSS shall from time to time execute and
deliver such other documents and take such other actions as shall be reasonably
necessary or appropriate to consummate fully the transactions contemplated
hereby.
ARTICLE VIII
MUTUAL COVENANTS
Each of the parties hereto covenants as follows:
8.1 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, operating the acquired business.
"Confidential Information" shall mean any secret or confidential information of
the business of designing and developing software, Surveycraft or SPSS,
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 business of designing and developing software,
Surveycraft, SPSS 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
Surveycraft, the Shareholders or SPSS, (ii) is disclosed by a third party which
does not have a confidential relationship with either Surveycraft, the
Shareholders or SPSS, and which was rightfully acquired by 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 to such other parties of the Confidential Information, so
as to allow the parties an opportunity to oppose such process.
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8.2 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.
8.3 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
Surveycraft or Subsidiary.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SURVEYCRAFT
AND THE SHAREHOLDERS
The obligations of Surveycraft and the Shareholders to consummate the
transactions contemplated hereby is subject to the satisfaction on or prior to
the Closing Date of the following conditions:
9.1 Representations and Warranties. The representations and warranties
of SPSS shall be 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.
9.2 Performance. SPSS 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.
9.3 Filings; Consents: Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions listed on Schedule 4.3 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
of its obligations under this Agreement shall have been made or obtained and all
applicable waiting periods shall have expired or been terminated.
9.4 No Injunction. At the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or governmental body in
effect which restricts or prohibits the consummation of the transactions
contemplated by this Agreement.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF SPSS
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The obligation of SPSS to consummate the transactions contemplated
hereby is subject to the satisfaction on or prior to the Closing Date of the
following conditions:
10.1 Representations and Warranties. The representations and warranties
of Surveycraft and the Shareholders shall be 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.
10.2 Performance. Surveycraft and the Shareholders 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.
10.3 Filings: Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind listed on Schedule 3.5 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 Surveycraft and the Shareholders of their respective 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.
10.4 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
Surveycraft or the Shareholders 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
Surveycraft or either Subsidiary. 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.
10.5 Consulting Agreement. SPSS shall have received an executed
consulting agreement, substantially in the form attached hereto as Exhibit A,
from Adams.
10.6 Legal Opinion. SPSS shall have received the written opinion, dated
the Closing Date, of Moores Solicitors, substantially in the form attached
hereto as Exhibit B.
10.7 Due Diligence Investigation. SPSS shall have completed a due
diligence investigation of Surveycraft and Subsidiary, the results of which
shall have been satisfactory to SPSS in its sole discretion.
10.8 Shareholder Approval. This Agreement and the Acquisition shall
have been approved and adopted by the consent of the Shareholders in accordance
with applicable law and the Memorandum of Association and Articles of
Association of Surveycraft.
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10.9 Delivery. At the Closing, the documents referenced in Article XI
shall be delivered to SPSS.
ARTICLE XI
CLOSING DELIVERIES
The following deliveries shall be made at the Closing:
11.1 Stock. The Shareholders shall duly execute and deliver share
transfers and share certificates to SPSS representing all of the Shares and SPSS
shall be responsible for payment of stamp duty thereon.
11.2 Books and Records. Surveycraft shall have caused to be delivered
to SPSS all of Surveycraft's and Subsidiary's books and records, including
without limitation the stock transfer and minute books and financial records.
11.3 Consulting Agreement. Surveycraft shall cause to be delivered to
SPSS, an executed consulting agreement, substantially in the form attached
hereto as Exhibit A, from Adams.
11.4 Legal Opinion. Surveycraft shall cause to be delivered to SPSS the
written legal opinion of Moores Solicitors, in substantially the form attached
hereto as Exhibit B.
11.5 Consents. Surveycraft shall deliver to SPSS all consents and
approvals required in connection with the performance by Surveycraft of its
obligations under this Agreement and the consummation by Surveycraft and
Subsidiary of the transactions contemplated hereby and thereby.
11.6 Closing Certificates. Surveycraft shall deliver, or cause to be
delivered, to SPSS such closing certificates and documents as SPSS and its
counsel shall reasonably request.
11.7 Charter: Good Standing Certificates. Surveycraft U.S. shall
deliver Articles of Incorporation certified by the Secretary of State of Ohio,
as well as good standing and tax certificates from the Secretary of State of the
State of Ohio. Surveycraft U.K. shall deliver Memorandum of Association and as
filed with the United Kingdom Registrar of Companies.
11.8 Resignations of Surveycraft's Officers and Directors. Surveycraft
and Subsidiary shall have caused to be delivered to SPSS resignations, operative
as of the Closing Date, of all the officers and directors of Surveycraft and
each Subsidiary.
11.9 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.
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11.10 Purchase Price. SPSS shall deliver the Purchase Price as set
forth in Section 1.3 hereof upon receipt of all of the closing deliveries and
satisfaction of all of the closing conditions set forth herein and the execution
and delivery by all of the parties hereto of this Agreement and the other
documents, instruments and certificates contemplated hereby and thereby.
11.11 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 which the other parties may
reasonably determine necessary or appropriate in order to consummate fully the
transactions contemplated hereby.
ARTICLE XII
SURVIVAL AND INDEMNIFICATION
12.1 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 Closing Date for a period of five (5)
years, regardless of any investigation made by or on behalf of any party, except
for the representations and warranties contained in Section 3.3 and 3.4, which
shall survive indefinitely, and the representations and warranties contained in
Sections 3.11, 3.18, 3.20 and 3.21, or a representation or warranty which shall
prove to be untrue due to the fraud of Surveycraft which in each case shall
survive until the expiration of the applicable statute of limitations with
respect to the subject matter thereof. All covenants contained herein shall
survive until performed fully.
12.2 Indemnification.
(a) The Shareholders agree to indemnify and hold SPSS and their
affiliates and the respective officers, directors, employees, agents and
representatives of each of the foregoing (collectively, the "Representatives")
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 made by Surveycraft or the Shareholders and (A) set
forth herein or in any related schedule or (B) set forth in any closing
certificate or other document entered into or delivered by Surveycraft or the
Shareholders in connection with this Agreement; (ii) any breach of any covenant,
obligation or agreement of Surveycraft or the Shareholders 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 Surveycraft or
the Shareholders; (iv) any Taxes asserted against Surveycraft or SPSS or any of
is Subsidiaries or affiliates and arising out of or related to tax periods
ending on or prior to the Closing Date; and (v) the Shareholders' pro rata share
of any Taxes for any period beginning before and ending after the Closing Date.
For purposes of this Subparagraph 11.2(a), in the case of
- 31 -
<PAGE> 33
any taxable period beginning before and ending after the Closing Date, for
purposes of determining the amount of liability for Taxes attributable to the
portion of the taxable period ending on or before the Closing Date: (A) in the
case of sales, use, payroll or excise Taxes or Taxes based upon or related to
income or gains, such portion of the taxable period shall be deemed to be a
separate taxable year and the Shareholder's 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 income tax return of
Surveycraft for the taxable year ending on the Closing Date and the prior years,
and (B) in the case of other Taxes, the Shareholder's 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 Closing Date to the total number of days included in such taxable
period. AIndemnification Payment" shall mean any payment due SPSS hereunder.
(b) Except as otherwise specifically set forth herein, the indemnity
provided in this Agreement shall not commence until the cumulative amount of all
Losses shall exceed Twenty-Five Thousand U.S. Dollars (U.S. $25,000.00) in the
aggregate (the ABasket"); provided, however, that if the Basket is reached, the
indemnity provided for herein shall apply to all Losses, including, without
limitation, the Basket. Notwithstanding the foregoing, the Basket shall not
apply to the indemnities provided in this Agreement for breach of any
non-competition or confidentiality obligation contained herein or in any other
closing document, any failure of title to the Shares, or any fraud, willful
misconduct, gross negligence or criminal action on the part of the Shareholders
or Surveycraft, and shall not apply to any liability under Subparagraph
11.2(a)(iv) or Subparagraph 11.2(a)(v) hereof, and notwithstanding anything
contained or implied in this Agreement, the indemnity obligations set forth
herein above this sentence shall survive the Closing without limitation except
as provided by the applicable statue of limitations (including any extension of
said statue of limitations).
12.3 Indemnification by SPSS. SPSS agrees to indemnify and hold
Surveycraft 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 SPSS set forth herein or in any related schedule, or set forth in
any closing certificate or other document entered into or delivered by SPSS in
connection with this Agreement; (ii) any breach of any covenant, obligation or
agreement of SPSS contained in this Agreement or in any other closing document;
and (iii) any fraudulent representation or intentional misrepresentation on the
part of SPSS, unless the claim or cause of action with respect thereto arises
out of or is related to actions or omissions of Surveycraft or the Shareholders
prior to the Closing Date. For purposes of this Subparagraph 11.2(a), in the
case of any taxable period beginning before and ending after the Closing Date,
for purposes of determining the amount of liability for Taxes attributable to
the portion of the taxable period ending on or before the Closing 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 Shareholder's 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 income tax return of Surveycraft for
the taxable year ending on the Closing Date and the prior years, and (B) in the
case of other Taxes, the Shareholder's
- 32 -
<PAGE> 34
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 Closing Date to the total number of
days included in such taxable period.
12.4 Indemnification Procedure. (a) An indemnified party under this
Article XII 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 (each an AIndemnification
Event"), 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 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
the indemnifying party must indemnify the indemnified party therefor.
Notwithstanding anything in this Section 12.4 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 either SPSS or the Representatives is entitled to indemnification from
the Shareholders as provided in Section 12.2(a), SPSS shall give written notice
to the Shareholders 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 (i) the Shareholders request such a contest, (ii) such a
contest will not adversely affect the tax position of Surveycraft
- 33 -
<PAGE> 35
and/or either Subsidiary after the Closing Date or SPSS, whether before or after
the Closing Date; and (iii) the Shareholders first provide an opinion of
counsel, reasonably acceptable to SPSS, stating that the Shareholders have a
reasonable basis for their position. SPSS shall keep the Shareholders fully
informed as to the progress of such contest. If at any point prior to the
termination of the administrative review process, the Shareholders notify SPSS
in writing that they are willing to accept a settlement proposed by the IRS,
Australian or United Kingdom tax authority with respect to such proposed or
actual assessment of tax liabilities, SPSS will settle the proposed or actual
tax assessment, and SPSS and the Representatives, as applicable, shall
immediately be entitled to indemnification from the Shareholders. If the
Shareholders never elect 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 Shareholders; provided, that if within ten (10) days of
receipt from SPSS of notice that it is paying the tax, the Shareholders notify
SPSS of their desire to contest the proposed or assessed tax deficiency in the
courts, the Shareholders shall be entitled to do so provided that (a) if the
proposed or actual tax deficiency is contested in tax court, the Shareholders
shall pay from their 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
shall 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 Shareholders. Any
contest (whether during the administrative review process or otherwise) shall be
conducted at the sole cost and expense of the Shareholders.
12.5 Offset Against Unpaid Amounts. Without limiting such other rights
as SPSS may have and subject to the survival period of the representation and
warranties contained in Section 12.1, if, prior to the time that any payment of
the Purchase Price is to be delivered, and after the Basket has been reached,
SPSS has learned of a breach of any representation, warranty, covenant or
agreement of the Shareholders or Surveycraft contained in this Agreement, SPSS
in its sole discretion may by written notice deduct from the amount of such
payment otherwise owed an amount equal to the aggregate of (a) the amount
necessary to cure or make it whole for such breach or (b) the amount of losses,
damages and expenses incurred or demonstrably in prospect of being incurred in
connection with or caused by such breach.
12.6 Treatment as Adjustment of Purchase Price. Any indemnity payment
received by a party hereunder shall be treated (so far as possible) as an
adjustment of the Purchase Price. However, in the event that the Internal
Revenue Service or any other taxing authority determines that such indemnity
payment constitutes taxable gain or income to the indemnified party, the
indemnifying party shall increase the amount otherwise required to be paid so
that the indemnified party, receives, on an after-tax basis, an amount equal to
the amount it would have received had the indemnity not resulted in taxable gain
or income.
- 34 -
<PAGE> 36
ARTICLE XIII
TERMINATION, AMENDMENT AND WAIVERS
13.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date, whether before or after approval by the Shareholders:
(a) by mutual consent of the Boards of Directors of the parties
hereto;
(b) by Surveycraft 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 Article X 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 Surveycraft on or before December
31, 1998; or
(d) by Surveycraft, if the conditions set forth in Article VIII 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 SPSS or before December 31, 1998;
or
(e) by SPSS or Surveycraft if the Acquisition shall not have
been consummated on or before December 31, 1998 or such later date as the
parties hereto agree in writing.
13.2 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 Surveycraft,
the Shareholders, SPSS or their respective officers or directors, except as set
forth in Section 8.1 and Section 14.3 and except that nothing herein will
relieve any party from liability for breach of this Agreement.
ARTICLE XIV
MISCELLANEOUS
14.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented by written agreement of the
parties.
14.2 Waiver of Compliance. Any failure of Surveycraft or the
Shareholders on the one hand, or SPSS, 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
- 35 -
<PAGE> 37
subsequent or other failure. Any waiver must be in writing and duly executed by
the appropriate parties.
14.3 Expenses. Whether or not the transactions contemplated by this
Agreement shall be consummated, the parties hereto agree that all fees and
expenses incurred by Surveycraft or the Shareholders, on the one hand, and SPSS
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
Surveycraft and the Shareholders, and by SPSS, respectively, including, without
limitation, all fees of counsel and accountants.
14.4 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:
(a) If to Surveycraft or the Shareholders to:
Surveycraft, PTY Ltd.
13 Were Street
Montmorency
Victoria 3094
Australia
Attention: Noel Adams
Facsimile No.:+613 9434 4233
with a copy to:
Moores Solicitors
9 Prospect Street
Box Hill
Victoria 3128
Australia
Attention: Murray Baird
Facsimile No. +613 9898 0333
or to such other person or address as Surveycraft or the Shareholders shall
furnish to SPSS in writing by notice given in the manner set forth in (a) above.
(b) If to SPSS, to:
SPSS Inc.
- 36 -
<PAGE> 38
233 South Wacker Drive, 11th Floor
Chicago, Illinois 60606
Attention: Edward Hamburg
Facsimile No.: (312) 651-3558
with a copy to:
Ross & Hardies
150 North Michigan Avenue, Suite 2500
Chicago, Illinois 60601
Attention: Lawrence R. Samuels, Esq.
Facsimile No.: (312) 750-8600
or to such other person or address as SPSS shall furnish to Surveycraft in
writing by notice given in the manner set forth above.
14.5 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.
14.6 Publicity. Neither Surveycraft, the Shareholders nor SPSS shall
make or issue, or cause to be made or issued, any announcement or written
statement concerning this Agreement or the transactions 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.
14.7 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.
14.8 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.
- 37 -
<PAGE> 39
14.9 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.
14.10 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.
14.11 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.
14.12 Shareholders. Any dispute as to any claims under this Agreement
shall be settled by arbitration in 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 30 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
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. Any
award issued as a result of arbitration shall be final and binding on the
parties, and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof; provided, however, that any award
issued as a result of arbitration shall be reviewable de novo by a court of
competent jurisdiction for errors of law. The costs of the arbitration and the
arbitrator shall be allocated as provided in the results of the arbitration.
14.13 Entire Agreement. This Agreement, including the Exhibits and
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.
- 38 -
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto, have caused this Agreement to
be duly executed, all as of the day and year first written above.
SPSS INC., a Delaware corporation
By:
----------------------------------------
Jack Noonan
President and Chief Executive Officer
SURVEYCRAFT PTY LTD., an Australian company
By:
----------------------------------------
Name:
Title:
----------------------------------------
JENS MEINECKE
MICROTAB SYSTEMS PTY LTD. ACN
066095638
By:
----------------------------------------
Name:
Title:
As to Article II only:
MOORES SOLICITORS, an Australian partnership,
By:
----------------------------------------
Name:
A Partner
<PAGE> 1
EXHIBIT 10.23
1998 COMPENSATION PLAN
Mark Battaglia Focus on worldwide new
sales revenue growth, and
worldwide Prentice Hall indirect
sales.
Ian Durrell Focus on sales contribution growth and worldwide
profitability of market research products
Edward Hamburg Focus on worldwide
profitability and the
effectiveness of the reporting
and control systems.
Jack Noonan Focus on worldwide
profitability and the
effectiveness of the reporting
and control systems.
Susan Phelan Focus on sales
contribution growth and
worldwide profitability of SPSS
products and services.
Louise Rehling Focus on key product
deliverables, quality
improvement and worldwide
profitability.
<TABLE>
<CAPTION>
1997 1998
-------------- ------------------
<S> <C> <C> <C> <C> <C>
Mark Battaglia Base $ 110,000 $ 110,000
Bonus 95,000 110,000
------------- -----------------
$ 205,000 5.4% $ 220,000 7.3%
Ian Durrell Base $ 150,000 $ 150,000
Benefits 40,000 40,000
Commission 105,000 115,000
------------- -----------------
$ 295,000 3.6% $ 305,000 3.4%
Edward Hamburg Base $ 156,000 $ 156,000
Bonus 95,000 110,000
------------- -----------------
$ 251,000 4.3% $ 266,000 6.0%
Jack Noonan Base $ 235,000 $ 242,500
Bonus 220,000 242,500
------------- -----------------
$ 455,000 5.0% $ 485,000 6.6%
Susan Phelan Base $ 110,000 $ 120,000
Commission 110,000 120,000
------------- -----------------
$ 220,000 10.8% $ 240,000 9.1%
Louise Rehling Base $ 135,000 $ 135,000
Bonus 90,000 105,000
------------- -----------------
$ 225,000 4.8% $ 240,000 6.7%
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
JURISDICTION OF
SUBSIDIARY ORGANIZATION
---------- ---------------
1. SPSS International, BV The Netherlands
2. SPSS Asia Pacific Pte Ltd Singapore
3. SPSS Benelux BV The Netherlands
4. SPSS GmbH Germany
5. SPSS Scandinavia AB Sweden
6. SPSS UK Ltd. England
7. SPSS Japan, Inc. Japan
8. SPSS Australasia Pty Ltd. Australia
9. SPSS UK Ltd., India India
10. SPSS France Sarl France
11. SPSS Science Software GmbH Germany
12. SPSS ASC BV The Netherlands
13. Jandel Corporation California
14. SPSS Ltd. England
15. SPSS A/S Denmark
16. Surveycraft Pty Ltd. Australia
17. Integral Solutions Ltd. England
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
SPSS Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 333-41207, 333-21025, and 333-10423) on Form S-3, the registration
statements (Nos. 33-73120, 33-73130, 33-74402, 33-80799, 333-63167, and
333-25869) on Form S-8, and the registration statement (No. 333-15427) on Form
S-4 of SPSS Inc. of our report dated February 17, 1999, relating to the
consolidated balance sheets of SPSS Inc. and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of income, comprehensive
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, and the related consolidated
financial statement schedule which report appears in the December 31, 1998
annual report on Form 10-K of SPSS Inc.
/s/KPMG LLP
Chicago, Illinois
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPSS INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> SEP-30-1998 JAN-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 0 14,912
<SECURITIES> 0 0
<RECEIVABLES> 0 35,931
<ALLOWANCES> 0 2,106
<INVENTORY> 0 2,871
<CURRENT-ASSETS> 0 56,098
<PP&E> 0 38,475
<DEPRECIATION> 0 22,783
<TOTAL-ASSETS> 0 91,289
<CURRENT-LIABILITIES> 0 43,706
<BONDS> 0 0
0 0
0 0
<COMMON> 0 90
<OTHER-SE> 0 43,633
<TOTAL-LIABILITY-AND-EQUITY> 0 91,289
<SALES> 34,118 121,387
<TOTAL-REVENUES> 34,118 121,387
<CGS> 2,523 10,048
<TOTAL-COSTS> 2,523 10,048
<OTHER-EXPENSES> 29,361 94,710
<LOSS-PROVISION> 423 724
<INTEREST-EXPENSE> 616 750
<INCOME-PRETAX> 2,144 16,665
<INCOME-TAX> 3,355 8,335
<INCOME-CONTINUING> (1,211) 8,330
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,211) 8,330
<EPS-PRIMARY> (0.13) 0.93
<EPS-DILUTED> (0.13) 0.87
</TABLE>
