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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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. ( )
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
$31.6875 ON MARCH 17, 2000, AND FOR THE PURPOSE OF THIS CALCULATION ONLY, THE
ASSUMPTION THAT ALL REGISTRANT'S DIRECTORS AND EXECUTIVE OFFICERS ARE
AFFILIATES) WAS APPROXIMATELY $266 MILLION.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, PAR
VALUE $.01, AS OF MARCH 17, 2000, WAS 9,731,764.
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SPSS INC.
TABLE OF CONTENTS
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PART I
<S> <C> <C>
Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 19
Item 3. Legal Proceedings.............................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............................ 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..................................................................... 20
Item 6. Selected Consolidated Financial Data........................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risks.................... 28
Item 8. Financial Statements and Supplementary Data.................................... 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................................... 53
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 53
Item 11. Executive Compensation......................................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................................... 63
Item 13. Certain Relationships and Related Transactions................................. 65
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................................. 66
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The following trademarks and service marks appear in this Annual
Report: SPSS(R), Clementine(R), Clementine Solution Publisher(TM),
AnswerTree(R), Jandel(TM), Quantime(TM), Surveycraft(TM), SmartScore(TM),
SYSTAT(R), SigmaPLOT(R), VERBASTAT(TM), VentoMap(TM), Vento(TM), CLEAR(R), and
AllCLEAR(R). SPSS has filed a trademark application for the marks DecisionTIME
AND SmartViewer. SPSS also has a foreign trademark registration for In2itive
Technologies(R) in Denmark.
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SPSS INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risks
and uncertainties that could cause the results of SPSS Inc. and its subsidiaries
to differ materially from those expressed or implied by such forward-looking
statements. These risks include the timely development, production, and
acceptance of new products and services, market conditions, competition, the
flow of products into third-party distribution channels, and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings. The words "anticipate," "believe," "estimate," "expect," "plan,"
"intend," "will," and similar expressions, as they relate to SPSS or its
management, may identify forward-looking statements. Such statements reflect the
current views of SPSS with respect to future events and are subject to certain
risks, uncertainties, and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, or expected. SPSS does not intend to update these
forward-looking statements.
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" or "the Company" refers
to SPSS Inc., a Delaware corporation, its Illinois predecessor, and its
subsidiaries. SPSS is a multinational company that provides software and
professional services for discovering what customers want and predicting what
they will do. The Company's products and services, individually and in
combination, are primarily used by commercial organizations to integrate and
analyze market, customer, and operational data in the process of formulating
strategies and programs to interact with their customers more effectively. This
process is commonly called "data mining" or "data analysis using advanced
analytical techniques."
Especially when combined into comprehensive analytical solutions, SPSS
products and professional services enable commercial organizations to better
target their marketing and sales programs, including:
o attracting new customers more efficiently;
o increasing sales to existing customers by improving
cross-selling, up-selling, and retention;
o forecasting and monitoring results, such as sales performance;
o facilitating more effective electronic commerce; and
o better allocating scarce resources across marketing programs.
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In the public sector, SPSS products and services are primarily used for
improving interactions with constituents, the detection of fraud and
non-compliance, academic research, and teaching data analysis techniques at
colleges and universities.
The Company's products offer:
o a wide array of data access and data management capabilities;
o an extensive range of analytical techniques not found in
spreadsheets, query and reporting, or OLAP (On-Line Analytical
Processing) software; and
o various capabilities for the deployment of the results of
analyses to decision-makers or their integration into
databases, operational systems, and the worldwide web.
The Company's major software products include the SPSS and Clementine product
lines for general data mining and analysis (particularly in customer
relationship management applications), the Quantime, In2itive, and Surveycraft
product lines for professional market research, and the VentoMap product line
for business performance measurement. SPSS also markets certain products, most
notably SigmaPlot and SYSTAT, primarily for use in scientific research.
In its 24 years of operation, SPSS has become a widely recognized name
in analytical software. The Company plans to leverage this leadership position
to take advantage of the increased demand for software and services that enable
organizations to systematically analyze and present data for use in
decision-making. This increased demand is particularly apparent in decisions
related to developing programs for attracting or retaining customers, as well as
forecasting and monitoring the results of such programs. The Company's
management believes that growth in the availability of data about, and
competition for, customers has substantially expanded the market for its
solutions. Further contributing to this increased demand are new versions of
certain SPSS products that effectively process large volumes of data, other new
products for the deployment of analytical results, and new service offerings for
the integration and analysis of customer data, especially information collected
at web sites.
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, the Company and some stockholders sold
1,865,203 shares of common stock in a public offering.
RECENT DEVELOPMENTS
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
the Company.
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
software products for firms in the market research industry. Within SPSS,
Quantime is part of a business unit focused exclusively on market research
companies worldwide.
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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 developer of software products for firms in the market research
industry. Within SPSS, In2itive joins Quantime as part of a business unit
focused exclusively on market research companies worldwide.
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 is a developer of software
products for firms in the market research industry, and was the first such
entity to support Asian languages. Within SPSS, Surveycraft joins In2itive and
Quantime as part of a business unit focused exclusively on market research
companies worldwide.
On December 31, 1998, SPSS acquired all of the outstanding shares of
capital stock of Integral Solutions Limited ("ISL"), 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 ISL based upon the attainment
of specific operating results. An additional payment of approximately $3,900,000
was made in January 2000. The additional payments will be recorded as an
adjustment to the purchase price paid by SPSS for the stock of ISL in the
periods in which the payments are determinable. ISL is a developer of software
products for data mining. SPSS plans to further develop these ISL products to
create a comprehensive data mining workbench targeted at large organizations as
part of its overall strategy for more enterprise-wide sales of SPSS software and
services.
On November 29, 1999, SPSS acquired all of the outstanding shares of
Vento Software, Inc. in exchange for 546,060 shares of common stock of SPSS.
Vento's assets include the VentoMap product line, a series of industry-specific
software products for business performance measurement, and a proprietary
methodology for the delivery of related professional services. SPSS plans to
further develop these Vento products and integrate its data mining capabilities,
as well as use the Vento professional services methodology as the basis for
expanded consulting activities supporting the implementation of its analytical
solutions.
On December 24, 1999, SPSS acquired the VerbaStat software program from
DataStat, S.A., a corporation organized under the laws of Belgium, for
approximately $1,000,000. VerbaStat is a software tool for computer aided coding
of open-ended survey questions. SPSS plans to further develop this product and
integrate its capabilities into its next-generation solution for firms in the
market research industry.
INDUSTRY BACKGROUND
The analysis of data using advanced analytical techniques, whether
traditional statistical methods such as factor analysis and regression, or other
methods such as neural networks and decision trees, enables decision-makers to
draw reliable conclusions from numerical information about a given subject. Such
systematic analysis of numbers goes back to the seventeenth century, when
statistics were used in determining insurance and annuity rates, as well as by
political leaders in developing more effective economic policies. The
fundamental purpose and power of this kind of data analysis remains the same
today: to help decision makers understand and resolve problems by uncovering the
causes underlying current conditions and predicting future events. Such benefits
are particularly apparent in contemporary data mining applications, which often
involve the examination of extremely large amounts of data stored
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in specialized databases known as "data warehouses" or "data marts," as well as
in analyzing data directly related to activities on the world wide web.
SPSS has historically developed and marketed its products and services
for a wide range of data analysis applications. Recently, the Company began to
focus more specifically upon the analysis of data related to customer attitudes
and behavior. SPSS believes that demand for its analytical capabilities will
continue to grow as decision-making becomes more complex, as the consequences of
decisions (particularly those related to customer requirements) become more
significant, and as more data is available for analysis. To meet this demand,
colleges and universities are training increasing numbers of people in the use
of appropriate analytical methods. In addition, new technology has made more
usable and affordable the application of advanced analysis to large data sets,
as well as the distribution of analytical results to wider audiences within an
organization.
Vendors providing spreadsheets, query and reporting tools, and OLAP
software serve the largest part of the general market for data analysis
software. The widespread use of these tools is due to their effectiveness in
providing basic summaries of historical data, such as what sales were by region,
how many customers purchased a particular product, or what the default rate was
on loans.
A smaller yet sizable and growing part of the market uses more advanced
analytical capabilities for dealing with issues of causality and prediction.
Such capabilities enable corporations to predict sales for the upcoming season,
determine the best targets for a new product, or distinguish good and bad credit
risks prior to extending credit terms. Spreadsheet, query and reporting, and
OLAP software usually lack the advanced analytical capabilities to build the
predictive models needed to address these types of questions.
SPSS believes the worldwide demand for its analytical solutions will
grow as:
o competition for customers accelerates dramatically due to the
combination of increasingly global markets, deregulation in many
industries, and the ubiquity of information on the web;
o commercial and public sector organizations demand more accountability
for spending and on invoices from suppliers;
o organizations require more useful information from the increasing
amount of data being collected, organized, and stored;
o the number of people with a working knowledge of analytical methods
continues to grow significantly; and
o easier-to-use software, increases in computing power, and additional
options for the deployment of results eliminate many historical
barriers to the use of advanced analytical capabilities.
MARKETS
SPSS customers come from various industries and use SPSS products in a
wide range of applications. The Company focuses, however, on the following
market areas:
Customer Relationship Management. Firms in various industries use SPSS software
and services to improve customer interactions, including:
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o targeting promotional campaigns;
o test-marketing new products;
o identifying changing customer characteristics;
o measuring customer satisfaction;
o forecasting sales; and
o streamlining and personalizing web sites and other applications.
Business Intelligence. Firms in various industries use SPSS software and
services to analyze information in corporate databases, particularly data
warehouses, for an extensive range of applications. The Company's technology
extends the capabilities provided by other business intelligence tools such as
OLAP software, query and reporting programs, ETL
(extraction-transformation-load) products, and multidimensional data stores.
Moreover, SPSS software for business performance measurement gives executives
the ability to monitor critical day-to-day operations by viewing key performance
indicators and drilling down for more information as needed.
Market Research. Almost all of the top market research firms worldwide use the
Company's software and services to conduct the process of survey research, from
designing questionnaires to collecting data through multiple sources (especially
telephone and the web) to producing customized tabulations to developing
advanced analytical models.
Government. SPSS software and services are used in almost every country of the
world, at all levels of government, and in civilian as well as defense agencies.
The Company's products, for example, are used as part of the efforts of the
Internal Revenue Service of the United States to modernize its tracking systems,
furnish critical information 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 their use in teaching statistics at the undergraduate
and graduate levels, the Company's products are used in academic research of all
types. Academic administrators also use SPSS software to monitor aspects of
their operations, such as attrition rates, changes in the demographic profile of
student populations, and the success of fund-raising activities.
Scientific Research. SPSS products are used in a wide variety of research and
development efforts across academic, government, and corporate institutions. The
Company's software provides data analysis and presentation tools in such
applications as pharmacology, clinical trials, environmental monitoring, and
experimental modeling.
ANALYTICAL SOLUTIONS AND SOFTWARE PRODUCTS
The Company's software products enable its customers to analyze data,
including the generation of reports, graphs, and models, on a wide variety of
computing platforms. Many of these software products can be used either
stand-alone or as part of an integrated system. SPSS provides services with its
products, such as developing plans to align analytical efforts with
organizational goals, collecting and storing data, building predictive models,
and deploying the results of analyses throughout an organization. Certain
combinations of software products and professional services are marketed by SPSS
as "analytical solutions."
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In general, SPSS software products are:
o comprehensive in function, spanning the process of analysis from data
access to advanced predictive techniques;
o modular, allowing customers to purchase only the functionality they
need;
o integrated, enabling the use of multiple SPSS products in combination
to tackle particularly complex problems;
o embeddable, facilitating the integration of SPSS analytical
capabilities into other systems, including web sites;
o tailored to desktop operating environments for greater ease-of-use,
including browser-based environments for the delivery of results;
o available on most popular computing platforms, and
o for some products, localized for use in France, Germany, Italy,
Poland, Japan, Taiwan, Korea, China, and Spanish-speaking countries.
SPSS products are most often used in combination, particularly in
customer relationship management applications. Such combinations are required
because customers receive different types of value from different types of
analysis of the same data. For example, a customer might use the SPSS market
research products to collect information about its customers' preferences and
integrate this data with operational and purchased demographic information in a
data warehouse. The customer might then analyze the data with one or more SPSS
data mining and analysis products to create customer profiles for use in
marketing programs to attract certain types of prospects. Finally, the customer
could monitor the performance of these marketing programs with the SPSS business
performance measurement products.
There are four categories of SPSS products:
1. Data mining and analysis products, for examining data in databases,
data warehouses, and other file types. In customer relationship
management applications, these products are primarily used to segment
customers by various outcomes, such as the purchase of a product or the
renewal of a contract, as well as to predict their future behavior and
the actions of prospects with similar profiles. SPSS offerings for data
mining and analysis are in either the SPSS or Clementine product lines.
o The SPSS product line provides a broad range of statistical
methods. Users create tables, graphs, OLAP reports, and
predictive models in both desktop and distributed computing
environments. While there are some variations according to the
version and computing platform, a typical configuration in a
customer relationship management application is an SPSS Base
and related add-on and stand-alone products. The SPSS Base
includes the user interface, data connectivity, data editing,
reporting, graphing, and general statistical capabilities.
Add-on products require the SPSS Base to operate and become
seamlessly integrated with it upon installation. These
optional offerings provide additional functionality specific
to a particular type of analysis. Stand-alone products do not
require the SPSS Base to operate and perform specific
applications, such as facilitating certain types of data entry
or
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performing certain kinds of advanced analysis. These
stand-alone products are developed by SPSS or third parties.
See "Business - Reliance on Third Parties." Certain
stand-alone products in the SPSS product line are particularly
notable because their capabilities provide value to
organizations beyond what is typically realized with
general-purpose statistical products. AnswerTree, for example,
enables highly visual decision-trees to be used for developing
customer profiles. DecisionTime creates time-series forecasts,
which can then be distributed for review and scenario analysis
by managers and executives with its companion product, WhatIf?
SmartViewer Web Server distributes the results of analysis to
decision-makers via the web. SmartScore deploys the results of
analyses into operational systems, including web sites, as
well as into databases or data warehouses.
o The Clementine product line offers advanced analytical
capabilities for a variety of data mining applications in
desktop and distributed computing environments. With its
unique user interface, Clementine enables operating managers
to easily incorporate their business knowledge with data to
develop predictive models. Models built in Clementine can then
be deployed for use in other software applications with the
Clementine Solution Publisher. While the SPSS and Clementine
product families are already usable together, the Company
plans to more tightly integrate their functionality in the
future.
2. Business performance measurement products. The VentoMap product line
enables executives to monitor the effectiveness of their operations,
particularly with respect to customer relationship management items
such as retention rates, the number of new sales, and average account
size. Each implementation is based on a data model specific to an
industry or application and includes the use of a proprietary process
for identifying key performance indicators ("KPIs") appropriate to that
business. Executives can easily view these KPIs and then drill down for
more detailed information to get a better understanding of what caused
the results.
3. Market research products. The Quantime, In2itive, and Surveycraft
product lines provide comprehensive solutions for professionals in the
market research industry. These sets of offerings have their particular
strengths: the Quantime products, for example, are distinguished by
their extensive functionality, while the In2itive products feature a
more modern user interface, and the Surveycraft products are more
easily localized for use in Asian markets. The Company plans to combine
the strengths of these product lines, as well as improve their ability
to communicate with other SPSS products, in its next-generation
solution for market research professionals.
4. Scientific products. Scientists and engineers in various technical
applications use the SigmaPlot and SYSTAT product lines for data
presentation and analysis.
SPSS software products have received numerous favorable reviews from
trade and other publications. Some of the analytical capabilities of the
products are available as components, which software developers can integrate
into their own applications. A full range of services, including consulting,
training, and technical support, is available for all products.
SOFTWARE PRICING
The Company's licensing and pricing alternatives vary widely depending
upon the product, platform, and quantities licensed.
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For the SPSS product line, list prices in North America for perpetual
single-user licenses of desktop products are approximately $999 for the SPSS
Base and range from $299 to $2,499 for other products. Multi-user network and
site licenses can be significantly higher and require annual payments. List
prices of annual licenses for SPSS product line products on mainframes,
minicomputers, UNIX workstations, and Windows NT servers range from $4,500 to
$15,000, while perpetual licenses run from $10,000 to over $30,000. SPSS
licenses outside of North America are more often sold as annual licenses.
Clementine is available under all license types listed above, with a
typical sale of between $50,000 and $75,000.
VentoMap installations usually involve the combination of a perpetual
license for the software and a consulting engagement to determine the KPIs and
build the data warehouse. The price of VentoMap installations typically ranges
from $500,000 to $1,000,000.
Although available on perpetual licenses, the market research products
are most often licensed on an annual basis, where the amount of the annual fee
depends on the number of modules involved in the customer's configuration and
the number of users of each module. Such annual fees range from approximately
$1,000 to over $1 million. The rate of renewal of these licenses has
historically been very high (over 90%).
Science products are usually sold as perpetual licenses for between
$500 and $1,300, with discounts for volume purchases. Multi-user and site
licenses are also available and require annual payments.
PUBLICATIONS AND STUDENT SOFTWARE
SPSS authors and regularly updates a number of publications that
include user manuals and instructional texts. The Company also develops student
versions of its SPSS Base and SYSTAT products, which are designed for classroom
use with SPSS textbooks or other instructional materials. Since February 1993,
the College Division of Prentice Hall, under the terms of a semi-exclusive,
worldwide agreement, has distributed SPSS publications and student software. 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, data analytical concepts, and particular analytical
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.
The Company offers consulting and customization services, where an
engagement may involve the development of plans to align analytical efforts with
organizational goals, the collection and organization of data, the building of
predictive models, and the deployment of the results of analyses throughout an
organization.
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SALES AND MARKETING
The SPSS sales and marketing strategy emphasizes its ability to deliver
high value products and analytical solutions, particularly for customer
relationship management, business intelligence, market research, and business
performance measurement applications. The Company's management believes its data
mining and advanced analysis capabilities are the keys to differentiating SPSS
from its competitors.
SPSS markets and sells its products and services primarily through a
well-developed, worldwide direct sales and telesales organization. Historically,
advertising, direct mail, tradeshow attendance, and customer references have
proven the most effective ways of generating new sales for the telesales
organization. Although varying widely, sales made by the telesales organization
are typically completed within 30 days and average about $1,400. The Company's
database of existing customers provides an effective source for selling add-on
products, upgrades, and training or consulting services. Customers regularly
receive direct mail from SPSS on its products and services.
As SPSS increases its emphasis on the sale of higher-priced products
and analytical solutions, the Company is increasing the size of its direct sales
force along with its pre-sales support staff and consulting personnel. Most of
this direct sales force is now organized by industry to better understand the
business issues facing executives in that industry and more effectively relate
SPSS products and analytical solutions to their needs. For large sales
opportunities, SPSS sales representatives and technical sales personnel
personally visit prospects to make presentations, give product demonstrations,
and provide pre-sales consulting. SPSS also has partner relationships with other
leading companies, which represent additional channels for sales and leads for
the Company's higher-priced offerings.
In addition to its headquarters in Chicago, SPSS has sales offices
across the United States, including the Washington D.C. area, New York, San
Francisco, Cincinnati, Denver, and Miami. 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.
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. The Company's marketing communications program
includes advertising in trade and market-specific publications, advertising on
the worldwide web, direct mail, exhibiting at trade shows, participating in and
speaking at 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 worldwide web, promoting customer satisfaction and
obtaining feedback on new products. Technical support services provided to all
licensees include assistance in product installation and operation, as well
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as limited consulting in the selection of different analytical methods and the
interpretation of results. Additional technical support services are available
on a fee basis.
PRODUCT DEVELOPMENT
SPSS plans to continue expanding its product offerings through the
development of new software products, the enhancement of existing products, the
acquisition of technologies and businesses complementary to the Company's
existing product lines, and the formation of partnerships with value-added
resellers or other third parties serving selected markets. The Company's product
development strategy is primarily focused on improving:
o improving the scalability of its products to work with larger
data sets;
o expanding the ability of its products to integrate with other
applications and be tailored to customer-specific
requirements; and
o enhancing the ways results of analyses can be deployed
throughout an organization, making them readily accessible to
decision-makers as well as used in various operational systems
and web sites; and
o extending the formidable analytical capacity already available
in its products.
The Company's specialists in user interface design, software
engineering, quality assurance, product documentation, and the development of
analytical algorithms are responsible for maintaining and enhancing the quality,
usability, and 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 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 the Company's 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. In
particular, the Company's 2000 development plan includes additional server
versions of offerings in the SPSS product line and updates to the SPSS product
line and related server versions, Clementine, SmartViewer Web Server, Quantime,
In2itive, SYSTAT, SigmaPlot, and other products. SPSS also intends to further
develop analytical components, which are products designed for use by software
developers for integration into other applications.
In the past, SPSS has experienced delays in the introduction of new
products and product enhancements, primarily due to difficulties with particular
operating environments and problems with technology provided by third parties.
These delays have varied depending upon the size and scope of the project and
the nature of the problems encountered. From time to time SPSS discovers "bugs"
in its products, which are resolved through maintenance releases or periodic
updates, depending on the seriousness of the defect.
The SPSS product development staff currently includes approximately 193
professionals organized into groups for software design, algorithm development,
software engineering, documentation, quality assurance, and product
localization. The Company's expenditures for product development,
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<PAGE> 13
including capitalized software, were approximately $19.6 million in 1997, $22.8
million in 1998, and $27.6 million in 1999.
SPSS also uses independent contractors in its product development
efforts. Sometimes the Company 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 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 on products that
are of greater strategic significance. The Company sometimes uses independent
contractors to augment its development capacity at a lower cost.
MANUFACTURING AND ORDER FULFILLMENT
To assure speed and efficiency in the manufacturing, order fulfillment,
and delivery of its products, SPSS entered into an agreement with IBM in
February 1993. 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 for SPSS. In January
1997, the IBM agreement was replaced with a similar agreement with Banta Global
Turnkey. These services were recently expanded worldwide. SPSS believes that,
because of the capacity of these third party distribution centers and their
around-the-clock operation, it can easily adapt to peak period demand, quickly
manufacture new products for distribution, and effectively respond to
anticipated sales volumes.
COMPETITION
The Company's traditional market for statistical software is both
highly competitive and fragmented. SPSS is among the largest companies in the
statistical software market and, based upon sales and comparative assessments in
trade publications, the Company believes that it competes effectively against
its competitors, particularly on desktop computing platforms. SPSS considers its
primary worldwide competitor to be the larger and better financed SAS Institute.
StatSoft Inc., Mathsoft, and Minitab, Inc. are also competitors, although their
annual revenues from 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.
In the data mining, customer relationship management, and business
performance measurement markets, SPSS faces competition from many larger and
better funded companies, including SAS, IBM, HNC, NCR, Oracle, and others, as
well as recent entrants, such as Attune, E.piphany, and Net Perceptions, many of
whom specialize in customer relationship management in e-commerce settings. With
the exception of SAS, the Company believes that these competitors do not
currently offer the range of analytical capability available from SPSS and, as a
result, are both competitors and potential partners for the Company's
technology.
SPSS holds a dominant position in the market for solutions to the
market research industry. The Company believes that there are no competitors in
this market who are larger and better financed; the annual revenues of such
vendors as Sawtooth Software, Computers for Marketing Corporation, and Pulse
Train Technology are estimated to be considerably less than the Company's
revenues from its market research products and services.
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<PAGE> 14
In all markets, 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 analytical training and expertise of the
customer. To a lesser extent, SPSS competes on the basis of price and thus
maintains pricing and licensing policies to meet market demand. The Company
believes it is able to compete successfully due to the graphical user interface,
comprehensive analytical capabilities, efficient performance characteristics,
local language versions, consistent quality, and connectivity features of its
software products, as well as its worldwide distribution capabilities and widely
recognized name.
In the future, SPSS may face competition from other new entrants into
its markets. SPSS could also experience competition from companies in other
sectors of the broader market for business intelligence software, such as
providers of OLAP and analytical application software, as well as from companies
in other sectors of the broader market for customer relationship management
applications, such as providers of sales force automation and collaborative
software, who could add enhanced analytical 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 the Company's 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 the Company's 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. 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 the following are material to its business:
o SPSS is a registered trademark used in connection with
virtually all of the Company's products
o Clementine is a registered trademark used in connection with
the Company's acquired product line from Integral Solutions
Limited;
o WhatIf? and DecisionTime are the subject of pending
applications for registration.
o AnswerTree is a registered trademark and is an add on product
to the SPSS product family;
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<PAGE> 15
o SmartViewer is a registered trademark and is an add on product
to the SPSS product family;
o Vento and VentoMap are registered trademarks used in
connection with the Company's acquired Vento products on all
platforms;
o Quantime is an unregistered trademark used in connection with
the Company's acquired Quantime products on all platforms;
o In2itive Technologies is a registered trademark in Denmark and
is used in connection with the Company's acquired In2itive
products on all platforms;
o Surveycraft is an unregistered trademark used in connection
with the Company's acquired Surveycraft products;
o SYSTAT is a registered trademark used in connection with the
Company's SYSTAT products on all platforms;
o SigmaPlot is a registered trademark used in connection with
the Company's acquired products on all platforms; and
o allclear is a registered trademark used in connection with the
Company's acquired Clear products on all platforms.
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.
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 the Company's 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 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 the Company's products.
Under the terms of the HOOPS agreement, SPSS is required to pay royalties to
Autodesk based on the amount of revenues received by SPSS from products that
incorporate the HOOPS Graphics System. SPSS may terminate the HOOPS agreement at
any time.
15
<PAGE> 16
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 its products. Many of these licenses are
exclusive worldwide agreements that terminate on various dates. SPSS believes
that it will be able to renew non-perpetual licenses or obtain substitute
products if needed.
BANTA GLOBAL TURNKEY SOFTWARE DISTRIBUTION AGREEMENT
In January 1997, SPSS entered into an agreement with Banta Global
Turnkey (Banta) under which Banta manufactures, packages, and distributes SPSS
software products to its customers worldwide. The Banta agreement had an initial
three-year term, and automatically renews thereafter for successive periods of
one year. The Banta agreement was renewed in January 2000. Either party may
terminate this agreement with 180 days written notice. If Banta terminates the
agreement for convenience or for any 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.
PRENTICE HALL AGREEMENT
SPSS entered into an agreement with Prentice Hall 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. The initial 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, within certain guidelines, license other publishers to
bundle versions of the SPSS Student Version with their 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 $249,000 in 1997, $234,000 in 1998 and $237,000 in
16
<PAGE> 17
1999 to Computer Software Development. Norman Nie, the Chairman of the Board of
SPSS, is a limited partner of Computer Software Development.
SEASONALITY
The Company's quarterly operating results fluctuate due to several
factors, including:
o the number and timing of product updates and new product
introductions;
o delays in product development and introduction;
o purchasing schedules of its customers;
o changes in foreign currency exchange rates;
o product and market development expenditures;
o the timing of product shipments;
o changes in product mix; and
o timing and cost of acquisitions and general economic
conditions.
If forecasts of future revenues fall below expectations, operating
results may be adversely affected because the Company's 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 the Company's operating income realized in the fourth
quarter was 36% in 1997, 35% in 1998 and 38% in 1999. In addition, the timing
and amount of the Company's 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 the Company's operating expenses is 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 the Company's expectations in any given
quarter, operating results will be adversely affected. SPSS cannot provide
assurance that profitability on a quarterly or annual basis in the future.
EMPLOYEES
SPSS has approximately 919 employees, approximately 520 domestically,
and 399 internationally. Of the approximate 919 employees, there are
approximately 561 in sales and marketing, 193 in product development and 166 in
general and administrative. SPSS believes it has generally good relationships
with its employees. None of the Company's employees are members of labor unions.
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<PAGE> 18
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,
------------------------------------------------------
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $ 56,014,000 $ 64,870,000 $ 70,409,000
Europe & India 41,680,000 45,337,000 52,341,000
Pacific Rim 13,412,000 13,265,000 19,180,000
-------------- -------------- --------------
Total $ 111,106,000 $ 123,472,000 $ 141,930,000
============== ============== ==============
Sales or transfers between
geographic areas:
United States $ 18,261,000 $ 18,365,000 $ 22,707,000
Europe & India (12,613,000) (12,714,000) (14,296,000)
Pacific Rim (5,648,000) (5,651,000) (8,411,000)
-------------- -------------- --------------
Total $ -- $ -- $ --
============== ============== ==============
Operating income (loss)
United States $ 5,025,000 $ 4,581,000 $ 7,272,000
Europe & India (232,000) 10,799,000 12,747,000
Pacific Rim 1,268,000 1,397,000 4,476,000
-------------- -------------- --------------
Total $ 6,061,000 $ 16,777,000 $ 24,495,000
============== ============== ==============
------------------------------------------------------
1997 1998 1999
-------------- -------------- --------------
Identifiable assets:
United States $ 44,054,000 $ 67,014,000 $ 70,792,000
Europe & India 16,227,000 21,694,000 28,250,000
Pacific Rim 4,908,000 5,595,000 7,673,000
-------------- -------------- --------------
Total $ 65,189,000 $ 94,303,000 $ 106,715,000
============== ============== ==============
</TABLE>
The Company's revenues from operations outside of North America
accounted for approximately 50%, in 1997, 47% in 1998 and 50% in 1999. 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 the Company continues to translate its products into additional
languages. Various risks may affect international operations, including greater
difficulties in accounts receivable collection, longer payment cycles, exposure
to currency fluctuations, political and economic instability, and the burdens of
complying with a wide variety of foreign laws and regulatory requirements. 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 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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<PAGE> 19
ITEM 2. PROPERTIES
The Company's 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
payment on this lease was approximately $1,749,000 in 1999.
In addition, SPSS leases office space in California, Colorado,
Massachusetts, Virginia, New York, Pennsylvania, Ohio, Florida, The Netherlands,
The United Kingdom, Germany, Sweden, France, Singapore, Australia, Japan,
Denmark, and India.
SPSS believes its facilities are suitable and adequate for its present
needs. The Company plans to expand its facilities in 2000 in Chicago, the United
Kingdom, Denmark, and Australia.
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
Not applicable.
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<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's 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 the
Company's common stock.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
------------------------------------------ ------- -------
<S> <C> <C>
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 1/2
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 $22 $16 3/8
Second Quarter 25 11/16 16 3/8
Third Quarter 26 5/8 18
Fourth Quarter 25 3/4 16 5/16
YEAR ENDED DECEMBER 31, 2000
------------------------------------------
First Quarter (through March 17, 2000) $33 3/4 $23 1/2
</TABLE>
As of March 17, 2000, there were 458 holders of record of the Company's common
stock.
SPSS has never declared or paid any cash dividends on its capital
stock. The Company 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."
RECENT SALES OF UNREGISTERED SECURITIES
On November 29, 1999, SPSS acquired Vento Software, Inc., a Florida
corporation, in exchange for 546,060 shares of SPSS common stock in an
acquisition accounted for as a pooling of interests, pursuant to an acquisition
agreement among SPSS, Vento and the shareholders of Vento. The sale of stock to
the Vento shareholders was exempt from registration pursuant to Section 4(2) of
the Securities Act because the sale did not involve a public offering of stock.
A Registration Statement on Form S-3 was subsequently filed and became effective
on February 24, 2000.
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<PAGE> 21
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, 1999 are derived from the
Consolidated Financial Statements of SPSS. The Consolidated Financial Statements
as of December 31, 1998 and 1999, and for each of the years in the three-year
period ended December 31, 1999, and the report thereon of KPMG LLP, are included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues:
Analytical solutions (1) $ 818 $ 3,298 $ 3,982 $ 8,836 $ 17,540
Market research (2) 15,264 18,327 21,687 25,551 32,674
Statistics (3) 71,710 79,318 85,437 89,085 91,716
---------- ---------- ---------- ---------- ----------
Net revenues 87,792 100,943 111,106 123,472 141,930
Operating expenses:
Cost of revenues 8,789 9,738 9,835 10,048 12,663
Sales and marketing 44,839 48,792 54,503 60,413 68,277
Product development 13,059 16,116 18,081 20,862 24,983
General and administrative 10,917 12,139 12,283 9,427 9,773
Special general and administrative
charges (4) 2,794 -- 5,616 445 --
Merger-related (5) 530 3,636 4,306 1,948 1,611
Acquired in-process technology (6) 411 -- 421 3,552 128
---------- ---------- ---------- ---------- ----------
Operating expenses 81,339 90,421 105,045 106,695 117,435
---------- ---------- ---------- ---------- ----------
Operating income 6,453 10,522 6,061 16,777 24,495
Net interest income (expense) 49 296 375 333 (529)
Other income (expense) 132 (134) (503) (128) 157
---------- ---------- ---------- ---------- ----------
Income before income taxes 6,634 10,684 5,933 16,982 24,123
Provision for income taxes 3,407 3,854 3,189 8,404 8,621
---------- ---------- ---------- ---------- ----------
Net income $ 3,227 $ 6,830 $ 2,744 $ 8,578 $ 15,502
========== ========== ========== ========== ==========
Basic net income per share $ 0.36 $ 0.74 $ 0.29 $ 0.90 $ 1.61
========== ========== ========== ========== ==========
Shares used in basic per share
calculation 8,987 9,226 9,333 9,515 9,601
========== ========== ========== ========== ==========
Diluted net income per share $ 0.34 $ 0.69 $ 0.27 $ 0.85 $ 1.52
========== ========== ========== ========== ==========
Shares used in diluted per share
calculation 9,573 9,928 10,172 10,104 10,192
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 3,571 $ 8,964 $ 13,988 $ 12,408 $ 28,672
Total assets 53,234 63,840 65,189 94,303 106,715
Long-term obligations,
less current portion 3,590 3,680 3,194 3,860 5,404
Total stockholders' equity 20,647 29,051 32,321 44,317 61,542
</TABLE>
(1) Analytical solutions include products and services, sold separately or in
combination, for customer relationship management, business intelligence,
and business performance measurement applications.
(2) Market research includes products and services, sold separately or in
combination, for survey design, implementation, and analysis in the market
research industry
(3) Statistics includes products and services, sold separately or in
combination, for general purpose statistical analysis.
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<PAGE> 22
(4) 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 the Company's Macintosh and BMDP product lines in
1997 and write-off principally of software assets associated with the
Company's Unix and Open VMS products duplicated through the acquisitions of
Surveycraft and Integral Solutions in 1998.
(5) Includes costs related to acquisitions accounted for as
poolings-of-interests, such as investment banking and other professional
fees, management and sales force restructuring, employee sign-on bonuses,
employee severance and costs of closing excess office facilities and
certain expenses associated with the closing of other acquisitions.
(6) 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 ten corporate entities and
product offerings, and adapted its products to changing hardware and software
technologies. Approximately 68% of 1999 revenues came from sales to customers in
corporate settings, with another 18% in academic institutions and 14% in
government agencies.
In recent years, SPSS has experienced a significant shift in the
sources of its revenues. Between 1995 and 1999, revenues from its analytical
solutions increased from less than 1% to over 12% of total net revenues and
market research revenues rose from 17% to 23%. In contrast, revenue from SPSS
statistical products and services declined from 82% to 65% of net revenues.
Management expects these trends to continue in 2000.
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<PAGE> 23
RESULTS OF OPERATIONS
The following table shows select statement of income data as a
percentage of net revenues for the years indicated.
<TABLE>
<CAPTION>
-----------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues:
Analytic solutions 0.9% 3.3% 3.6% 7.2% 12.4%
Market research 17.4% 18.1% 19.5% 20.7% 23.0%
Statistics 81.7% 78.6% 76.9% 72.1% 64.6%
-------- -------- -------- -------- --------
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of revenues 10.0% 9.6% 8.9% 8.1% 8.9%
Sales and marketing 51.1% 48.3% 49.0% 48.9% 48.1%
Product development 14.9% 16.0% 16.3% 16.9% 17.6%
General and administrative 12.4% 12.0% 11.0% 7.6% 6.9%
Special general and administrative
charges 3.2% -- 5.1% 0.4% --
Merger-related 0.6% 3.6% 3.9% 1.6% 1.1%
Acquired in-process technology 0.4% -- 0.4% 2.9% 0.1%
-------- -------- -------- -------- --------
Operating expenses 92.6% 89.5% 94.6% 86.4% 82.7%
-------- -------- -------- -------- --------
Operating income 7.4% 10.5% 5.4% 13.6% 17.3%
Net interest income (expense) 0.1% 0.2% 0.3% 0.3% (0.4)%
Other income (expense) 0.2% (0.1)% (0.4)% (0.1)% 0.1%
-------- -------- -------- -------- --------
Income before income taxes 7.7% 10.6% 5.3% 13.8% 17.0%
Provision for income taxes 3.9% 3.8% 2.8% 6.8% 6.1%
-------- -------- -------- -------- --------
Net income 3.8% 6.8% 2.5% 7.0% 10.9%
======== ======== ======== ======== ========
</TABLE>
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1997, 1998 AND 1999.
Net Revenues. Net revenues increased from $111,106,000 in 1997 to $123,472,000
in 1998, an increase of 11% from 1997, and to $141,930,000 in 1999, and an
increase of 15% from 1998. These increases were primarily due to growth in
analytical solutions revenues of 122% in 1998 and 99% in 1999, as well as
increases in market research revenues of 18% in 1998 and 28% in 1999. Growth in
analytical solutions revenues in 1998 was primarily due to the introduction of
new data mining products, while such increases in 1999 were primarily due to
additional new data mining products and sales of the newly acquired Clementine
products. Growth in market research revenues in 1998 was primarily due to sales
of the telephony product for data collection, while such increases in 1999 were
primarily due to the introduction of a new web data collection product,
revenues from the newly acquired Surveycraft products and an increased number of
large transactions with major customers. Offsetting this revenue growth were
increases in statistics revenue of 4% in 1998 and 3% in 1999, primarily due to
shifts in sales and marketing resources toward developing the higher-growth
markets for analytical solutions, as well as reflecting the lower overall growth
rate in the market for general-purpose statistical products. Revenues were
adversely affected by foreign currency exchange rates for the three years
described.
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<PAGE> 24
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 $9,835,000 in 1997, to $10,048,000 in 1998 and
to $12,663,000 in 1999. These costs increased 2% in 1998 due to higher sales
levels and 26% in 1999 due to higher sales levels and higher amounts of
capitalized software amortized. As a percentage of net revenues, cost of
revenues decreased from 9% in 1997 to 8% in 1998 and increased to 9% in 1999.
Sales and Marketing. Sales and marketing expenses increased from $54,503,000 in
1997 to $60,413,000 in 1998 and to $68,277,000 in 1999, an increase of 11% in
1998 and 13% in 1999. These increases were due to expansion of the domestic and
international sales and marketing organizations, as well as increased salary,
commission and payroll-related expenses. Sales and marketing expenses were
partially offset by the effects of changes in foreign currency exchange rates
each year. As a percentage of net revenues, sales and marketing expenses
decreased from 49% in 1997 and 1998 to 48% in 1999.
Product Development. Product development expenses increased from $18,081,000 in
1997 to $20,862,000 in 1998 and to $24,983,000 in 1999 (net of the effect of
capitalized software development costs of $1,564,000 in 1997, $1,933,000 in 1998
and $2,593,000 in 1999) an increase of 15% in 1998 and an increase of 20% in
1999. In the same periods, the Company's expense for amortization of capitalized
software and product translations, included in cost of revenues was $1,703,000
in 1997, $1,892,000 in 1998 and $3,182,000 in 1999. 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 1997 to 17% in 1998 and to 18% in 1999.
General and Administrative. General and administrative expenses decreased from
$12,283,000 in 1997 to $9,427,000 in 1998 and increased to $9,773,000 in 1999, a
decrease of 23% in 1998 and an increase of 4% in 1999. The decrease in 1998 was
primarily attributable to reductions in costs and personnel in the acquired
Clear, Jandel, and Quantime entities. The increase in 1999 was due to additional
administrative staff, primarily information systems personnel. This expense
decreased as a percentage of net revenues from 11% in 1997 to 8% in 1998 to 7%
in 1999.
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 on 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 $4,306,000 in 1997,
$1,948,000 in 1998 and $1,611,000 in 1999 related to acquisitions accounted for
as poolings 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 the Company's 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
24
<PAGE> 25
was established to achieve cost efficiencies through the elimination of
redundant facilities and includes accruals of $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. The United
Kingdom facility consolidation plan was revised in 1999 when SPSS was unable to
secure suitable facilities in a competitive London real estate market. This led
to a recovery of $803,000 in 1999. Included in 1999 merger-related costs were
expenses related to management and sales force restructuring, employee sign-on
bonuses, professional fees, and various other expenses.
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. Acquired in-process technology costs were $128,000 in
1999 and related to an acquisition of the VerbaStat software product from
DataStat.
In November 1998, SPSS acquired all of the outstanding capital stock of
Surveycraft, a 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. 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. 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.
In December 1999, SPSS acquired the VerbaStat software program, a software tool
for computer aided coding of open-ended survey questions, from DataStat. A
portion of the purchase price was attributable to acquired in-process
technology, as the development work associated with the program had not reached
technological feasibility and were believed to have no alternative future use.
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 20% based on the project
and the market risks associated with the research and development project and
resulting product. Specific consideration was given to the stage of development
of the research and development effort,
25
<PAGE> 26
which was 75% complete, both in terms of costs invested as of the acquisition
date relative to completion costs and technical achievements. SPSS anticipates
incurring approximately $25,000 of additional research and development costs
over a short time frame with anticipated completion date in 2000. 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 and leverage which SPSS could provide to the VerbaStat
product.
Net Interest Income (Expense). Net interest income was $375,000 in 1997 and
$333,000 in 1998 primarily due to interest earned on short-term investments. Net
interest expense was ($529,000) in 1999 primarily due to interest expense
incurred on the line-of-credit.
Other Income (Expense). Other income (expense) consists mainly of foreign
exchange transactions. The foreign exchange amounts were ($488,000) in 1997,
($238,000) in 1998 and $119,000 in 1999.
Provision for Income Taxes. The provision for income taxes consisted of
$3,189,000 in 1997, $8,404,000 in 1998 and $8,621,000 in 1999. 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.
During 1999, the provision for income taxes represented a tax rate of
approximately 36%, excluding the effect of Japanese monies transferred out of
Japan in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term debt as of December 31, 1999 is a mortgage on
property in the United Kingdom, and the balance of the purchase price due to
DataStat, S.A. for the acquisition of the VerbaStat product. As of December 31,
1999, SPSS held approximately $16,770,000 of cash. Funds in 1998 were used
primarily for payments related to the Company's acquisitions, as well as for
capital expenditures including, new computer systems for use in internal product
development, and leasehold improvements and furnishings for the Company's new
office space in the Sears Tower in Chicago, Illinois. Funds in 1999 were used
primarily for payments related to SPSS' acquisitions, as well as new computer
systems for use in internal product development and expenditures made for an
office move in Sweden.
In June 1999, SPSS revised its loan agreement with American National
Bank and Trust Company of Chicago. Under the new loan agreement, SPSS has an
available $10,000,000 unsecured line of credit 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, 1999, SPSS
had $9,000,000 outstanding under this line of credit. The Company's agreement
with American National requires SPSS to comply with certain specified financial
ratios and tests, and, among other things, restricts the Company's ability to:
o incur additional indebtedness;
o create liens on assets;
o make investments;
o engage in mergers, acquisitions or consolidations where SPSS
is not the surviving entity;
26
<PAGE> 27
o sell assets;
o engage in select transactions with affiliates; and
o amend its organizational documents or make changes in its
capital structure, and also requires SPSS to be Year 2000
compliant in software and other information processing
capabilities.
Also in June 1999, SPSS entered into an amendment to the loan agreement
with American National. This amendment makes an additional $10,000,000 available
to SPSS for the acquisition of assets and further requires that SPSS meet all
original requirements of the loan agreement and give American National the
opportunity to use any proceeds from a public offering of equity or debt
securities to retire outstanding amounts on the line of credit.
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 the Company's operations and capital requirements for
the foreseeable future. However, no assurance can be given that changing
business circumstances will not require additional capital for reasons that are
not currently anticipated or that the necessary additional capital will then be
available to SPSS on favorable terms or at all.
The Company's capital expenditures, primarily for computer systems and
office furniture totaled approximately $4,400,000 in 1999 and are projected to
total approximately $8,500,000 in 2000 and $5,500,000 in 2001. Capital
expenditures during 2000 will include new computers, primarily for use in
internal product development, replacement of its systems for accounting and
order entry, as well as furnishings and other equipment related to the move of
the Company's facilities in Kilburn, UK, and expansion of facilities in Chicago,
Miami, Woking, UK, Denmark, and Australia. 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 the Company's international operations also
occurred from 1995 to 1999. Revenues from international operations comprised
approximately 47% to 52% of total net revenues between 1995 and 1999. They were
approximately 50% of total net revenues in 1999.
Following the reorganization of its international operations in 1990,
SPSS has maintained substantially the same direct sales and telesales
organizations worldwide. The international sales organization uses more
independent distributors than does the domestic sales organization, primarily in
countries without an SPSS sales office. Management believes the profit margins
associated with the Company's 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 the
Company's consolidated net income. Accordingly, the Company's reported revenues
and net income have been and in the future may be affected by the changes in
foreign exchange rates.
27
<PAGE> 28
YEAR 2000
The Company spent approximately $1.5 million to address issues with the
year 2000 date change. The Company has not experienced business disruption or
incurred significant expenses in 2000 related to the date change.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISKS
The Company's market risk disclosures pursuant to item 7A are not
material and are therefore not required.
28
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SPSS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report............................................................ 30
Consolidated Balance Sheets as of December 31, 1998 and 1999............................ 31
Consolidated Statements of Income for the years ended
December 31, 1997, 1998 and 1999.................................................... 32
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1997, 1998 and 1999................................................... 33
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999.................................................... 34
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.................................................... 35
Notes to Consolidated Financial Statements.............................................. 36
Financial Statement Schedule:
Schedule II Valuation and qualifying accounts........................................... 52
</TABLE>
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.
29
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SPSS Inc.:
We have audited the consolidated financial statements of SPSS Inc. and
subsidiaries (the "Company") 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 the Company's 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, 1998 and 1999, and the results of their
operations, and their cash flows for each of the years in the three-year period
ended December 31, 1999, 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
March 17, 2000
30
<PAGE> 31
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,297 $ 16,770
Accounts receivable, net of allowances of $2,106 in 1998 and $2,510 in 1999 34,815 42,901
Inventories 2,871 2,895
Deferred income tax assets 2,245 3,042
Prepaid expenses and other current assets 2,306 2,833
---------- ----------
Total current assets 58,534 68,441
---------- ----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Land and building 1,721 1,671
Furniture, fixtures, and office equipment 7,407 7,617
Computer equipment and software 23,227 25,982
Leasehold improvements 6,474 6,480
---------- ----------
38,829 41,750
Less accumulated depreciation and amortization 22,932 25,639
---------- ----------
Net equipment and leasehold improvements 15,897 16,111
---------- ----------
Capitalized software development costs, net of accumulated amortization 10,658 13,078
Goodwill, net of accumulated amortization 5,110 5,339
Other assets 4,104 3,746
---------- ----------
$ 94,303 $ 106,715
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 9,043 $ 9,000
Accounts payable 6,262 5,670
Accrued royalties 571 488
Accrued rent 847 1,050
Other accrued liabilities 10,431 8,270
Income taxes and value added taxes payable 5,877 3,664
Customer advances 579 529
Deferred revenues 12,516 11,098
---------- ----------
Total current liabilities 46,126 39,769
---------- ----------
Deferred income taxes 2,638 3,809
Other non-current liabilities 1,222 1,595
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 50,000,000 shares authorized; 9,029,326
and 9,652,665 shares issued and outstanding in 1998 and
1999, respectively 95 96
Additional paid-in capital 47,605 48,569
Accumulated other comprehensive income (877) (119)
Retained earnings (accumulated deficit) (2,506) 12,996
---------- ----------
Total stockholders' equity 44,317 61,542
---------- ----------
$ 94,303 $ 106,715
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
31
<PAGE> 32
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues:
Analytical solutions $ 3,982 $ 8,836 $ 17,540
Market research 21,687 25,551 32,674
Statistics 85,437 89,085 91,716
------------ ------------ ------------
Net revenues 111,106 123,472 141,930
Operating expenses:
Cost of revenues 9,835 10,048 12,663
Sales and marketing 54,503 60,413 68,277
Product development 18,081 20,862 24,983
General and administrative 12,283 9,427 9,773
Special general and administrative charges 5,616 445 --
Merger-related 4,306 1,948 1,611
Acquired in-process technology 421 3,552 128
------------ ------------ ------------
Operating expenses 105,045 106,695 117,435
------------ ------------ ------------
Operating income 6,061 16,777 24,495
------------ ------------ ------------
Other income (expense):
Interest income 585 1,087 193
Interest expense (210) (754) (722)
Other (503) (128) 157
------------ ------------ ------------
Other income (expense) (128) 205 (372)
------------ ------------ ------------
Income before income taxes 5,933 16,982 24,123
Income tax expense 3,189 8,404 8,621
------------ ------------ ------------
Net income $ 2,744 $ 8,578 $ 15,502
============ ============ ============
Basic net income per share $ 0.29 $ 0.90 $ 1.61
============ ============ ============
Shares used in computing basic net
income per share 9,333,463 9,515,191 9,600,983
============ ============ ============
Diluted net income per share $ 0.27 $ 0.85 $ 1.52
============ ============ ============
Shares used in computing diluted net
income per share 10,172,174 10,104,015 10,191,674
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
32
<PAGE> 33
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income $ 2,744 $ 8,578 $ 15,502
Other comprehensive income (loss):
Foreign currency translation adjustment (687) 188 758
-------- -------- --------
Comprehensive income $ 2,057 $ 8,766 $ 16,260
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
33
<PAGE> 34
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Common stock, $.01 par value:
Balance at beginning of period $ 92 $ 93 $ 95
Issuance of 26,081 shares of common stock in 1997 -- -- --
Sale of 11,256, 18,663 and 18,249 shares of common
stock to the Employee Stock Purchase Plan in 1997,
1998 and 1999, respectively -- -- --
Exercise of stock options and other 1 2 1
-------- -------- --------
Balance at end of period $ 93 $ 95 $ 96
-------- -------- --------
Additional paid in capital:
Balance at beginning of period $ 43,259 $ 44,376 $ 47,605
Issuance of 26,081 shares of common stock in 1997 322 -- --
Sale of 11,256, 18,663 and 18,249 shares of common stock
to the Employee Stock Purchase Plan in 1997,
1998 and 1999, respectively 297 410 365
Sale of 54,606 shares of common stock
in 1998 -- 488 --
Exercise of stock options and other 148 1,323 248
Income tax benefit related to stock options 350 1,008 351
-------- -------- --------
Balance at end of period $ 44,376 $ 47,605 $ 48,569
-------- -------- --------
Accumulated other comprehensive income:
Balance at beginning of period $ (378) $ (1,065) $ (877)
Translation adjustment (687) 188 758
-------- -------- --------
Balance at end of period $ (1,065) $ (877) $ (119)
-------- -------- --------
Retained earnings (accumulated deficit)
Balance at beginning of period $(13,828) $(11,084) $ (2,506)
Net income 2,744 8,578 15,502
-------- -------- --------
Balance at end of period $(11,084) $ (2,506) $ 12,996
-------- -------- --------
Total stockholders' equity $ 32,320 $ 44,317 $ 61,542
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
34
<PAGE> 35
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,744 $ 8,578 $ 15,502
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,775 6,807 8,703
Deferred income taxes (1,701) (546) 374
Write-off of software development costs
and other assets 3,862 445 --
Write-off of acquired in-process
technology 421 3,552 128
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable (6,006) (5,771) (8,086)
Inventories (376) (164) (24)
Accounts payable 527 960 (592)
Accrued royalties (38) 89 (83)
Accrued expenses (1,671) (1,494) (2,208)
Accrued income taxes (2,618) 4,423 (2,213)
Deferred revenue 2,408 (208) (1,418)
Other (1,617) 149 (470)
-------- -------- --------
Net cash provided by operating activities 2,710 16,820 9,613
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (2,735) (10,319) (4,382)
Capitalized software development costs (3,791) (4,070) (5,597)
Net payments related to acquisitions (1,006) (8,404) (83)
-------- -------- --------
Net cash used in investing activities (7,532) (22,793) (10,062)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) under
line-of-credit agreements 71 8,972 (43)
Proceeds from issuance of common stock 864 2,223 614
Income tax benefit from stock option exercises 350 1,008 351
-------- -------- --------
Net cash provided by financing activities 1,285 12,203 922
-------- -------- --------
Net change in cash and cash equivalents (3,537) 6,230 473
Cash and cash equivalents at beginning of period 13,604 10,067 16,297
-------- -------- --------
Cash and cash equivalents at end of period $ 10,067 $ 16,297 $ 16,770
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 215 $ 199 $ 938
Income taxes paid $ 7,064 $ 5,642 $ 11,271
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
35
<PAGE> 36
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
SPSS Inc. ("SPSS" or the "Company") is a multinational company that
provides software and professional services for discovering what customers want
and predicting what they will do. The Company's products and services,
individually and in combination, are primarily used by commercial organizations
to integrate and analyze market, customer, and operational data in the process
of formulating strategies and programs to interact with their customers more
effectively. This process is commonly called "data mining" or "data analysis
using advanced analytical techniques."
Analytical solutions include products and services, sold separately or
in combination, for customer relationship management, business intelligence, and
business performance measurement applications. Market research includes
products and services, sold separately or in combination, for survey design,
implementation, and analysis in the market research industry. Statistics
include products and services, sold separately or in combination, for general
purpose statistical analysis.
(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 primarily recognizes revenue from product licenses, net of an
allowance for estimated returns and cancellations, at the time the software is
delivered. Revenue from certain 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 product licenses, is recognized ratably
over the term of the related PCS agreements. Some product licenses include
commitments for insignificant obligations, such as technical and other support,
for which an accrual is provided.
Revenue from training, consulting, publications, and other items 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 the Company's financial position
or results of operations.
36
<PAGE> 37
(e) Software Development Costs
Software development costs incurred by SPSS in connection with the
Company's 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>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
BASIC EPS
Income Available to Common Shareholders $ 2,744,000 $ 8,578,000 $ 15,502,000
Weighted-Average Number of Common Shares Outstanding
9,333,463 9,515,191 9,600,983
Basic EPS $ 0.29 $ 0.90 $ 1.61
DILUTED EPS
Income Available to Common Shareholders $ 2,744,000 $ 8,578,000 $ 15,502,000
Weighted-Average Number of Common Shares Outstanding 9,333,463 9,515,191 9,600,983
Effect of dilutive securities:
Employee and director stock options 838,711 588,824 590,691
------------ ------------ ------------
Weighted-Average Number of Common Shares and Common
Share Options that would be issued upon exercise 10,172,174 10,104,015 10,191,674
------------ ------------ ------------
Diluted EPS $ 0.27 $ 0.85 $ 1.52
Anti-dilutive shares 2,163 191,014 157,753
============ ============ ============
</TABLE>
(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
37
<PAGE> 38
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 and 1999, SPSS capitalized $873,000 and $739,000 and amortized
$6,000 and $23,000, respectively, 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
disclosures required by 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.
(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.
Accumulated amortization was $793,000 and $1,331,000 as of December 31, 1998 and
1999, respectively.
38
<PAGE> 39
(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, 1999, 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.
39
<PAGE> 40
(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, 1997, 1998 and 1999
included in the consolidated financial statements are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Working capital (deficit) $ (334,000) $ 7,752,000 $ 18,042,000
============ ============ ============
Excess of noncurrent assets over
Noncurrent liabilities $ 3,353,000 $ 3,468,000 $ 3,996,000
============ ============ ============
Net revenues $ 55,092,000 $ 58,602,000 $ 71,521,000
============ ============ ============
Net earnings (loss) $ (860,000) $ 7,017,000 $ 4,655,000
============ ============ ============
</TABLE>
Net revenues(1) per geographic region are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
United States $ 56,014,000 $ 64,870,000 $ 70,409,000
United Kingdom 18,853,000 22,499,000 24,038,000
The Netherlands 10,880,000 11,978,000 13,505,000
Japan 9,621,000 9,750,000 11,900,000
Germany 7,587,000 7,651,000 8,691,000
Other 8,151,000 6,724,000 13,387,000
------------ ------------ ------------
$111,106,000 $123,472,000 $141,930,000
============ ============ ============
</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,
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
United States $ 17,312,000 $ 31,455,000 $ 33,912,000
United Kingdom 2,212,000 2,122,000 1,968,000
The Netherlands 448,000 318,000 224,000
Japan 978,000 1,049,000 1,066,000
Germany 274,000 269,000 211,000
Other 303,000 556,000 893,000
------------ ------------ ------------
$ 21,527,000 $ 35,769,000 $ 38,274,000
============ ============ ============
</TABLE>
40
<PAGE> 41
(3) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE
Activity in capitalized software is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Balance, net -- beginning of year $ 7,036,000 $ 6,703,000 $ 10,658,000
Additions 3,191,000 5,500,000 3,961,000
Product translations 1,210,000 792,000 1,641,000
Write-down to net realizable value (3,031,000) (445,000) --
Amortization expense charged to
cost of revenues (1,703,000) (1,892,000) (3,182,000)
------------ ------------ ------------
Balance, net -- end of year $ 6,703,000 $ 10,658,000 $ 13,078,000
============ ============ ============
</TABLE>
The components of net capitalized software are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Product translations $ 1,883,000 $ 2,798,000
Acquired software technology 4,310,000 4,720,000
Capitalized software development costs 4,465,000 5,560,000
------------ ------------
Balance, net - end of year $ 10,658,000 $ 13,078,000
============ ============
</TABLE>
Total software development costs, including amounts expensed as
incurred, amounted to approximately $21,872,000, $24,932,000 and $30,580,000 for
the years ended December 31, 1997, 1998 and 1999, respectively.
Included in acquired software technology at December 31, 1998 and 1999
is $126,000 and $88,000 of technology resulting from the purchase of the
DeltaGraph product. (See Note 4)
Included in acquired software technology at December 31, 1998 and 1999
is $202,000 and $161,000 of technology resulting from the purchase of
Surveycraft Pty Ltd. (See Note 4)
Included in acquired software technology at December 31, 1998 and 1999
is $2,020,000 and $1,616,000 of technology resulting from the purchase of
Integral Solutions Ltd. (See Note 4)
Included in acquired software technology at December 31, 1999 is $5,000
of technology resulting from the purchase of the VerbaStat product. (See Note 4)
41
<PAGE> 42
(4) ACQUISITIONS
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.
In November 1998, SPSS acquired all of the outstanding shares of
capital stock of Surveycraft Pty. Ltd. ("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. In 1999 SPSS
consolidated the Surveycraft business into its Australia and Cincinnati offices.
Also in 1999, some assumed liabilities were revalued, and goodwill was decreased
by $371,000.
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"). An additional payment of approximately $3,900,000 was made in January
2000. 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. In 1999 Integral Solutions office
lease expired
42
<PAGE> 43
and personnel were moved to the existing SPSS UK Ltd offices in Woking, England.
Also in 1999, some assumed liabilities were revalued, and goodwill was increased
by $227,000.
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.
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.
On November 29, 1999, SPSS acquired all of the outstanding shares of
capital stock of Vento Software, Inc. ("Vento"), a corporation incorporated
under the laws of Florida, from the shareholders of Vento in exchange for
546,060 shares of Common Stock in a stock acquisition accounted for as a pooling
of interests and, accordingly, the consolidated financial statements have been
restated as if SPSS and Vento had been combined for all periods presented. In
the fourth quarter of 1999, SPSS recorded charges of approximately $1,948,000
representing merger-related costs for expenses relating to management and sales
force restructuring, employee sign-on bonuses, professional fees and various
other expenses. Vento is an analytical solutions software company whose assets
include the VentoMap product line, a series of industry-specific software
products for business performance measurement, and a proprietary methodology for
the delivery of related professional services. SPSS plans to further develop
these Vento products and integrate its data mining capabilities, as well as use
the Vento professional services methodology as a basis for expanded consulting
activities supporting the implementation of its analytical solutions.
43
<PAGE> 44
The following information reconciles net revenues and net income of
SPSS as previously reported with the amounts presented in the accompanying
consolidated statements of income for the years ended December 31, 1997 and
1998, as well as the results of operations for 1999 for Vento during the period
preceding the acquisition. The 1999 results presented for Vento represent the
eleven months ended November 30, 1999.
<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Net revenues:
SPSS (1) $ 110,644,000 $ 121,387,000 --
Vento 462,000 2,085,000 $ 1,507,000
-------------- --------------
Total $ 111,106,000 $ 123,472,000
============== ==============
Net income (loss):
SPSS (1) $ 3,582,000 $ 8,330,000 --
Vento (838,000) 248,000 $ (633,000)
-------------- --------------
Total $ 2,744,000 $ 8,578,000
============== ==============
</TABLE>
(1) Represents the historical results of SPSS without considering the
effect of the Vento pooling of interests transaction.
On December 24, 1999, SPSS acquired certain assets related to the
VerbaStat software program from DataStat, S.A., a corporation organized under
the laws of Belgium, for approximately $1,000,000. VerbaStat is a software tool
for computer aided coding of open-ended survey questions. SPSS plans to further
develop this product and integrate its capabilities into its next-generation
solution for firms in the market research industry.
The following summary presents information concerning the purchase
price allocation for the VerbaStat acquisition accounted for under the purchase
method for the year ended December 31, 1999.
<TABLE>
<CAPTION>
ACQUIRED
PURCHASED IN-PROCESS PURCHASE
COMPANY NAME SOFTWARE TECHNOLOGY GOODWILL OTHER PRICE
------------ -------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
VerbaStat $5,000 $ 128,000 $883,000 $ 138,000 $1,154,000
</TABLE>
(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.
44
<PAGE> 45
The following is a schedule of future noncancellable minimum lease
payments required under operating leases as of December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ -------------
<S> <C> <C>
2000 $ 4,975,000
2001 3,838,000
2002 3,254,000
2003 2,990,000
2004 2,533,000
Thereafter 17,315,000
-------------
$ 34,905,000
=============
</TABLE>
Rent expense related to operating leases was approximately $4,682,000,
$5,210,000 and $5,262,000 during the years ended December 31, 1997, 1998, and
1999, respectively.
LITIGATION
SPSS is subject to certain 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 the Company's results of operations or
financial position.
(6) OTHER NON-CURRENT LIABILITIES
SPSS has a mortgage on its freehold property which houses the SPSS
Limited 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 $177,000). The
current portion of this debt is GBP 29,453 (approximately $53,000), and is
included in "Other accrued liabilities". The non-current balance as of December
31, 1999 is GBP 575,056 (approximately $929,000).
In December 1999, SPSS entered into an asset purchase agreement with
DataStat, S.A. for the purchase of the VerbaStat product. Under the terms of the
agreement, SPSS will pay DataStat twelve quarterly installment payments of
$83,333. The current portion of this debt is approximately $250,000, and is
included in "Other accrued liabilities."
(7) FINANCING ARRANGEMENTS
In May 1998, SPSS entered into a loan agreement with American National
Bank and Trust Company of Chicago. Under the agreement, SPSS has an available
$10,000,000 unsecured line of credit. At December 31, 1999, SPSS had $9,000,000
in borrowings under this credit agreement. In June 1999, SPSS entered into a
second loan agreement with American National, under which SPSS has available an
additional $10,000,000 unsecured line of credit. At December 31, 1999, SPSS had
no borrowings under its second credit agreement. Borrowings against each
agreement bear
45
<PAGE> 46
interest at either the prime rate or the Eurodollar Rate (varying between 7.96%
and 8.21% at December 31, 1999), depending on the circumstances.
(8) OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Interest income $ 585,000 $ 1,087,000 $ 193,000
Interest expense (210,000) (754,000) (722,000)
Exchange gain (loss) on foreign currency
Transactions (488,000) (238,000) 119,000
Other (15,000) 110,000 38,000
------------ ------------ ------------
Total other income (expense) $ (128,000) $ 205,000 $ (372,000)
============ ============ ============
</TABLE>
(9) INCOME TAXES
Income before income tax consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Domestic $ 5,569,000 $ 5,391,000 $ 7,347,000
Foreign 364,000 11,591,000 16,776,000
------------ ------------ ------------
$ 5,933,000 $ 16,982,000 $ 24,123,000
============ ============ ============
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Year ended December 31, 1997
U.S. Federal $ 2,056,000 $ (609,000) $ 1,447,000
State 627,000 (83,000) 544,000
Foreign 2,207,000 (1,009,000) 1,198,000
------------ ------------ ------------
$ 4,890,000 $ (1,701,000) $ 3,189,000
============ ============ ============
Year ended December 31, 1998
U.S. Federal $ 4,029,000 $ (1,141,000) $ 2,888,000
State 884,000 (161,000) 723,000
Foreign 4,037,000 756,000 4,793,000
------------ ------------ ------------
$ 8,950,000 $ (546,000) $ 8,404,000
============ ============ ============
Year ended December 31, 1999
U.S. Federal $ 2,549,000 $178,000 $ 2,727,000
State 495,000 19,000 514,000
Foreign 5,203,000 177,000 5,380,000
------------ ------------ ------------
$ 8,247,000 $374,000 $ 8,621,000
============ ============ ============
</TABLE>
46
<PAGE> 47
For the years ended December 31, 1997, 1998 and 1999, the
reconciliation of statutory to effective income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Income taxes using the Federal
statutory rate of 34% $ 2,018,000 $ 5,774,000 $ 8,202,000
State income taxes, net of Federal tax
Benefit 359,000 477,000 339,000
Foreign taxes at net rates different
from U.S. Federal rates 1,096,000 524,000 (324,000)
Foreign tax credit (273,000) (642,000) --
Nondeductible write-off of in-process
research and development -- 1,208,000 128,000
Acquisition costs 592,000 785,000 404,000
Other, net (603,000) 278,000 (128,000)
------------ ------------ ------------
$ 3,189,000 $ 8,404,000 $ 8,621,000
============ ============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1999, are presented below:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to allowance for doubtful accounts $ 431,000 $ 428,000
Inventories, principally due to additional costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 103,000 51,000
Compensated absences, principally due to accrual for financial reporting
purposes 223,000 161,000
Research and experimentation credit carryforwards 491,000 523,000
Deferred rent 455,000 550,000
Plant and equipment, principally due to differences in depreciation and
capitalized interest 577,000 --
Deferred revenues 1,925,000 2,272,000
Foreign currency loss 107,000 66,000
Acquisition-related items 1,953,000 2,345,000
State deferred tax asset 15,000 2,000
U.S. net operating loss carryforwards 231,000 110,000
Non-U.S. net operating loss carryforwards 1,092,000 915,000
Other 142,000 244,000
------------ ------------
Total gross deferred tax assets 7,745,000 7,667,000
Less valuation allowance (3,637,000) (2,770,000)
------------ ------------
Net deferred tax assets 4,108,000 4,897,000
------------ ------------
Deferred tax liabilities:
Capitalized software costs 2,826,000 3,413,000
Acquisition-related items 1,675,000 1,389,000
Post-retirement benefits -- 544,000
Plant and equipment -- 204,000
Other -- 114,000
------------ ------------
Net deferred tax liability $ (393,000) $ (767,000)
============ ============
</TABLE>
47
<PAGE> 48
The valuation allowance decreased $1,256,000 in 1997, remained
unchanged in 1998, and decreased $867,000 in 1999. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
As of December 31, 1999, Jandel had net operating loss carryforwards of
approximately $285,000 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, 1999, SPSS A/S had a Denmark net operating loss
carryforward of approximately $2,692,000, which begins to expire in 2000.
As of December 31, 1999, SPSS had a Federal research and
experimentation credit carryforward of approximately $523,000, which begins to
expire in 2000.
(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.
Beginning in 1999, SPSS made a matching contribution of $500 for employees in
the plan the entire year, which resulted in a $192,000 contribution by SPSS
recorded as compensation expense. Also in 1999, the plan year was amended to
begin on December 31 of each year and end on December 30.
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 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. During 1999, 18,249 shares
were issued under the purchase plan at market prices ranging from $16.75 to
$25.50. SPSS recorded $47,000, $54,000 and $52,000 in compensation expense
related to the purchase of these shares in 1997, 1998 and 1999, 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 $319,000, $235,000 and $237,000, for the years ended
December 31, 1997, 1998 and 1999.
(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,
48
<PAGE> 49
under some conditions, to grant stock options and shares of restricted stock to
directors, officers, other key executives, employees and independent
contractors.
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 the Company's stock option plans been
determined consistent with SFAS No. 123, the Company's net income available to
stockholders would have been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
As reported $ 2,744,000 $ 8,578,000 $ 15,502,000
Pro forma 1,008,000 5,957,000 12,296,000
Net earnings per share:
Basic as reported 0.29 0.90 1.61
Basic pro forma 0.11 0.63 1.28
Diluted as reported 0.27 0.85 1.52
Diluted pro forma 0.10 0.59 1.21
</TABLE>
Under the stock option plans, the exercise price of each option equals
the market value of the Company's 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 1997, 1998 and 1999, respectively; no expected dividend yield;
expected volatility of 25% in 1997 and 1998, and 39 percent in 1999; risk free
interest rates of 5.57%, 5.30% and 6.43%, respectively, and expected lives of 8
years. Additional information regarding options is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- ----------------------- ----------------------
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 1,379,076 $10.39 1,699,106 $13.99 1,861,093 $16.43
Granted 392,500 28.15 413,500 21.36 478,468 18.80
Forfeited (29,990) 21.28 (52,494) 26.21 (32,367) 24.49
Exercised (42,480) 3.65 (199,019) 6.66 (59,030) 4.21
---------- ------ ---------- ------ ---------- ------
Outstanding at end of year 1,699,106 13.99 1,861,093 16.43 2,248,164 17.11
Options exercisable at
year end 984,115 12.58 1,115,749 12.21 1,413,790 14.89
</TABLE>
The weighted average fair value of options granted during 1997, 1998
and 1999 was $28.15, $21.36 and $18.80, respectively.
49
<PAGE> 50
The following table summarizes information about stock options
outstanding at December 31, 1999:
<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>
$ 1.05 259,087 2.01 $ 1.05 259,087 $ 1.05
8.00-9.125 179,382 4.04 8.61 179,382 8.61
12.875-14.75 481,746 5.66 14.04 473,508 14.03
17.50-23.25 868,054 8.96 19.93 169,708 21.00
25.125-29.00 459,895 7.13 27.34 332,105 27.16
---------- ------ ------ ---------- ------
2,248,164 6.69 $17.11 1,413,790 $14.89
</TABLE>
50
<PAGE> 51
(15) UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of the unaudited interim results of
operations for each of the quarters ended in 1998 and 1999.
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Analytical solutions $ 1,737 $ 1,714 $ 2,592 $ 2,793 $ 3,680 $ 3,597 $ 4,189 $ 6,074
Market research 5,814 6,264 6,054 7,419 7,030 7,199 7,667 10,778
Statistics 21,424 21,518 21,811 24,332 22,287 22,850 22,763 23,816
-------- -------- -------- -------- -------- -------- -------- --------
Net revenues 28,975 29,496 30,457 34,544 32,997 33,646 34,619 40,668
Operating expenses:
Cost of revenues 2,435 2,574 2,516 2,523 2,683 3,126 3,253 3,601
Sales and marketing 14,428 15,408 14,241 16,336 16,904 16,357 16,109 18,907
Product development 5,045 4,886 5,394 5,537 5,709 6,215 6,581 6,478
General and administrative 2,008 2,483 2,807 2,129 2,415 2,985 2,607 1,766
Special general and
administrative (a) -- -- -- 445 -- -- -- --
Merger-related (b) -- -- -- 1,948 -- -- -- 1,611
Acquired in-process
technology (c) -- -- -- 3,552 -- -- -- 128
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses 23,916 25,351 24,958 32,470 27,711 28,683 28,550 32,491
-------- -------- -------- -------- -------- -------- -------- --------
Operating income 5,059 4,145 5,499 2,074 5,286 4,963 6,069 8,177
Net interest income
(expense) 50 76 95 112 (65) (86) (332) (46)
Other income (expenses) (169) (24) 205 (140) (115) (204) 539 (63)
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 4,940 4,197 5,799 2,046 5,106 4,673 6,276 8,068
Income tax expense 1,661 1,488 1,854 3,401 1,766 1,774 2,195 2,886
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 3,279 $ 2,709 $ 3,945 ($ 1,355) $ 3,340 $ 2,899 $ 4,081 $ 5,182
======== ======== ======== ======== ======== ======== ======== ========
Basic net earnings per share $ 0.35 $ 0.28 $ 0.41 ($ 0.14) $ 0.35 $ 0.30 $ 0.42 $ 0.54
======== ======== ======== ======== ======== ======== ======== ========
Shares used in basic per
share 9,390 9,525 9,569 9,575 9,581 9,596 9,606 9,621
======== ======== ======== ======== ======== ======== ======== ========
Diluted net earnings per
share $ 0.33 $ 0.27 $ 0.39 ($ 0.14) $ 0.33 $ 0.28 $ 0.40 $ 0.51
======== ======== ======== ======== ======== ======== ======== ========
Shares used in diluted per
share 10,063 10,128 10,137 9,575 10,091 10,145 10,283 10,227
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Analytical solutions 6% 6% 8% 8% 11% 11% 12% 15%
Market research 20% 21% 20% 22% 21% 21% 22% 26%
Statistics 74% 73% 72% 70% 68% 68% 66% 59%
-------- -------- -------- -------- -------- -------- -------- --------
Net revenues 100% 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Cost of revenues 8% 9% 8% 8% 8% 9% 9% 9%
Sales and marketing 50% 52% 47% 47% 51% 49% 47% 47%
Product development 18% 17% 18% 16% 17% 18% 19% 16%
General and administrative 7% 8% 9% 6% 8% 9% 7% 4%
Special general and
administrative (a) -- -- -- 1% -- -- -- --
Merger-related (b) -- -- -- 6% -- -- -- 4%
Acquired in-process
technology (c) -- -- -- 10% -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses 83% 86% 82% 94% 84% 85% 82% 80%
-------- -------- -------- -------- -------- -------- -------- --------
Operating income 17% 14% 18% 6% 16% 15% 18% 20%
Net interest income
(expense) -- -- -- -- -- -- (1)% --
Other income (expense) -- -- 1% -- (1)% (1)% 1% --
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 17% 14% 19% 6% 15% 14% 18% 20%
Income tax expense 6% 5% 6% 10% 5% 5% 6% 7%
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) 11% 9% 13% (4)% 10% 9% 12% 13%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(a) Write-off principally of some software assets associated with the Company's
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 related to acquired in-process technology, in conjunction
with business combinations accounted for as purchases.
51
<PAGE> 52
SCHEDULE II
SPSS INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<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>
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
1999
Allowance for doubtful accounts,
product returns, and cancellations $ 2,106,000 $ 1,768,000 $ 1,124,000 $ 2,488,000 $ 2,510,000
Inventory obsolescence reserve 15,000 25,000 -- 23,000 17,000
</TABLE>
52
<PAGE> 53
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 1999.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
The following table shows information as of March 17, 2000 with respect
to each person who is an executive officer or director of SPSS.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Norman Nie......................................... 56 Chairman of the Board of Directors
Jack Noonan........................................ 52 Director, President and Chief Executive Officer
Edward Hamburg..................................... 48 Executive Vice President, Corporate Operations,
Chief Financial Officer, and Secretary
Louise Rehling..................................... 56 Executive Vice President, Product Development
Mark Battaglia..................................... 40 Executive Vice President, Corporate Marketing
Ian Durrell........................................ 57 Executive Vice President, SPSS Market Research
Susan Phelan....................................... 43 Executive Vice President, SPSS Business
Intelligence
Bernard Goldstein (1)(2)........................... 69 Director
Merritt Lutz (1)................................... 57 Director
Michael Blair (1)(2)............................... 55 Director
</TABLE>
- ---------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Norman Nie, Chairman of the Board and co-founder of SPSS, designed the
Company's original statistical software beginning in 1967 and has been a
Director and Chairman of the Board since the Company's 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. He has
received three national awards for his books in these areas. During 1998, he
became a technology partner in Oak Investment Partners and is a director of
several privately-held companies. Dr. Nie received his Ph.D. from Stanford
University.
53
<PAGE> 54
Jack Noonan has served as Director as well as 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 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,
Morningstar, Inc. and Repository Technologies, Inc. Mr. Noonan is a member of
the advisory committee to Napersoft. Inc.
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 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 Business Intelligence,
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 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.
Merritt Lutz has been a Director of SPSS since 1988. He is currently a
Managing Director of Morgan Stanley Dean Witter & Co. managing the its strategic
technology investments and partnerships. Previously, he was President of Candle
Corporation, a worldwide supplier of systems software from
54
<PAGE> 55
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 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.
The Company's Board of Directors is divided into three classes serving
staggered three-year terms. Mr. Noonan and Mr. Blair are serving three-year
terms expiring at the 2000 annual meeting. Mr. Lutz is serving a three-year term
expiring at the 2001 annual meeting. Mr. Goldstein and Dr. Nie are serving
three-year terms expiring at the 2002 annual meeting. For a discussion of the
nomination rights granted to specific stockholders of SPSS, see "Related
Transactions-Stockholders Agreement." The executive officers named herein have
terms expiring at the next annual meeting or when their successors are duly
elected and qualified.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and holders of more than 10% of our common stock
to file with the Securities and Exchange Commission reports regarding their
ownership and changes in ownership of our securities. SPSS believes that, during
fiscal year 1999, its directors, executive officers and 10% shareowners complied
with all Section 16(a) filing requirements with the following exception: a late
report on Form 5 filed by Dr. Norman H. Nie regarding an exercise of 35,000
options. In making this statement, SPSS has relied upon examination of the
copies of Forms 3, 4 and 5 provided to SPSS and the written representations of
its directors, executive officers and 10% shareowners.
55
<PAGE> 56
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, 1999 (the "named
executive officers") for services rendered to SPSS in all capacities during
1997, 1998, and 1999, (b) information relating to option grants made to the
named executive officers in 1999 and (c) certain information relating to options
held by the named executive officers. SPSS made no grants of freestanding stock
appreciation rights ("SARs") in 1997, 1998, or 1999, nor did SPSS make any
awards in 1997, 1998 or 1999 under any long-term incentive plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- --------------------------------------------
AWARDS PAYOUTS
------------------------- -------
OTHER RESTRICTED SECURITIES
SALARY ANNUAL STOCK UNDERLYING LTIP ALL
COMPENSATION BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)((1) (#)(2) ($) ($)
- --------------------------- ---- ------------ ----- ------------ ---------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Noonan,......................... 1999 $256,500 $ 96,125 None None 50,000 None None
President and Chief 1998 $242,500 $185,679 None None 50,000 None None
Executive Officer 1997 $235,000 $132,656 None None 50,000 None None
Ian Durrell,......................... 1999 $197,000 $141,500 None None 25,000 None None
Executive Vice President, 1998 $197,000 $ 27,229 None None 25,000 None None
SPSS Market Research(3) 1997 $197,000 $ 30,933 None None 25,000 None None
Edward Hamburg,...................... 1999 $156,000 $ 46,375 None None 25,000 None None
Executive Vice President, 1998 $156,000 $ 82,922 None None 25,000 None None
Corporate Operations and 1997 $156,000 $ 58,027 None None 25,000 None None
Chief Financial Officer
Louise Rehling,...................... 1999 $135,200 $ 73,875 None None 25,000 None None
Executive Vice President, 1998 $135,200 $ 66,645 None None 25,000 None None
Product Development 1997 $135,200 $ 91,357 None None 25,000 None None
Mark Battaglia,...................... 1999 $127,000 $ 41,375 None None 25,000 None None
Executive Vice President, 1998 $110,000 $ 70,262 None None 25,000 None None
Corporate Marketing 1997 $110,000 $ 54,342 None None 25,000 None None
Susan Phelan,........................ 1999 $127,000 $ 84,080 None None 25,000 None None
Executive Vice President, 1998 $120,000 $ 83,419 None None 25,000 None None
SPSS Business Intelligence 1997 $110,300 $ 57,743 None None 25,000 None None
</TABLE>
For the year ended December 31, 1999, non-employee directors of SPSS
were entitled to receive 5,000 options. Each director was also reimbursed by
SPSS for reasonable expenses incurred in connection with services provided as a
director. During 1999, Dr. Nie received compensation of $80,800 for consultant
work on a part-time basis.
- ------------------------------------------------
(1) On December 31, 1999, Dr. Hamburg held 8,800 shares, Ms. Rehling held 2,915
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
$222,200 for Dr. Hamburg's shares, $73,603.75 for Ms. Rehling's shares and
$50,146.50 for Ms. Phelan's shares.
(2) Amounts reflected in this column are for grants of stock options for the
common stock of SPSS. No stock appreciation rights have been issued by SPSS.
(3) Payments and options shown in the table for Mr. Durrell reflect payments and
option grants to Valletta Investments Limited, a consulting company controlled
by Mr. Durrell. Mr. Durrell does not receive any personal benefits or
perquisities, payments of salary and bonus, awards of options or other
compensation from SPSS in his individual capacity.
56
<PAGE> 57
The following table shows the number of options to purchase common
stock granted to each of the named executive officers during 1999.
1999 OPTION/STOCK APPRECIATION RIGHTS GRANTS(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE LATEST APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE POSSIBLE OPTION TERM (2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) 1999 ($/SH) DATE 5% ($) 10% ($)
--------------------------- ------------ ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack Noonan................ 50,000 10.59% $20.500 01/03/09 $644,617 $1,633,586
Ian Durrell(3)............. 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793
Edward Hamburg............. 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793
Louise Rehling............. 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793
Mark Battaglia............. 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793
Susan Phelan............... 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793
</TABLE>
- ----------------------------------
(1) The Board of Directors of SPSS may, at its discretion, grant additional
options to the option holders in the event the option holders pay for the
exercise price of the options by tendering by attestation SPSS common stock. In
that case, the Board could grant these "reload" options in an amount equal to
the number of shares of SPSS common stock that the option holder tendered by
attestation.
(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.
57
<PAGE> 58
AGGREGATED OPTION/STOCK APPRECIATION RIGHT EXERCISES IN 1999 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) ($)(1)(2)
Shares --------------- ---------------------
Acquired on Value
Exercise Realized Exercisable/ Exercisable/
Name (#) ($)(1)(4) Unexercisable Unexercisable
- ---- ----------- --------- --------------- ---------------------
<S> <C> <C> <C> <C>
Jack Noonan.................... None N/A 291,439/92,228 $7,358,835/$2,328,757
Ian Durrell (3)................ None N/A 79,281/45,719 $2,001,845/$1,154,405
Edward Hamburg................. 4,100 81,879 145,914/45,719 $3,684,329/$1,154,405
Louise Rehling................. None N/A 126,947/45,719 $3,205,412/$1,154,405
Mark Battaglia................. None N/A 133,614/45,719 $3,373,754/$1,154,405
Susan Phelan................... 6,500 152,425 115,448/45,719 $2,915,062/$1,154,405
</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 $25.25, the closing price of the
common stock on the Nasdaq National Market on December 31, 1999, 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, to $242,500 in 1998, and to
$256,500 in 1999. 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, the Company's 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 ceases. Only Mr. Noonan
and Mr. Durrell, through a management services agreement with Valletta described
in "Management Services Agreement" below, are employed through an employment or
58
<PAGE> 59
similar agreement. However, SPSS does have confidentiality and work-for-hire
agreements with many of its key management and technical personnel.
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 1999, Valletta's aggregate
compensation, including bonus, was $338,500. 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 the Company's
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 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.
59
<PAGE> 60
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Goldstein, Blair and Lutz were directors and members of the
Compensation Committee during the last fiscal year. 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
the Company's 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 the
Company's executive officers. In 1999, 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.
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 the Company's option plan, the opportunity for management to purchase
additional shares on advantageous terms under the Company's Employee Stock
Purchase Plan and through present stock ownership and options.
The Compensation Committee focuses principally on the Company's
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 the Company's overall financial performance relative
to budgeted goals. In keeping with the Company's 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 the Company's overall financial performance.
60
<PAGE> 61
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 the Company's Third 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
1999, 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. Acceleration of
the vesting of the options granted to the executive officers as of January, 1999
was contingent upon SPSS achieving certain 1999 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. The acceleration of these options is 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.
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 1999, 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
$20.50 per share effective January 4, 1999. These options vest in the same
manner as the stock options for the other senior executives.
61
<PAGE> 62
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
Michael Blair
Merritt Lutz
62
<PAGE> 63
PERFORMANCE GRAPH
The following graph shows the changes in $100 invested since December
31, 1994, in the Company's 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.
[GRAPH]
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SPSS (NASDAQ: SPSS) $100.00 $213.70 $305.48 $210.96 $206.85 $276.71
NASDAQ 100 Stock Index $100.00 $144.67 $270.48 $248.77 $460.98 $930.95
S&P Computer Software & Services Index $100.00 $165.44 $195.81 $357.88 $648.29 $981.98
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of March 17, 2000, the number and
percentage of shares of common stock beneficially owned by:
o each person known by SPSS to own beneficially more than 5% of the
outstanding shares of the common stock;
o each director of SPSS;
o each named executive officer of SPSS; and
o 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
63
<PAGE> 64
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 for Daruma Asset Management, Inc. is 60 East 42nd Street, Suite
1111, New York, New York 10165. The business address for Brown Capital
Management, Inc. is 1201 N. Calvest Street, Baltimore, Maryland 21202. The
business address of each other person listed below is 233 South Wacker Drive,
Chicago, Illinois 60606.
<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) ........ 1,030,343 10.5%
Brown Capital Management, Inc. (2) ......................... 933,900 9.6%
T. Rowe Price Associates, Inc. (3) ......................... 906,400 8.8%
Fidelity Management & Research Company (4) ................. 861,100 9.3%
Daruma Asset Management, Inc. (5) .......................... 549,400 5.6%
Jack Noonan (6) ............................................ 331,574 3.3%
Bernard Goldstein(7) ....................................... 54,210 *
Louise Rehling(8) .......................................... 144,411 1.5%
Edward Hamburg(9) .......................................... 169,263 1.7%
Mark Battaglia(10) ......................................... 148,546 1.5%
Susan Phelan(11) ........................................... 131,983 1.3%
Ian Durrell(12) ............................................ 93,830 1.0%
Merritt M. Lutz(13) ........................................ 32,099 *
Michael D. Blair (14) ...................................... 11,479 *
All directors and executive officers as
a group (10 persons)(15) ................................. 10,829,761
</TABLE>
- ----------------------------------
* The percentage of shares beneficially owned does not exceed 1% of the Common
Stock.
(1) Includes 53,710 shares which are through options exercisable within 60
days; 90,433 shares held of record by the Norman and Carol Nie
Foundation, Inc.; and 851,200 shares held by the Nie Trust and 35,000
shares held individually. Dr. Nie shares voting and investment power
over the 90,433 shares held by the Nie Foundation with Carol Nie.
(2) Brown Capital Management, Inc., is the beneficial owner of 933,900
shares of SPSS common stock and an investment advisor in accordance
with Section 203 of the Investment Advisor Act. This information was
taken from Brown's Schedule 13G dated February 10, 2000.
(3) T. Rowe Price Associates, Inc. is the beneficial owner of 906,400
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's Schedule 13G dated February 8, 2000.
(4) Fidelity Management & Research Company, a wholly-owned subsidiary of
FMR Corp. and an investment
64
<PAGE> 65
adviser registered under Section 203 of the Investment Advisers Act of
1940, is the beneficial owner of 861,100 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 861,100 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 14, 2000.
(5) Daruma Asset Management, Inc. is the beneficial owner of 549,400 shares
of SPSS common stock and an investment advisor in accordance with
Section 203 of the Investment Advisor Act. This information was taken
from Daruma's Schedule 13G dated February 10, 2000.
(6) Includes 321,327 shares through options exercisable within 60 days.
(7) Includes 18,766 shares through options exercisable within 60 days.
(8) 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 141,496 shares through options exercisable within 60
days.
(9) Includes 160,463 shares through options exercisable within 60 days.
(10) Includes 148,163 shares through options exercisable within 60 days.
(11) Includes 129,997 shares through options exercisable within 60 days.
(12) Mr. Durrell is the beneficial owner of these shares, which consist
solely of 93,830 shares through options exercisable within 60 days held
of record by Valletta.
(13) Includes 18,766 shares through options exercisable within 60 days.
(14) Includes 11,479 shares through options exercisable within 60 days.
(15) Includes 1,099,983 shares through options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH NORMAN NIE
Dr. Nie received 5,000 options for his services as Chairman of the
Board in 1999 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
$249,000 in 1997, $234,000 in 1998 and $237,000 in 1999.
STOCKHOLDERS AGREEMENT
In connection with the Company's 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
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<PAGE> 66
offering, Morgan Stanley Venture Capital Fund owned less than 12.5% and
currently owns no capital stock of SPSS. Currently, the Nie Trust owns less than
12.5% of the 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 own account, the Company's 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 the Company's offering.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1) Financial statements commence on page 31:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Income for the years ended December
31, 1997, 1998 and 1999
Consolidated Statements of Comprehensive Income for the years
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule -- see page 52:
Schedule II Valuation and qualifying accounts
66
<PAGE> 67
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.)
67
<PAGE> 68
<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., $ 2.9
Surveycraft Pty Ltd. and Jens Meinecke and
Microtab Systems Pty Ltd., dated as of
November 1, 1998.
</TABLE>
68
<PAGE> 69
<TABLE>
<S> <C> <C>
2.10 Stock Acquisition Agreement by and among SPSS Inc. $$ 2.1
Vento Software, Inc. and David Blyer, John Gomez and
John Pappajohn, dated as of November 29, 1999.
2.11 Asset Purchase Agreement by and between SPSS Inc.
and DataStat, S.A., dated as of December 23, 1999.
3.1 Certificate of Incorporation of SPSS * 3.2
3.2 By-Laws of SPSS * 3.4
10.1 Employment Agreement with Jack Noonan + 10.1
10.2 Agreement with Valletta ** 10.2
10.3 Agreement between SPSS and ** 10.5
Prentice Hall
10.4 Software Distribution Agreement between ** 10.6
SPSS and IBM
10.5 HOOPS Agreement ** 10.7
10.6 Stockholders Agreement * 10.8
10.7 Agreements with CSDC * 10.9
10.8 Amended 1991 Stock Option Plan * 10.10
10.9 SYSTAT Asset Purchase Agreement ++10.9
10.10 1994 Bonus Compensation +++10.11
10.11 Lease for Chicago, Illinois Office +++10.12
10.12 Amendment to Lease for Chicago, Illinois Office +++10.13
10.13 1995 Equity Incentive Plan x 10.14
10.14 1995 Bonus Compensation xx 10.15
10.15 Lease for Chicago, Illinois Office xx 10.16
10.16 Amended and Restated 1995 Equity Incentive Plan xxx 10.17
10.17 1996 Bonus Compensation xxxx 10.18
</TABLE>
69
<PAGE> 70
<TABLE>
<S> <C> <C>
10.18 Software Distribution Agreement between the xxxx 10.19
Company and Banta Global Turnkey
10.19 Lease for Chicago, Illinois in Sears Tower # 10.20
10.20 1997 Bonus Compensation ### 10.21
10.21 Norman H. Nie Consulting L.L.C. Agreement ### 10.22
10.22 Second Amended and Restated 1995 Equity &A
Incentive Plan
10.23 1998 Bonus Compensation
10.24 Third Amended and Restated 1995 Equity $$$ 10.1
Incentive Plan
10.25 Loan Agreement dated June 1, 1999 between $$$$ 10.1
SPSS and American National Bank and Trust
Company of Chicago
10.26 First Amendment to Loan Agreement dated $$$$ 10.2
June 1, 1999, between SPSS and American
National Bank and Trust Company of Chicago
10.27 1999 Bonus Compensation
21.1 Subsidiaries of SPSS
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
27.1a Financial Data Schedule (Restated)
27.1b Financial Data Schedule (Restated)
</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)
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<PAGE> 71
@@@@ 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 ended December 31, 1994. (File No. 000-22194)
x Previously filed with SPSS Inc.'s 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 Inc.'s 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 filed 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)
& Previously filed with SPSS Inc.'s 1998 Proxy Statement. (File No.
000-22194)
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<PAGE> 72
$ Previously filed with Forum 10-K Annual Report of SPSS Inc. for the
year ended December 31, 1998. (File No. 000-22194)
$$ Previously filed with SPSS Inc. Report on Form 8-K, dated November 29,
1999, filed December 10, 1999. (File No. 000-22194)
$$$ Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
quarterly period ended June 30, 1999. (File No. 000-22194)
$$$$ Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
quarterly period ended September 30, 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 November 29, 1999, filed December 10, 1999.
The Report on Form 8-K reported that on November 29, 1999, SPSS Inc.
acquired 100% of the outstanding capital shares of Vento Software,
Inc., a Florida corporation, from the shareholders of Vento (the
"Shareholders"), for 546,060 shares of SPSS common stock, $.01 par
value per share, valued at approximately $12.3 million. The
acquisition, accounted for as a pooling of interests, occurred pursuant
to the Stock Acquisition Agreement between SPSS, Vento and the
Shareholders dated as of November 29, 1999. Vento is a leader in
providing business performance management solutions for business
executives in the telecommunications, banking, health care and retail
industries. The Report on Form 8-K was filed under Item 2.
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<PAGE> 73
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 30, 2000.
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 30, 2000.
<TABLE>
<CAPTION>
Signature Title(s)
- --------- --------
<S> <C>
/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
</TABLE>
73
<PAGE> 74
/s/ Bernard Goldstein Director
- -------------------------------------------
Bernard Goldstein
/s/ Merritt Lutz Director
- -------------------------------------------
Merritt Lutz
/s/ Michael Blair Director
- -------------------------------------------
Michael Blair
74
<PAGE> 75
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------
<S> <C>
2.11 Asset Purchase Agreement by and between SPSS Inc.
and DataStat, S.A., dated as of December 23, 1999
10.27 1999 Bonus Compensation
21.1 Subsidiaries of the Company
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
27.1a Financial Data Schedule (Restated)
27.1b Financial Data Schedule (Restated)
</TABLE>
<PAGE> 1
================================================================================
ASSET PURCHASE AGREEMENT
By and Between
SPSS INC.
and
DATASTAT, S.A.
Dated as of December 23, 1999
================================================================================
<PAGE> 2
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of December 23, 1999 (the "Agreement"),
by and between DataStat, S.A., a corporation organized under the laws of
Luxembourg ("DataStat") and SPSS Inc., a Delaware corporation ("SPSS").
W I T N E S S E T H:
WHEREAS, DataStat is engaged in the business of developing and distributing
software, including its VerbaStat computer software products ("VStat"); and
WHEREAS, SPSS also is engaged in the business of developing and
distributing software; and
WHEREAS, DataStat desires to sell to SPSS, and SPSS desires to purchase
from DataStat, certain of DataStat's assets relating to Vstat exclusively;
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. Except as set forth below or in Section 1.4 and
subject to the terms and conditions of this Agreement, on the Closing Date (as
defined herein), DataStat hereby agrees to sell, convey, assign, transfer and
deliver to SPSS, and SPSS hereby agrees to purchase and accept from DataStat,
all of DataStat's assets exclusively relating to and comprising VStat, namely a
software package for data entry, classification and coding of open-ended
responses in the framework of the survey process, including, but not limited to
all intellectual property related to its current and future development, sales
and related cash and accounts receivable generated from and after the effective
date of this Agreement as contemplated in Section 1.2 hereof (the "Effective
Date"), assets, software, deposits and properties of every kind, character and
description, whether tangible, intangible, or personal, and wherever located
(collectively, the "Assets"). SPSS hereby grants to DataStat, for no additional
consideration, one three-user license to use the VStat software or any upgraded
versions thereof, which use shall be limited to DataStat's in-house survey
tabulation business, and shall in no circumstances include any right to sell the
VStat software or include or incorporate the VStat Software (except for the
"Keyword Search" methodology) in any product or application sold, leased or
licensed by DataStat to any third party, and DataStat shall not assign or convey
any such rights, in whole or in part, to any third party. The Assets shall
include, but not be limited to, the following:
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(a) all computer program code (in all media) and VStat materials and
program documentation, and all technical and descriptive
materials relating to the acquisition, design, development, use
or maintenance of VStat computer code and VStat program
documentation and materials in any and all languages (the
"Technical Documentation"); provided, however, that on the
Closing Date, DataStat shall deliver versions 4.1 and 5 of the
VStat computer program code and related technical manuals, and
all other Technical Documentation shall be delivered by DataStat
to SPSS within 30 days of the Closing Date;
(b) with respect to VStat, all of DataStat's rights and benefits (but
excluding, unless otherwise specifically provided herein, all
duties and obligations arising prior to the Closing Date)
relating to contractual rights, sales representative agreements,
distributor agreements, OEM agreements, license agreements,
vendors' warranties on VStat inventory, orders on the books and
work-in- process existing on the Closing Date with respect to
VStat, and other commitments or arrangements, oral or written,
with any person or entity respecting the ownership, license,
acquisition, design, development, distribution, marketing, use or
maintenance of VStat computer program code and related technical
or user documentation (the "Contracts").
(c) the name "VerbaStat" and any trade names, trademarks and service
marks related thereto (including registrations, licenses and
applications pertaining thereto), whether registered or at common
law, together with all goodwill associated therewith with the
exception of the same relating to the name "DataStat";
(d) with respect to VStat, all of DataStat's parts lists, vendor
lists, customer lists, catalogues, promotion lists and marketing
data and other compilations of names and requirements, and trade
secrets and other material information used by DataStat with
respect to VStat; provided, however, that prior to the Closing
Date, DataStat delivered to SPSS its lists of current and
prospective customers, and all other information referenced in
this subsection 1.1(d) shall be delivered by DataStat to SPSS
within 30 days of the Closing Date;
(e) with respect to VStat, all of DataStat's computer programs,
designs, processes, drawings, schematics, blueprints, copyrights,
copyright applications, inventions, processes, know-how, or trade
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secrets or proprietary information related to VStat with the
exception of all rights, including rights in patents and patent
applications, in a data extraction method used in VStat more
precisely described in the Belgian patent application of November
25, 1999, n(degree)09900767 and generally referred to as the
"Keyword Search" methodology; provided, however, that DataStat
hereby grants to SPSS, for no additional consideration, a
perpetual, non- exclusive license to use the source code of
"Keyword Search" and such methodology in any way SPSS desires,
including, without limitation, the modification or enhancement
thereof or the inclusion or incorporation of such source code or
methodology in any current or future products or applications of
SPSS or its subsidiaries or affiliates. Notwithstanding anything
herein to the contrary, SPSS has the right to transfer or assign
such license to any third party that acquires the VStat business
from SPSS or acquires all or substantially all of the stock of
SPSS without the consent of DataStat, it being understood and
agreed that such license shall be binding upon DataStat and its
successors and assigns, and shall inure to the benefit of SPSS
and its successors and assigns. Notwithstanding the foregoing,
SPSS shall not sell the "Keyword Search" methodology as a
stand-alone product without DataStat's consent.
1.2 Time and Place of Closing. Subject to the terms and conditions of this
Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Ross & Hardies, 150 N. Michigan
Avenue, Chicago, Illinois on December 23, 1999 (the "Closing Date") or at such
other place or time as the parties may agree and, for all purposes, shall be
deemed to be effective as of the close of business on December 23, 1999.
Signatures delivered by facsimile transmission shall be deemed original.
1.3 Purchase Price. Upon satisfaction of all of the terms and conditions
set forth in this Agreement, SPSS shall deliver the Purchase Price consisting of
ONE MILLION AND NO/100 U.S. DOLLARS (U.S.$1,000,000.00), to be paid in twelve
quarterly installments the first eleven of which shall be EIGHTY THREE THOUSAND
THREE HUNDRED THIRTY-THREE AND 33/100 U.S. DOLLARS (U.S.$83,333.33) and the
twelfth of which shall be EIGHTY THREE THOUSAND THREE HUNDRED THIRTY-THREE AND
40/100 U.S. DOLLARS (U.S.$83,333.40). SPSS shall pay an installment on the last
day of each of January, April, July and October of each calendar year following
the Closing Date (each, a "Payment Date"), until the Purchase Price is paid in
full; provided, however, that the first installment shall be paid in advance on
the Closing Date. In no event shall SPSS pay any installment later than fifteen
days after any Payment Date. SPSS shall make such payments by check payable to
"DataStat" at the DataStat address in Section 11.4 or to the order of any other
payee designated by DataStat; provided, however,
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that payments made at DataStat's request to any payee other than DataStat shall
be deemed payment to DataStat.
1.4 Assumption of Liabilities and Obligations. SPSS agrees that, effective
upon the Closing, it shall assume no liabilities and obligations of DataStat
related to the Assets except those accruing after the Closing Date relating to
contracts set forth in SCHEDULE 2.12 which are actually assumed by SPSS
(collectively, the "Assumed Liabilities"). SPSS shall assume only those duties
and obligations of DataStat arising or accruing thereunder after the Closing
Date and SPSS shall have no other duty or obligations. It is expressly
understood and agreed that, except for the Assumed Liabilities, SPSS shall not
be liable for any of the liabilities of DataStat or the VStat business not
constituting Assumed Liabilities (hereinafter, collectively, the "Excluded
Liabilities").
Unless specifically stated to the contrary, this Agreement shall not
constitute an agreement or an attempted agreement to transfer, sublease or
assign any Assumed Liability or any claim or right arising thereunder or
resulting therefrom if any such attempted transfer, sublease or assignment,
without the consent of any other party thereto, would constitute a breach of
such Assumed Liability or in any way affect the rights of SPSS thereunder.
DataStat shall, between the date hereof and the Closing and, if requested by
SPSS, after the Closing, use all reasonable efforts to obtain the consent of any
such party to the transfer, sublease or assignment thereof by DataStat to SPSS
hereunder in all cases in which such consent is required for transfer, sublease
or assignment. If any such consent is not obtained, or if any attempted
assignment thereof would be ineffective or would affect the rights of DataStat
thereunder such that SPSS would not in fact receive all rights related to an
Assumed Liability, DataStat shall, with the reasonable assistance of SPSS, at
DataStat's expense, perform such Assumed Liability for the account of SPSS or
otherwise cooperate with SPSS at DataStat's expense in any arrangement necessary
or desirable to provide for SPSS the benefits under any such Assumed Liability,
including, without limitation, enforcement for the benefit of SPSS of any and
all rights of DataStat against the other party thereto arising out of the
breach, termination or cancellation of such Assumed Liability by such other
party or otherwise. With respect to those Assumed Liabilities that are license
agreements as to which licensee consent is required for DataStat to assign such
license agreements to SPSS, (i) SPSS shall and hereby does grant DataStat such
licenses as DataStat requires to be in compliance with such license agreements
and (ii) DataStat and SPSS shall enter into good faith negotiations with such
licensee for the assignment of such license agreement to SPSS.
1.5 Liabilities Not Assumed. Pursuant to Article X, DataStat shall
indemnify, defend and hold SPSS harmless from all Excluded Liabilities and
DataStat's legal fees and other expenses incurred in connection with the
transactions contemplated hereby, and all claims, suits, actions, losses,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees) arising therefrom or from any failure by DataStat to pay or
discharge such liabilities and obligations as and when they become due.
1.6 Taxes. SPSS shall not be responsible for, or suffer a reduction in
assets to be received by it for, any income, sales, use, value added, excise or
other taxes of any kind
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whether arising before, after or as a result of this purchase, relating solely
to DataStat's ownership of the Assets or the consummation of the transactions
contemplated hereby; provided, however, that SPSS shall be responsible for all
U.S. federal and state taxes which are imposed on SPSS as a result of the
consummation of the transactions contemplated hereby (but not including any U.S.
federal or state taxes imposed on DataStat for activities of DataStat prior to
the Closing Date).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF DATASTAT
As of the date hereof and as of the Closing Date, DataStat represents and
warrants to SPSS as follows:
2.1 Organization and Qualification. DataStat is a corporation duly
organized, validly existing and in good standing under the laws of Luxembourg
and has the corporate power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby, to own or lease the Assets
which it presently owns or leases and to carry on its business as presently
conducted. DataStat is duly licensed or qualified to do business as a foreign
corporation, and is in good standing in every foreign jurisdiction in which it
is required to be so licensed or qualified.
2.2 Authority. DataStat has full power, capacity and authority (corporate
or otherwise) to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by all necessary action on the part of the Board
of Directors of DataStat and no other proceedings (shareholder, corporate or
otherwise) on the part of either DataStat or its shareholders 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 DataStat, and each constitutes a
legal, valid and binding agreement of DataStat, enforceable against DataStat in
accordance with their respective terms, except as their obligations thereunder
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
2.3 Consents and Approvals. 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 DataStat to consummate the transactions
contemplated hereby and fully perform its obligations hereunder.
2.4 Absence of Conflicts. The execution, delivery and performance by
DataStat of this Agreement and the consummation by DataStat 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 DataStat is subject, (ii) violate any order, judgment or
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decree applicable to DataStat, (iii) conflict with or result in a breach or
default under any term or condition of the Articles of Incorporation or By-Laws
of DataStat, or any agreement or other instrument to which DataStat is a party
or by which it is bound, or to which any of the Assets are subject, (iv) result
in the creation or imposition of any lien, pledge, claim, security interest or
encumbrance of any nature whatsoever on the Assets, (v) have a material adverse
effect upon the Assets or the Assumed Liabilities, or (vi) cause, or give any
person grounds to cause, the maturity of the Assumed Liabilities to be
accelerated.
2.5 Customer List. Schedule 2.12 contains the list of key DataStat
customers and license fees associated therewith relating to the Assets as of the
Closing Date. DataStat shall provide a complete customer list to SPSS no later
than January 31, 2000.
DataStat is not in default in respect of any term or condition of any
indebtedness or liability relating to the Assets. There are no facts in
existence and known to DataStat which might reasonably serve as the basis for
any liabilities or obligations of DataStat relating to the Assets not disclosed
in this Agreement, other than liabilities incurred or to be incurred in the
ordinary course of business.
2.6 Absence of Undisclosed Liabilities. DataStat does not have any
liabilities or obligations relating to the Assets, whether accrued, absolute or
contingent, determined or undetermined, known or unknown, or whether due or to
become due (including, without limitation, obligations as guarantor). DataStat
knows of no basis for the assertion of any claim or liability relating to the
Assets or the business of DataStat, and is not aware of any occurrence or fact
that has or might have an adverse effect upon the Assets or DataStat's business
relating thereto.
2.7 Absence of Certain Changes or Events. Since November 30, 1999, there
has not been (a) any material damage, destruction or casualty loss to the Assets
(whether covered by insurance or not) outside the ordinary course of business;
(b) any entry into any transaction, commitment or agreement (including, without
limitation, any borrowing) material to the Assets, or relating to the Assets and
outside the ordinary course of business of DataStat; (c) any sale, transfer or
other disposition of the Assets to any party, except for payment of obligations
incurred, and sale of products, in the ordinary course of business consistent
with past practices; (d) any amendment or termination of any material contract
or agreement relating to the Assets to which DataStat is a party or any
termination or waiver of any other rights of value relating to the Assets; (e)
any failure by DataStat to pay its accounts payable or other obligations
relating to the Assets in the ordinary course of business; (f) any pledge of any
of the Assets or any action or inaction which would subject the Assets to any
lien, security interest, mortgage, pledge, claim, charge or other encumbrance of
any kind; (g) the incurrence of any liability or obligation by DataStat related
to the Assets, except for liabilities incurred in the ordinary course of
business; (h) any actual or threatened termination or cancellation of, or
modification or change in, any business relationship with any customer or
customers of DataStat relating to the Assets or other agreement or arrangement
involving or related to the Assets; (i) any other event or condition of any
character which materially and adversely affects
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the Assets; or (r) any agreement, whether in writing or otherwise, to take any
action described in this Section 2.7.
2.8 Personal Property; Inventories. DataStat has good and marketable title
to, and is in possession of or has control over, all of the personal property
comprising the Assets, none of which is held under or subject to any pledge,
lien, lease, encumbrance, conditional sales contract or other security
arrangement.
2.9 Patents, Trademarks, Etc. SCHEDULE 2.9 hereto contains an accurate and
complete description of all domestic and foreign trademark registrations,
copyright registrations and all applications therefor with respect to VStat (the
"Registered Intellectual Property"), presently owned or held by DataStat or
under which DataStat owns or holds any license, or in which DataStat owns or
holds any direct or indirect interest. To the best knowledge of DataStat, no
VStat products manufactured, distributed or sold by DataStat, nor any of
DataStat's activities, conflict with, infringe or otherwise violate any patents,
trademarks or copyrights, or any other rights, of any individual or entity.
DataStat 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
Property (as defined herein); no claims have been asserted by any individual or
entity with respect thereto or challenging or questioning the validity or
effectiveness of any license or agreement with respect thereto, and, to the best
knowledge of DataStat, there is no valid basis for any such claim. DataStat is
not using confidential information or trade secrets of any former employer of
any past or present employees engaged in DataStat's business. The items
described in SCHEDULE 2.9 and DataStat's other intellectual property relating to
VStat (including, without limitation, trademarks, service marks, logos, trade
names, assumed names, trade secrets, know-how, technology, inventions,
processes, designs and copyrights) (collectively, "Intellectual Property") are
adequate to conduct DataStat's business with respect to VStat as presently
conducted. Upon consummation of the transactions contemplated hereby, SPSS will
acquire good and marketable title to all of the Intellectual Property and the
goodwill associated therewith, subject to the restrictions listed in
Section 1.1.
2.10 Employees. All personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of the Intellectual Property on behalf of DataStat have executed
appropriate instruments of assignment, which are still in full force and effect,
in favor of DataStat, as assignee, that have conveyed to DataStat full,
effective and exclusive ownership of all intellectual property thereby arising.
DataStat does not own or have any right, license or interest, whether as a
licensee, licensor 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 related to
VStat.
2.11 Source Code. DataStat owns all rights, title and interest in and to
the source code for VStat and has not distributed any copies of such source code
to any third parties, and DataStat has not agreed to pay to any individual or
entity any royalty, commission or other amount
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on account of sales of VStat. DataStat owns all rights, title and interest in
and to all localizations and translations of manuals and other technical
documentation.
2.12 Contracts and Commitments.
(a) Other than standard form customer contracts and verbal contracts,
entered into in the ordinary course of business, each as set forth in SCHEDULE
2.12, DataStat is not a party to any agreements, contracts, guarantees,
commitments, restrictions or instruments of any kind relating to the Assets
("Contracts"). True and correct copies of all key Contracts have been made
available to SPSS at a reasonable time prior to Closing. All of the Contracts
are valid and binding obligations of DataStat, enforceable in accordance with
their respective terms to the extent permitted by applicable law, and are in
full force and effect and DataStat is in compliance therewith. None of the
Contracts has, or may to the best of DataStat's knowledge have, a material
adverse effect on the Assets. No other party to any of the Contracts is in
default or breach thereof. DataStat has not agreed with any customer or
distributor to make any variation in any such contract which could have a
material adverse effect on the Assets.
(b) DataStat is not in default, and there is no basis for any valid
claim of default, in any respect under any of the Contracts.
2.13 Licenses and Royalties. DataStat is not a licensee under any license
with respect to the Assets, including, without limitation, licenses with respect
to source codes used or to be used in VStat, and does not have an obligation to
pay royalties to any third party in connection therewith, and DataStat has not
granted to any individual or entity any rights with respect to the source codes
for VStat.
2.14 Adequacy of Documentation. The Technical Documentation includes the
source code, system documentation, statements or principles of operation, and
schematics for VStat currently maintained or licensed by DataStat, as well as
any pertinent commentary or explanation that may be necessary to render such
materials understandable and usable by a trained computer programmer familiar
with the relevant compilers, tools and platform.
2.15 Third-Party Components in Software Programs. VStat and the Technical
Documentation contain no other programming or materials in which any third party
may claim superior, joint or common ownership, including any right or license,
and, do not contain derivative works of any programming or materials not owned
in their entirety by DataStat.
2.16 Third-Party Interests or Marketing Rights in VStat Software Programs.
All of DataStat's standard form customer contracts constitute only end-user
agreements, each of which grants the end-user thereunder solely the
non-exclusive right and license to use VStat and related user documentation, for
internal 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 VStat, the Technical
Documentation, or DataStat's
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Intellectual Property with any independent salesperson, distributor,
sublicensor, or other remarketer or sales organization.
2.17 No Virus Warranties. DataStat represents and warrants that VStat, 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 DataStat's software products.
2.18 Purchased Software; Physical Media. The software purchased as part of
the Assets, other than that currently under development (the "Purchased
Software"), will operate in accordance with the Technical Documentation. The
Purchased Software and any licenses or other rights connected therewith, express
or implied, will not infringe any other person's intellectual property rights
and DataStat has full right and authority to sell and assign the Purchased
Software, and the rights connected therewith to SPSS. Each copy of Purchased
Software delivered by DataStat is and will be free from physical defects in the
media that tangibly embodies the copy.
2.19 Product Warranties and Liabilities. DataStat has not given or made any
express or implied warranties to third parties with respect to any Assets
licensed or sold or services performed by it related thereto, except for the
limited warranties stated in DataStat's standard form customer contracts, in the
forms attached to SCHEDULE 2.12, with modifications that, in the aggregate,
would not have a material adverse effect on the Assets. DataStat does not have
any knowledge of any fact or of the occurrence of any event forming the basis of
any present or future claim against DataStat relating to the Assets 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.
2.20 Litigation and Administrative Proceedings. There is no claim, action,
suit, proceeding or investigation in any court or before any governmental or
regulatory authority pending or threatened against or affecting DataStat
relating to the Assets or which seeks to enjoin or obtain damages in respect of
the transactions contemplated hereby. DataStat does not know or have reason to
know of any basis for any such claim, action, suit, proceeding or investigation.
2.21 Tax Matters. None of the Assets is subject to any lien or other
encumbrance as a result of unpaid taxes and SPSS will not become liable for any
taxes as a result of this purchase, relating solely to DataStat's ownership of
the Assets or the consummation of the transaction contemplated hereunder.
Notwithstanding the foregoing, DataStat makes no representation or warranty as
to whether SPSS will become liable for any U.S. federal or state taxes as a
result of the consummation of the transactions contemplated hereby (but not
including any U.S. federal or state taxes imposed on DataStat for activities of
DataStat prior to the Closing Date).
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2.22 Licenses and Permits. DataStat has all governmental licenses and
permits and other governmental authorizations and approvals required for the
conduct of its businesses as presently conducted with respect to the Assets
("Permits").
2.23 Relations With Suppliers and Customers. DataStat is not required to
provide any bonding or other financial security arrangements in connection with
any transaction with any customer or supplier with respect to the Assets.
DataStat has not received any notice that any customer or supplier of DataStat
will not do business with SPSS after the consummation of the transactions
contemplated hereby.
2.24 Interests in Competitors, Suppliers and Customers. No officer or
director of DataStat or any entity controlled by or under common control with
DataStat has any ownership interest in any competitor, supplier or customer of
DataStat or any property used in the operation of the business of DataStat, as
same may relate to the Assets.
2.25 Brokers and Finders. DataStat 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 hereby.
2.26 Title to Assets; No Liens. DataStat has good and marketable title to,
and is in possession of or has control over, all of the Assets, free and clear
of all liabilities, liens, security interests, mortgages, pledges, claims,
judgments, exceptions, charges and encumbrances and obligations of every kind
and nature. None of the Assets is held under any lease or conditional sales
contract and all of the Assets are in good repair and operating condition, and
all of the computer programming will operate in accordance with its
documentation at all times and there are no defects or other conditions with
respect thereto which would necessitate repairs, reconditioning or replacement
thereof.
2.27 Necessary Property. There exists no condition, restriction or
reservation affecting the title to or utility of the Assets or the Assumed
Liabilities which would prevent SPSS from occupying or utilizing the Assets or
the Assumed Liabilities, or any part thereof, to the same full extent that
DataStat might continue to do so if the sale and transfer contemplated hereby
did not occur.
2.28 Current Products. All of DataStat's software products and user
documentation relating to the Assets and currently offered for license or
maintained or supported by DataStat (collectively, "Current Products") are
listed on SCHEDULE 2.28 hereto. All of the Current Products are included in the
Assets and, effective upon consummation of the Closing, SPSS will obtain and
hold the complete and exclusive right, title and interest in and to all of the
Current Products.
2.29 Year 2000 Compliance. VStat is designed to be used from, into and
between the 20th and 21st centuries, including the years 1999 and 2000. VStat
will accurately
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receive, provide and process date/time data (including, but not limited to,
calculating, comparing and sequencing) during such time periods, and VStat will
not malfunction, cease to function, or provide invalid or incorrect results as a
result of date/time data or leap year calculations.
2.30 Full Disclosure. No representation or warranty to SPSS contained in
this Agreement, and no statement contained in the disclosure schedules, 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SPSS
As of the date hereof and as of the Closing Date, SPSS represents and
warrants to DataStat as follows:
3.1 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.
3.2 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 agreement of SPSS.
3.3 Consents and Approvals. 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, excluding,
however, any authorization, consent, order, approval or filing which DataStat is
required to obtain or give.
3.4 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 subject, (ii) violate any order, judgment or decree 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 SPSS is a party or by which SPSS is
bound.
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3.5 Litigation and Administrative Proceedings. There is no claim, action,
suit, proceeding or investigation in any court or before any governmental or
regulatory authority pending or threatened against or affecting SPSS which seeks
to enjoin or obtain damages in respect of the transactions contemplated hereby.
3.6 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 IV
COVENANTS OF DATASTAT
DataStat covenants as follows:
4.1 Tax Matters. DataStat will timely pay or satisfy all liabilities
imposed on DataStat by any taxing authority under any tax statute that may be
due by DataStat as a result of the sale of the Assets hereunder. SPSS shall be
liable for any tax liability that may be imposed on SPSS solely as a result of
SPSS's acquisition of the Assets hereunder; provided, however, that DataStat
shall be liable for any taxes accruing or arising prior to the Closing Date and
relating to the Assets.
4.2 Post-Closing Access to Information. For a period of three (3) years
after the Closing, DataStat shall not dispose of any books, records, documents
or information relating in whole or part to the Assets or otherwise to the VStat
business of DataStat without first giving notice to SPSS and permitting SPSS to
copy, without cost, those portions of such books and records which relate to the
Assets or otherwise to the VStat business as SPSS may select. During such three
(3)- year period, DataStat shall permit SPSS to examine and make copies, at
SPSS's expense, of such books, records, documents or information for any
reasonable purpose, including but not limited to any litigation commenced
against SPSS or any affiliate of SPSS or the preparation of income or other tax
returns or in connection with any administrative or regulatory proceedings or
actions.
4.3 Right of Endorsement. Upon the Closing and thereafter, SPSS shall have
the right and authority to endorse, without recourse, the name of DataStat on
any check or any other evidence of indebtedness received by SPSS and to which it
is entitled on account of any receivable or other Asset transferred by DataStat
pursuant hereto, and DataStat shall deliver to SPSS at the Closing documents
sufficient to permit SPSS to deposit such checks or other evidences of
indebtedness in bank accounts in the name of SPSS.
4.4 Accounts Receivable. After the Closing, DataStat shall promptly remit
to SPSS all the proceeds of any checks and other payments for accounts
receivable belonging to SPSS under this Agreement and coming into the possession
of DataStat. DataStat shall also ensure that
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payments received by DataStat on accounts receivables can be identified as for
the account of SPSS or for the account of DataStat.
4.5 Further Assurances. After the Closing, DataStat shall within a period
of one (1) year, 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.
4.6 Discontinuance of Use. Upon Closing, DataStat will discontinue use of
the name "VerbaStat" and of the prefix "Verba" or any confusingly similar part
of the name except for purposes of collecting unpaid accounts receivable related
to the Assets.
4.7 Consents. DataStat will use all reasonable efforts to obtain the
express written consent of all third parties necessary to assign any Contracts
included in the Assets. If any third party withholds consent or DataStat
receives royalties or payments on account of such Contracts after Closing,
DataStat will hold all such amounts in trust for SPSS and promptly pay same to
SPSS. DataStat will indemnify and hold SPSS harmless from and against any loss
suffered by SPSS as a result of DataStat's failure to obtain any necessary
consent to the assignment of such Contracts.
4.8 Non-Competition; Confidentiality.
4.8.1 DataStat understands and agrees that the business of SPSS, among
other things, concerns proprietary computer software programs and related
documentation which will include, after the acquisition contemplated by this
Agreement, the proprietary computer software programs and related documentation
constituting a portion of the Assets. DataStat understands that in the course of
its dealings with SPSS, SPSS and/or its subsidiaries or affiliates may provide
DataStat with, or access to, its software (including, without limitation, source
listings therefor), as well as confidential and/or proprietary prospect and
customer lists, data, research, specifications, memoranda, files, records,
plans, concepts, flow charts, drawings, designs, descriptions, formula tions,
trade secrets and other confidential and/or proprietary information and
property, including but not limited to, information regarding SPSS operations,
businesses, affairs, management and market structure (all of the foregoing
collectively referred to as the "Confidential Property"). Confidential Property
shall not, however, include any information which (i) was publicly known and
made generally available in the public domain prior to the time of disclosure by
the disclosing party; (ii) becomes publicly known and made generally available
after disclosure by the disclosing party to the receiving party through no
action or inaction of the receiving party; (iii) is already in the possession of
the receiving party at the time of disclosure by the disclosing party as shown
by the receiving party's files and records immediately prior to the time of
disclosures; (iv) is obtained by the receiving party from a third party without
a breach of such third party's obligations of confidentiality; (v) is
independently developed by the receiving party without use of or reference to
the disclosing party's Confidential Property, as shown by documents and other
competent evidence in the receiving party's possession; or (vi) is required by
law to be disclosed by the receiving party, provided that the
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receiving party gives the disclosing party prompt written notice of such
requirement prior to such disclosure and assistance in obtaining an order
protecting the information from public disclosure.
4.8.2 DataStat will regard and preserve as confidential and as trade
secrets all of the Confidential Property. Except as may be required by law, any
governmental agency or under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), DataStat will not, directly or indirectly, communicate or
divulge to, or use for the benefit of itself or any other person, firm,
association or corporation, without the prior written consent of SPSS, any
Confidential Property. The Confidential Property shall remain the sole and
exclusive property of SPSS, and upon request by SPSS for any reason whatsoever,
DataStat shall promptly return any and all Confidential Property in its
possession or control to SPSS.
4.8.3 DataStat shall have no right, title or interest of any kind or
nature in any of the Confidential Property or any proceeds therefrom.
4.8.4 DataStat hereby further covenants and agrees that during the Non-
Compete Period (as hereinafter defined) DataStat will not directly or indirectly
(whether through a partnership of which DataStat is a partner or through any
other individual or entity in which DataStat has any interest, legal or
equitable, or otherwise), engage in the software business being acquired by SPSS
pursuant to this Agreement (limited to software for data entry, classification
and coding of open-ended responses in the framework of the survey process (the
"VStat Business")) as in existence or under development on the Closing Date, and
directly or indirectly (whether through a partnership of which DataStat is a
partner or through any other individual or entity in which DataStat has any
interest, legal or equitable, or otherwise) solicit or otherwise be involved
with any customers or clients of SPSS or of the VStat Business existing on the
date of acquisition of the VStat Business by SPSS in any transactions which are
in competition with the VStat Business at any time during the Non-Compete
Period, or directly or indirectly (whether through a partnership of which
DataStat is a partner or through any other individual or entity in which
DataStat has any interest, legal or equitable, or otherwise), assist any person
in the development, programming, servicing, maintenance, manufacture, sale,
licensing, distribution or marketing (including, without limitation, giving away
software) of statistical software and related products in competition with
products of the VStat Business in the United States of America or any other
country in which SPSS or any of its affiliates is doing business.
As used herein, the term "Non-Compete Period" shall mean a period of two
(2) years after the Closing Date.
4.8.5 During the Non-Compete Period, DataStat will not employ, solicit
for employment, or advise or recommend to any other person that they employ or
solicit for employment, any employee of SPSS.
DataStat further agrees that the limitations set forth herein (including,
without limitation, any time or territorial limitations) are reasonable and
properly required for the adequate
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protection of the VStat Business. In the event any such territorial or time
limitation is deemed to be unreasonable by a court of competent jurisdiction,
DataStat agrees to the reduction of the territorial or time limitation to the
area or period which such court shall have deemed reasonable. It is understood
and agreed that the covenants made by DataStat herein relating to
confidentiality shall survive the expiration or termination of this Agreement,
and that the covenants made by DataStat herein relating to non-competition shall
survive the Closing of this Agreement.
4.9 Equitable Relief. DataStat understands that a breach by it of any
provision of this Agreement may cause substantial injury to SPSS which may be
irreparable and/or in amounts difficult or impossible to ascertain, and that in
the event DataStat breaches any provision of this Agreement, SPSS shall have, in
addition to all other remedies available in the event of a breach of this
Agreement, the right to injunctive or other equitable relief. Further, DataStat
acknowledges and agrees that the restrictions and commitments set forth in this
Agreement are necessary to protect the legitimate interests of SPSS and are
reasonable in scope, area and time, and that if, despite this acknowledgment and
agreement, at the time of the enforcement of any provision of this Agreement a
court of competent jurisdiction shall hold that the period or scope of such
provision is unreasonable under the circumstances then existing, the maximum
reasonable period or scope under such circumstances shall be substituted for the
period or scope stated in such provision.
4.10 Verbal Agreements. After Closing, DataStat shall assist SPSS in
obtaining written contracts between SPSS and those customers referenced in
Schedule 2.12 as to which verbal agreements exist.
ARTICLE V
COVENANTS OF SPSS
SPSS covenants as follows:
5.1 Retention of Records. After the Closing, SPSS will retain all of
DataStat's books and records relating to the Assets which come into SPSS's
possession in accordance with SPSS's policies for retention of its own books and
records. SPSS will provide DataStat access to such books and records concerning
periods prior to the Closing in SPSS' possession upon reasonable notice, during
SPSS's regular business hours and at reasonable intervals.
5.2 Further Assurances. After the Closing, SPSS shall from time to time, at
the request of DataStat and without further cost or expense to DataStat, 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.
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ARTICLE VI
MUTUAL COVENANTS
Each of the parties hereto covenants as follows:
6.1 Confidentiality. Except as otherwise required by law or judicial or
administrative proceedings, and except for public announcements which, based on
the advice of counsel, are required by law, each of the parties agrees not to
(i) disclose any proprietary or confidential information of any other party, or
the terms of this Agreement (collectively, the "Confidential Information"), 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) or (ii) use any Confidential
Information for any purpose other than consummating the transactions
contemplated hereby and, with respect to SPSS, utilizing the Assets and
discharging the Assumed Liabilities after the Closing.
6.2 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 DataStat.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF DATASTAT
The obligation of DataStat to consummate the transactions contemplated
hereby is subject to the satisfaction on or prior to the Closing Date of the
following conditions:
7.1 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.
7.2 Performance. SPSS shall have performed in all material respects all
covenants and agreements required by this Agreement to be performed by it on or
before the Closing Date (including, without limitation, the closing deliveries
required by Article IX hereof).
7.3 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions shall have been made or obtained and all applicable
waiting periods shall have expired or been terminated.
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7.4 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 VIII
CONDITIONS TO OBLIGATIONS OF SPSS
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:
8.1 Representations and Warranties. The representations and warranties of
DataStat 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.
8.2 Performance. DataStat shall have performed in all material respects all
covenants and agreements required by this Agreement to be performed by it on or
before the Closing Date (including, without limitation, the closing deliveries
required by Article IX hereof).
8.3 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind required of any persons or governmental
authorities or private agencies in connection with the consummation of the
transactions contemplated by, and the performance by DataStat of its obliga-
tions 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.
8.4 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 DataStat of its
obligations under, this Agreement or which seeks other relief with respect to
any of such transactions or which could reasonably be expected to have a
materially adverse effect on the VStat business of DataStat. 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.
8.5 Legal Opinion. SPSS shall have received the written opinion, dated the
Closing Date, of counsel to DataStat, substantially in the form attached hereto
as Exhibit A.
8.6 Due Diligence Investigation. SPSS shall have completed a due diligence
investigation of the VStat business of DataStat, the results of which shall have
been satisfactory to SPSS in its sole discretion.
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8.7 Good Standing Certificates. DataStat shall cause to be delivered to
SPSS on December 24, 1999 evidence of the corporate existence and good standing
of DataStat.
8.8 Lien Terminations. If applicable, DataStat shall deliver to SPSS
termination statements or releases executed by a duly authorized representative
of each of any creditor which has a lien or encumbrance on any of the Assets, in
good form for filing, terminating or releasing all liens and encumbrances on the
Assets.
8.9 Delivery. At the Closing, the documents referenced in Article IX shall
be delivered to SPSS.
ARTICLE IX
CLOSING DELIVERIES
The following deliveries shall be made at the Closing:
9.1 Legal Opinion. DataStat shall cause to be delivered the written legal
opinion referred to in Section 8.5 hereof.
9.2 Consents. DataStat shall deliver to SPSS all consents and approvals
required in connection with the performance by DataStat of its obligations under
this Agreement and the consummation by DataStat of the transactions contemplated
hereby and thereby.
9.3 Closing Certificates. DataStat shall deliver, or cause to be delivered,
to SPSS such closing certificates and documents as SPSS and its counsel shall
reasonably request.
9.4 Instruments of Transfer. DataStat shall deliver the following bills of
sale and other instruments of conveyance, evidencing the transfer and assignment
of the Assets, in a form reasonably satisfactory to SPSS and its counsel:
(a) Bills of sale for all tangible personal property included in the
Assets;
(b) All certificates, and other material permits, licenses, approvals or
authorizations relating to VStat issued by any governmental authority that are
assignable; all Assets comprising intangible property; and all Contracts
included in the Assets that are assignable;
(c) Landlord consents, if any, required from landlords and/or sublandlords
with respect to the assignments referred to in subparagraph (b) above;
(d) Documents satisfactory to assign copyrights and trademarks relating to
VStat owned by DataStat to SPSS, such documents to be in recordable form;
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(e) Such other instruments of conveyance, transfer and assignment as may be
reasonably required to vest in SPSS all of DataStat's right, title and interest
in and to the Assets.
9.5 Charter; Good Standing Certificates. DataStat shall cause to be
delivered to SPSS DataStat's Certificates of Incorporation, as amended to the
Closing Date, certified by the proper Luxembourg authorities and evidence of
good standing as set forth in Section 8.8 hereof.
9.6 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,
including without limitation the documents listed as the responsibility of such
party pursuant to the closing memorandum prepared in connection with the closing
of the transactions contemplated by this Agreement, 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 X
SURVIVAL AND INDEMNIFICATION
10.1 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 for a period of two (2) years,
regardless of any investigation made by or on behalf of any party, except for
the representations and warranties contained in Section 2.27, which shall
survive indefinitely, and the representations and warranties contained in
Sections 2.10, 2.12, 2.23 and 2.24, or a representation or warranty which shall
prove to be untrue due to the fraud of DataStat, 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.
10.2 Indemnification by DataStat. (a) DataStat agrees to indemnify and hold
SPSS and its 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 set forth herein or in any related schedule,
or set forth in any closing certificate or other document entered into or
delivered in connection with this Agreement; (ii) any failure of title to, or
any liabilities, liens, security interests, mortgages, pledges, claims,
judgments, exceptions, reservations, charges, encumbrances or obligations on or
with respect to any of the Assets; (iii) any breach of any covenant or
obligation of DataStat contained in this Agreement, or set forth in any closing
certificate or other document entered into or delivered in connection with this
Agreement; (iv) any liabilities under any applicable bulk sales or transfer law;
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(v) any tax liability as a result of the acquisition of Assets and related
transactions hereunder; (vii) any fraudulent representation or intentional
misrepresentation on the part of DataStat; (viii) any failure to disclose under
this Agreement any material fact concerning DataStat known to DataStat; (vii)
any intentional or fraudulent breach by DataStat of any warranty,
representation, agreement, covenant or obligation made under this Agreement;
(ix) any material misrepresentation contained in, or material omission from, any
provisions of this Agreement or instruments furnished or to be furnished
hereunder; (x) any suit, action or investigation pending or threatened against
or affecting the Assets; (xi) any claim or cause of action by any minority
shareholder or employee of DataStat arising out of or related to any act or
omission of DataStat prior to the Closing or the transactions contemplated
hereby; and (xii) any tax liability or obligation asserted against SPSS and
arising out of or related to tax periods ending on or prior to the Closing Date
or DataStat's actions or omissions.
(b) Without limitation as to indemnification set forth in subparagraph (a)
hereof, DataStat agrees to defend, indemnify and hold SPSS and its affiliates
and the Representatives harmless from and against any and all claims and causes
of action by any third party, known or unknown, that arise out of or are related
to an actual or alleged infringement of any other person's intellectual property
rights by DataStat's software products or documentation, the Intellectual
Property or any action or omission by DataStat. SPSS shall cooperate in such
defense, at DataStat's sole cost and expense.
10.3 Undisclosed Liabilities. In the case of any undisclosed liability of
the DataStat, as described in Section 2.6 of this Agreement, that liability,
including any and all costs or expenses related thereto, is not assumed by SPSS
(although SPSS may treat such liability as a claim under Section 10.2 hereof, if
a claim with respect to such liability is also made against SPSS) and shall not
be paid by SPSS, unless SPSS is required under applicable law, or a court order
or decree, to make a payment in respect of such undisclosed liability. SPSS
shall give prompt written notice to DataStat of any such undisclosed liability,
when and to the extent it has actual knowledge of that liability, and DataStat
shall be solely responsible for the satisfaction of the liability.
10.4 Indemnification Procedure. (a) An indemnified party under Section 10.2
of this Agreement shall give prompt written notice to DataStat (when and to the
extent that the indemnified party has actual knowledge thereof) of any
condition, event or occurrence or the commencement of any action, suit or
proceeding for which indemnification may be sought, and DataStat, 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 DataStat, if, under applicable canons of ethics, joint
representation of DataStat and SPSS presents a conflict of interest. In any
event, if DataStat 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
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compromised or settled in any manner which might adversely affect the interests
of DataStat without the prior written consent of DataStat (which shall not be
unreasonably withheld); provided, however, that SPSS may settle any claim or
cause of action without DataStat's consent, but in such case DataStat shall not
be required to reimburse SPSS for its Losses. Notwithstanding anything in this
Section 10.4 to the contrary, DataStat 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. DataStat shall pay all expenses, including attorneys' fees, that may
be incurred by any indemnified party in enforcing the indemnity provided for
hereunder.
10.5 Indemnification by SPSS. SPSS agrees to indemnify and hold DataStat
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 and all of the Assumed Liabilities, except to the
extent that the Losses relate to a period prior to the Closing Date; (ii) any
breach of any representation or warranty of SPSS set forth in Article III hereof
or any related schedule, or set forth in any closing certificate or other
document entered into or delivered by SPSS in connection with this Agreement;
(iii) any breach of any covenant or obligation of SPSS contained in this
Agreement or in any other closing document; (iv) any fraudulent representation
or intentional misrepresentation on the part of SPSS; (v) any intentional or
fraudulent breach by SPSS, of any warranty, representation, agreement, covenant
or obligation made under this Agreement; (vi) any material misrepresentation
contained in, or material omission from, any provisions of this Agreement or
instruments furnished or to be furnished hereunder; and (vii) any liability or
obligation arising out of or related to the Assumed Liabilities after the
Closing Date or the use of the Assets after the Closing Date, unless the claim
or cause of action with respect thereto arises out of or is related to actions
or omissions of DataStat prior to the Closing Date.
10.6 Indemnification Procedure. (a) An indemnified party under Section 10.5
of this Agreement shall give prompt written notice to SPSS (when and to the
extent that the indemnified party has actual knowledge thereof) of any
condition, event or occurrence or the commencement of any action, suit or
proceeding for which indemnification may be sought, and SPSS, 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. In any event, if SPSS 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 in Section 10.5. 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 SPSS without the prior
written consent of SPSS (which shall not be unreasonably withheld).
Notwithstanding anything in this Section 10.6 to the contrary, SPSS shall not,
without the prior
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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. SPSS shall pay all expenses, including attorneys' fees, that may
be incurred by any indemnified party in enforcing the indemnity provided for in
Section 10.5.
10.7 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 10.1, if, prior to the time that any payment of
the Purchase Price is to be delivered, SPSS has learned of a breach of any
representation, warranty, covenant or agreement of DataStat 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.
ARTICLE XI
MISCELLANEOUS
11.1 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified and supplemented by written agreement of the parties.
11.2 Waiver of Compliance. Any failure of DataStat, 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 subsequent or other failure. Any waiver must be in writing and
duly executed by the appropriate parties.
11.3 Expenses. Whether or not the transactions contemplated by this
Agreement shall be consummated, the parties hereto agree that all fees and
expenses incurred by DataStat, 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
DataStat, and by SPSS, respectively, including, without limitation, all fees of
counsel and accountants.
11.4 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or by facsimile transmission (receipt
confirmed), one day after being sent by recognized overnight courier or delivery
service, freight prepaid, or five days after being mailed, certified or
registered mail, postage prepaid, return receipt requested:
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(a) If to DataStat to:
DataStat, S.A.
Rate d'Arlon 81
8083 Capellen
Luxembourg
Attention: Nicolas Poncelet
Telephone: +32-75-41-04-31
Facsimile: +32-27-36-65-49
with a copy to:
Nauta Dutilh
Chaussee de la Hulpe, 177/6
1170 Brussels
Belgium
Attention: Mr. Benoit Strowel
Telephone: +32-2-673-00-07
Facsimile: +32-2-672-28-54
or to such other person or address as DataStat shall furnish to SPSS in writing
by notice given in the manner set forth in (a) above.
(b) If to SPSS, to:
SPSS Inc.
233 South Wacker Drive
11th Floor
Chicago, Illinois 60606
Attention: Mr. Edward Hamburg
Telephone: (312) 329-3528
Facsimile: (312) 329-3558
with a copy to:
Ross & Hardies
150 North Michigan Avenue, Suite 2500
Chicago, Illinois 60601
Attention: Lawrence R. Samuels, Esq.
Telephone: (312) 558-1000
Facsimile: (312) 750-8600
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or to such other person or address as SPSS shall furnish to DataStat in writing
by notice given in the manner set forth above.
11.5 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 the parties may assign their rights and
obligations under this Agreement to any other entity wholly owned by them. If
such assignment shall be made, the assignee shall be entitled to all of the
rights and shall assume all of the obligations of either respective party
hereunder, provided, that the assignor shall remain liable for and guarantee the
performance of such entity's obligations under this Agreement.
11.6 Publicity. Neither DataStat nor SPSS shall make or issue, or cause to
be made or issued, any announcement or written statement concerning this
Agreement or the trans actions contemplated hereby for dissemination to the
general public, without the prior written consent of the other party. 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.
11.7 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.
11.8 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.
11.9 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.
11.10 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.
11.11 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.
- 24 -
<PAGE> 26
11.12 Employment Agreement. SPSS and Serge Luyens shall enter into an
employment agreement in a mutually acceptable form no later than January 1,
2000.
11.13 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.
- 25 -
<PAGE> 27
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:_______________________________________________
Name: Edward Hamburg
Title: Executive Vice President, Corporate
Operations, Chief Financial Officer
and Secretary
DATASTAT, S.A., a corporation organized
under the laws of Luxembourg
By:_______________________________________________
Name: Nicolas Poncelet
Title: Director and President of Board
By:_______________________________________________
Name: Christophe Poncelet
Title: Director
<PAGE> 1
EXHIBIT 10.27
1999 COMPENSATION PLAN
Mark Battaglia Focus on worldwide new sales revenue growth,
and worldwide Prentice Hall indirect sales.
Iran 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>
1998 1999
--------- ---------
<S> <C> <C> <C> <C>
Mark Battaglia
Base $ 110,000 $ 127,000
Bonus 110,000 115,500
--------- ---------
$ 220,000 7.3% $ 242,500 10.2%
Ian Durrell
Base $ 150,000 $ 150,000
Benefits 40,000 120,000
Commission 115,000 115,000
--------- ---------
$ 305,000 3.4% $ 385,000 26.2%
Edward Hamburg
Base $ 156,000 $ 156,000
Bonus 110,000 123,500
--------- ---------
$ 266,000 6.0% $ 279,500 5.1%
Jack Noonan
Base $ 242,500 256,500
Bonus 242,500 242,500
--------- ---------
$ 485,000 6.6% $ 499,000 2.9%
Susan Phelan
Base $ 120,000 127,000
Commission 120,000 127,000
--------- ---------
$ 240,000 9.1% $ 254,000 5.8%
Louise Rehling
Base $ 135,000 135,000
Bonus 105,000 117,000
--------- ---------
$ 240,000 6.7% $ 252,000 4.8%
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY ORGANIZATION
---------- ---------------
<S> <C> <C>
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
18. Quantime Ltd. England
19. Europe BV The Netherlands
20. Vento Software Inc. Florida
</TABLE>
<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, 333-10423 and 333-30460) 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 March 17, 2000, relating to the
consolidated balance sheets of SPSS Inc. and subsidiaries as of December 31,
1998 and 1999, 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, 1999, and the related consolidated
financial statement schedule which report appears in the December 31, 1999
annual report on Form 10-K of SPSS Inc.
/s/ KPMG LLP
Chicago, Illinois
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPSS INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 0 16,770
<SECURITIES> 0 0
<RECEIVABLES> 0 45,411
<ALLOWANCES> 0 2,510
<INVENTORY> 0 2,895
<CURRENT-ASSETS> 0 68,441
<PP&E> 0 41,750
<DEPRECIATION> 0 25,639
<TOTAL-ASSETS> 0 106,715
<CURRENT-LIABILITIES> 0 39,769
<BONDS> 0 0
0 0
0 0
<COMMON> 0 96
<OTHER-SE> 0 61,466
<TOTAL-LIABILITY-AND-EQUITY> 0 106,715
<SALES> 40,668 141,930
<TOTAL-REVENUES> 40,668 141,930
<CGS> 3,601 12,663
<TOTAL-COSTS> 3,601 12,663
<OTHER-EXPENSES> 28,890 104,772
<LOSS-PROVISION> 974 1,768
<INTEREST-EXPENSE> (13) 722
<INCOME-PRETAX> 8,068 24,123
<INCOME-TAX> 2,886 8,621
<INCOME-CONTINUING> 5,182 15,502
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,182 15,502
<EPS-BASIC> 0.54 1.61
<EPS-DILUTED> 0.51 1.52
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 0 16,297
<SECURITIES> 0 0
<RECEIVABLES> 0 36,921
<ALLOWANCES> 0 2,106
<INVENTORY> 0 2,871
<CURRENT-ASSETS> 0 58,534
<PP&E> 0 38,829
<DEPRECIATION> 0 22,932
<TOTAL-ASSETS> 0 94,303
<CURRENT-LIABILITIES> 0 46,126
<BONDS> 0 0
0 0
0 0
<COMMON> 0 95
<OTHER-SE> 0 44,222
<TOTAL-LIABILITY-AND-EQUITY> 0 94,303
<SALES> 34,544 123,472
<TOTAL-REVENUES> 34,544 123,472
<CGS> 2,523 10,048
<TOTAL-COSTS> 2,523 10,048
<OTHER-EXPENSES> 29,947 96,647
<LOSS-PROVISION> 423 724
<INTEREST-EXPENSE> (9) 754
<INCOME-PRETAX> 2,046 16,982
<INCOME-TAX> 3,401 8,404
<INCOME-CONTINUING> (1,355) 8,578
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,355) 8,578
<EPS-BASIC> (0.14) 0.90
<EPS-DILUTED> (0.14) 0.85
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPSS INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 0 $10,067
<SECURITIES> 0 0
<RECEIVABLES> 0 29,974
<ALLOWANCES> 0 1,776
<INVENTORY> 0 2,520
<CURRENT-ASSETS> 0 43,663
<PP&E> 0 28,557
<DEPRECIATION> 0 19,059
<TOTAL-ASSETS> 0 65,189
<CURRENT-LIABILITIES> 0 29,675
<BONDS> 0 0
0 0
0 0
<COMMON> 0 93
<OTHER-SE> 0 32,228
<TOTAL-LIABILITY-AND-EQUITY> 0 65,189
<SALES> 30,137 111,106
<TOTAL-REVENUES> 30,137 111,106
<CGS> 2,568 9,835
<TOTAL-COSTS> 2,568 9,835
<OTHER-EXPENSES> 22,484 95,210
<LOSS-PROVISION> 298 447
<INTEREST-EXPENSE> 62 210
<INCOME-PRETAX> 4,827 5,933
<INCOME-TAX> 1,582 3,189
<INCOME-CONTINUING> 3,245 2,744
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,245 2,744
<EPS-BASIC> 0.35 0.29
<EPS-DILUTED> 0.32 0.27
</TABLE>
