-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUMyNq0R0Yt4Y2+zxR0YjuhUEfaCFBMcoVjfBE+5Q2s3LHBgp7tcmgjZNfp9rRDx UNMiD79zyVnHn9Hw6YdJuA== 0000950137-98-003228.txt : 19980817 0000950137-98-003228.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950137-98-003228 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPSS INC CENTRAL INDEX KEY: 0000869570 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 362815480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22194 FILM NUMBER: 98688400 BUSINESS ADDRESS: STREET 1: 444 NORTH MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3123292400 MAIL ADDRESS: STREET 1: 444 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 10-Q 1 FORM 10-Q 1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1998 Commission file Number: 33-64732 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) 444 N. Michigan Avenue, Chicago, Illinois 60611 (Address of principal executive offices and zip code) Registrant's telephone number including area code: (312) 329-2400 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 --- --- As of August 10, 1998, there were 9,023,304 shares of common stock outstanding, par value $.01, of the registrant. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2 SPSS Inc. Form 10-Q QUARTER ENDED JUNE 30, 1998 INDEX
PART I - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Independent Auditors' Review Report 3 Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998 (unaudited) 4 Consolidated Statements of Income for the three and six months ended June 30, 1997 (unaudited) and 1998 (unaudited) 5 Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 1997 (unaudited) and 1998 (unaudited) 6 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 (unaudited) and 1998 (unaudited) 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 4. Submission of Matters to a Vote of Security-Holders 15 Item 6. Exhibits and Reports on Form 8-K 16
2 3 Item 1. FINANCIAL STATEMENTS Independent Auditors' Review Report The Board of Directors SPSS Inc.: We have reviewed the consolidated balance sheet of SPSS Inc. and subsidiaries as of June 30, 1998, and the related consolidated statements of income and comprehensive income for the three and six-month periods ended June 30, 1997 and 1998 and cash flows for the six-month periods ended June 30, 1997 and 1998. These consolidated financial statements are the responsibility of SPSS Inc.'s management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above, for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of SPSS Inc. and subsidiaries as of December 31, 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 18, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG Peat Marwick LLP Chicago, Illinois July 31, 1998 3 4 SPSS Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except for share data)
December 31, June 30, 1997 1998 ----------------- ----------------- (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 8,079 $ 10,010 Accounts receivable, net of allowances 27,872 29,450 Inventories 2,520 2,974 Prepaid expenses and other current assets 2,811 2,735 ----------------- ----------------- Total current assets 41,282 45,169 ----------------- ----------------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost: Land and building 1,700 1,727 Furniture, fixtures and office equipment 6,044 6,569 Computer equipment and software 18,032 20,316 Leasehold improvements 2,627 4,737 ----------------- ----------------- 28,403 33,349 Less accumulated depreciation and amortization 18,974 20,735 ----------------- ----------------- Net equipment and leasehold improvements 9,429 12,614 ----------------- ----------------- Capitalized software development costs, net of accumulated amortization 6,703 7,655 Goodwill, net of accumulated amortization 1,062 979 Deferred income tax assets 2,588 2,588 Other assets 1,681 1,638 ----------------- ----------------- $ 62,745 $ 70,643 ================= ================= CURRENT LIABILITIES: Notes payable $ 71 $ -- Accounts payable 5,013 6,459 Accrued royalties 482 442 Accrued rent 428 612 Other accrued liabilities 9,912 8,244 Income taxes and value added taxes payable 1,299 2,036 Customer advances 208 337 Deferred revenues 9,715 9,365 ----------------- ----------------- Total current liabilities 27,128 27,495 ----------------- ----------------- Deferred income taxes 1,936 1,936 Other noncurrent liabilities 1,219 1,217 STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 50,000,000 shares authorized; 8,811,644 and 9,015,553 shares issued and outstanding in 1997 and 1998, respectively 88 90 Additional paid-in capital 44,313 45,768 Accumulated other comprehensive income -- cumulative foreign currency translation adjustments (1,065) (1,066) Accumulated deficit (10,874) (4,797) ----------------- ----------------- Total stockholders' equity 32,462 39,995 ----------------- ----------------- $ 62,745 $ 70,643 ================= =================
See accompanying notes to consolidated financial statements. 4 5 SPSS Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (in thousands, except for share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 1997 1998 1997 1998 ------------- -------------- ------------- -------------- Net revenues: Desktop products $ 19,834 $ 21,544 $ 39,685 $ 42,159 Large System products 3,564 3,692 7,891 7,992 Other products and services 3,328 3,922 6,462 7,507 ------------- -------------- ------------- -------------- Net revenues 26,726 29,158 54,038 57,658 Cost of revenues 2,426 2,574 5,015 5,009 ------------- -------------- ------------- -------------- Gross profit 24,300 26,584 49,023 52,649 ------------- -------------- ------------- -------------- Operating expenses: Sales and marketing 13,613 15,259 26,295 29,540 Product development 4,251 4,787 8,596 9,741 General and administrative 3,203 2,221 6,469 4,005 Acquisition-related charges 1,065 -- 1,065 -- ------------- -------------- ------------- -------------- Operating expenses 22,132 22,267 42,425 43,286 Operating income 2,168 4,317 6,598 9,363 ------------- -------------- ------------- -------------- Other income (expense): Net interest income 101 59 210 86 Other income (expense) 6 (37) (16) (199) ------------- -------------- ------------- -------------- Other income (expense) 107 22 194 (113) ------------- -------------- ------------- -------------- Income before income taxes 2,275 4,339 6,792 9,250 Income tax expense 998 1,488 2,601 3,173 ------------- -------------- ------------- -------------- Net income $ 1,277 $ 2,851 $ 4,191 $ 6,077 ============= ============== ============= ============== Basic earnings per share $ 0.15 $ 0.32 $ 0.48 $ 0.68 ============= ============== ============= ============== Shares used in computing basic earnings per share 8,759,005 8,978,576 8,747,078 8,911,628 ============= ============== ============= ============== Diluted earnings per share $ 0.13 $ 0.30 $ 0.44 $ 0.64 ============= ============== ============= ============== Shares used in computing diluted earnings per share 9,623,522 9,582,100 9,618,610 9,552,675 ============= ============== ============= ==============
See accompanying notes to consolidated financial statements. 5 6 SPSS Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 1997 1998 1997 1998 -------------- ------------- -------------- ------------- Net income $ 1,277 $ 2,851 $ 4,191 $ 6,077 Other comprehensive income (loss): Foreign currency translation adjustment (100) (217) (726) (1) -------------- ------------- -------------- ------------- Comprehensive income $ 1,177 $ 2,634 $ 3,465 $ 6,076 ============== ============= ============== =============
See accompanying notes to consolidated financial statements. 6 7 SPSS Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, -------------------------- 1997 1998 ------------ ------------ Cash flows from operating activities: Net income $ 4,191 $ 6,077 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 3,141 3,101 Changes in assets and liabilities, net of effects of acquisitions: Deferred income taxes (107) - Accounts receivable (3,274) (1,578) Inventories (253) (454) Prepaid income taxes (1,824) - Accounts payable 970 1,446 Accrued royalties (45) (40) Accrued expenses (3,054) (1,436) Income taxes and value added taxes payable (1,493) 737 Other (1,799) (405) ------------ ------------ Net cash (used in) provided by operating activities (3,547) 7,448 ------------ ------------ Cash flows from investing activities: Capital expenditures, net (1,780) (4,935) Capitalized software development costs (1,639) (1,920) Net payments for acquisitions (934) (48) ------------ ------------ Net cash used in investing activities (4,353) (6,903) ------------ ------------ Cash flows from financing activities: Net borrowings (repayments) on notes payable 465 (71) Net proceeds from issuance of common stock 308 1,235 Income tax benefit from stock option exercises 300 222 ------------ ------------ Net cash provided by financing activities 1,073 1,386 ------------ ------------ Net change in cash and cash equivalents (6,827) 1,931 Cash and cash equivalents at beginning of period 13,491 8,079 ------------ ------------ Cash and cash equivalents at end of period $ 6,664 $ 10,010 ============ ============ Supplemental disclosures of cash flow information: Interest paid $ 101 $ 91 Income taxes paid 5,570 3,122 ============ ============
See accompanying notes to consolidated financial statements. 7 8 SPSS Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The accompanying unaudited interim consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods presented. All such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 1997, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 1998. Note 2 - Earnings Per Share In the fourth quarter of 1997, the Company 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 with basic and 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. Basic shares outstanding for each period were 8,759,005 for the three months ended June 30, 1997 and 8,978,576 for the comparable period in 1998 and 8,747,078 for the six months ended June 30, 1997 and 8,911,628 for the comparable period in 1998. Dilutive earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of unexercised common stock equivalents. Diluted shares outstanding for each period were 9,623,522 shares for the three months ended June 30, 1997 and 9,582,100 shares for the comparable period in 1998 and 9,618,610 for the six months ended June 30,1997 and 9,552,675 for the comparable period in 1998. 8 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following table sets forth the percentages that selected items in the Consolidated Statements of Income bear to net revenues:
Percentage of Net Revenues Percentage of Net Revenues ----------------------------- ----------------------------- Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 1997 1998 1997 1998 ------------- -------------- ------------- -------------- Statement of Income Data: Net revenues: Desktop products 74% 74% 73% 73% Large System products 14% 13% 15% 14% Other products and services 12% 13% 12% 13% ------------- -------------- ------------- -------------- Net revenues 100% 100% 100% 100% Cost of revenues 9% 9% 9% 9% ------------- -------------- ------------- -------------- Gross profit 91% 91% 91% 91% Operating expenses: Sales and marketing 51% 52% 49% 51% Product development 16% 16% 16% 17% General and administrative 12% 8% 12% 7% Acquisition-related charges 4% -- 2% -- ------------- -------------- ------------- -------------- Operating expenses 83% 76% 79% 75% ------------- -------------- ------------- -------------- Operating income 8% 15% 12% 16% Other income (expense): Net interest income -- -- 1% -- Other income (expense) -- -- -- -- ------------- -------------- ------------- -------------- Other income (expense) -- -- 1% -- ------------- -------------- ------------- -------------- Income before income taxes 8% 15% 13% 16% Income tax expense 3% 5% 5% 5% ------------- -------------- ------------- -------------- Net income 5% 10% 8% 11% ============= ============== ============= ==============
9 10 Comparison of Three Months Ended June 30, 1997 to Three Months Ended June 30, 1998. Net Revenues. Net Revenues were $26,726,000 and $29,158,000 in the three months ended June 30, 1997 and 1998, respectively, an increase of 9%. Revenues from products designed for desktop computers ("Desktop products") increased $1,710,000 (9%) over the corresponding period in 1997. In addition, revenues from annual license renewals of Desktop products increased by $960,000, reflecting a $463,000 increase in annual license renewals for SPSS for Windows. Revenues from products designed for mainframes, minicomputers, and UNIX workstations ("Large System products") increased 4% over the corresponding period in 1997 primarily due to new sales of SPSS software on mainframes domestically and new sales of Quantime software. Other products and services revenues increased 18% due to growth in training and consulting revenues domestically, as well as the return of payments from Prentice Hall related to their distribution agreement for certain SPSS products and student software. Revenues for the second quarter of 1998 were adversely effected by changes in foreign currency exchange rates. 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 was $2,426,000 and $2,574,000 in the three months ended June 30, 1997 and 1998, respectively, an increase of 6%. Such costs increased due to higher cost of goods sold resulting from increased sales. As a percentage of net revenues, cost of revenues remained constant at 9%. Sales and Marketing. Sales and marketing expenses were $13,613,000 and $15,259,000 in the three months ended June 30, 1997 and 1998, respectively, an increase of 12%. This increase was due to the expansion of the domestic and international sales organizations and increased media placement and promotional costs. These expenses were partially offset by changes in foreign currency exchange rates. As a percentage of net revenues, such expenses increased from 51% to 52%. Product Development. Product development expenses were $4,251,000 and $4,787,000 (net of capitalized software development costs of $319,000 and $511,000) in the three months ended June 30, 1997 and 1998, respectively, an increase of 13%. In the corresponding periods in 1997 and 1998, the Company's expense for amortization of capitalized software and product translations, included in cost of revenues, was $424,000 and $518,000, respectively. The increase in product development expenses was primarily due to the higher cost of development personnel and additions to the product development staff. As a percentage of net revenues, product development expenses remained constant at 16%. General and Administrative. General and administrative expenses were $3,203,000 and $2,221,000 in the three months ended June 30, 1997 and 1998, respectively, a decrease of 31%. Such expenses decreased primarily due to reduction in administrative staff and other efficiencies gained in connection with the acquisitions of the Quantime Limited and In2itive Technologies A/S entities. As a percentage of net revenues, general and administrative expenses decreased from 12% to 8%. 10 11 Acquisition-related Charges. Charges related to the acquisition of DeltaGraph software from DeltaPoint, Inc. in the three months ended June 30, 1997 totaled $1,065,000 and represented one-time write-offs of in-process technology and other acquisition related charges. Net Interest Income. Net interest income was $101,000 and $59,000 in the three months ended June 30, 1997 and 1998, respectively, a decrease of 42%. This unfavorable variance was primarily due to lower interest earned on short-term investments resulting from lower cash balances maintained in the three months ended June 30, 1998 compared to June 30, 1997. Other Income (Expense). Other income (expense) was $6,000 and ($37,000) in the three months ended June 30, 1997 and 1998, respectively. Such transactions consist of foreign currency transactions. Provision for Income Taxes. The provision for income taxes was $998,000 and $1,488,000 in the three months ended June 30, 1997 and 1998, respectively, reflecting effective tax rates of 43.9% and 34.3%, respectively. The rate difference reflects a higher effective tax rate for Quantime in 1997. Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30, 1998 Net Revenues. Net Revenues were $54,038,000 and $57,658,000 in the six months ended June 30, 1997 and 1998, respectively, an increase of 7%. Revenues from Desktop products increased 6% over the corresponding period in 1997 and revenues from Large System products increased 1%. Revenues from annual license renewals of Desktop products increased by $1,661,000 reflecting a $671,000 increase in annual license renewals for SPSS for Windows. Other products and services revenues increased 16% due to the increase in training and consulting revenues and revenues received from publications and student products. Revenues in the first six months of 1998 were adversely effected by changes in foreign currency exchange rates. Cost of Revenues. Cost of revenues were $5,015,000 and $5,009,000 in the six months ended June 30, 1997 and 1998, respectively. Such costs decreased due to lower publication cost of goods sold, lower fulfillment charges and lower royalties paid to third parties. As a percentage of net revenues, cost of revenues remained constant at 9%. Sales and Marketing. Sales and marketing expenses were $26,295,000 and $29,540,000 in the six months ended June 30, 1997 and 1998, respectively, an increase of 12%. This increase was due to the expansion of the domestic and international sales organizations and increased media placement and promotional costs. As a percentage of net revenues, sales and marketing expenses increased from 49% to 51%. Product Development. Product development expenses were $8,596,000 and $9,741,000 (net of capitalized software development costs of $723,000 and $1,027,000) in the six months ended June 30, 1997 and 1998, respectively, an increase of 13%. In the corresponding periods in 1997 and 1998, the Company's expense for amortization of capitalized software and product translations, included in cost of revenues, was $883,000 and $969,000, respectively. The increase 11 12 in product development expense was primarily due to the higher cost of development personnel and additions to the product development staff. As a percentage of net revenues, product development expense increased from 16% to 17%. General and Administrative. General and administrative expenses were $6,469,000 and $4,005,000 in the six months ended June 30, 1997 and 1998, respectively, a decrease of 38%. Such expenses decreased primarily due to reduction in the administrative staff and other efficiencies gained in connection with the acquisitions of the Quantime Limited and In2itive Technologies A/S entities. As a percentage of net revenues, general and administrative expenses decreased from 12% to 7%. Acquisition-related Charges. Charges related to the acquisition of DeltaGraph software from DeltaPoint, Inc. in the six months ended June 30, 1997 totaled $1,065,000 and represented one-time write-offs of in-process technology and other acquisition-related charges. Net Interest Income. Net interest income was $210,000 and $86,000 in the six months ended June 30, 1997 and 1998, respectively. The unfavorable variance was primarily due to lower interest earned on short-term investments resulting from lower cash balances maintained in 1998. Other Income (Expense). Other (expense) was ($16,000) and ($199,000) in the six months ended June 30, 1997 and 1998, respectively. Such transactions consist of foreign currency transaction losses. Provision for Income Taxes. The provision for income taxes was $2,601,000 and $3,173,000 in the six months ended June 30, 1997 and 1998, reflecting effective tax rates of 38.3% and 34.3%, respectively. The rate difference reflects a higher effective tax rate for Quantime in 1997. Liquidity and Capital Resources The Company had no long-term debt as of June 30, 1998 and held approximately $10,010,000 in cash and cash equivalents. Funds in the first six months of 1998 were used in operations and for payments related to the Company's acquisitions of Quantime Limited and In2itive Technologies A/S. Capital expenditures included, among other things, 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. In May 1998, the Company entered into a new loan agreement (the "Agreement") with American National Bank and Trust Company of Chicago ("American National") to replace its existing agreement with Bank of America, N.T.S.A. Under the Agreement, the Company 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 June 30, 1998, the Company had no borrowings under this line of credit. The Company's 12 13 Agreement with American National requires the Company to comply with certain specified financial ratios and tests, and, among other things, restricts the Company's ability to (i) incur additional indebtedness, (ii) create liens on assets, (iii) make investments, (iv) engage in mergers, acquisitions or consolidations where the Company is not the surviving entity, (v) sell assets, (vi) engage in certain transactions with affiliates and (vii) amend its organizational documents or make changes in capital structure. The Company anticipates that amounts available under its line of credit, existing sources of liquidity and cash flows generated from operations will be sufficient to fund the Company's operations and capital requirements for the foreseeable future. However, no assurance can be given that changing business circumstances will not require additional capital for reasons that are not currently anticipated or that the necessary additional capital will then be available to the Company on favorable terms, or at all. International Operations Revenues from international operations were 47% of total net revenues in the three months ended June 30, 1998 compared to 49% in the three months ended June 30, 1997. For the first six months, revenues from international operations were 50% compared to 54% in 1997. The portion of revenues attributable to international operations was negatively affected by changes in foreign currency exchange rates. Net corporate revenues increased 9% in the three months ended June 30, 1998 and 7% in the six months ended June 30, 1998 when compared to the three and six months ended June 30, 1997. Net of the effects of changes in foreign currency rates, the increases would have been approximately 12% for the quarter and 9% for the first six months. Safe Harbor "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Certain statements in this report constitute "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Such statements involve known and unknown risks and uncertainties which may cause the Company's actual results, performance or achievements, or industry results, to be materially different than any future results, performance or achievements expressed or implied in or by such forward-looking statements. By way of example and not limitation, known risks and uncertainties include the Company's ability to successfully integrate or improve the performance of acquired businesses, changes in market conditions or product demand, competition and currency fluctuations, changes in product release schedules and product acceptance. In light of these and other risks and uncertainties, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company that any future results, performance, or achievements will be attained. 13 14 Year 2000 Disclosure Many computer systems and applications currently use two digits to define the applicable year. As a result, date-sensitive systems may recognize the year 2000 as 1900 or not at all, which could cause miscalculations or system failures. SPSS has not completed its assessment of its computerized systems to determine their ability to correctly identify the year 2000, but currently believes that costs of addressing this issue will not have a material adverse impact on SPSS' financial position. However, if SPSS and third parties upon which it relies are unable to address this issue in a timely manner, it could result in a material financial risk to SPSS. In order to assure that this does not occur, SPSS plans to devote all resources required to resolve any significant year 2000 issues in a timely manner. For information about SPSS products and the year 2000, visit SPSS' Web Site at www.spss.com. 14 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings Currently there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject. Item 2. Changes in Securities Reference is made to the Company's filing on Form 8-A, filed on June 18, 1998, which discusses the Rights Agreement between the Company and Harris Trust and Savings Bank. Item 4. Submission of Matters to a Vote of Security-Holders The Company's Annual Meeting of Stockholders was held on June 17, 1998. The following persons were nominated and elected to serve as Directors of the Company for a term of three years or until their successors have been duly elected and qualified:
Nominee For Withheld --------- ----- ---------- Fredric Harman 6,840,125 173,107 Merritt Lutz 6,984,327 28,905
In addition, Norman Nie, Jack Noonan, Bernard Goldstein and Michael Blair remained as Directors of the Company after the Meeting The Second Amended and Restated 1995 Equity Incentive Plan was presented and adopted, at the Meeting, in accordance with the following vote:
Broker For Against Abstain Non-Votes ----- --------- --------- ----------- 4,862,783 777,981 18,452 1,354,016
Furthermore, the Company's appointment of KPMG Peat Marwick LLP to serve as its independent auditor for fiscal year 1998 was ratified, at the Meeting, in accordance with the following votes:
For Against Abstain ----- --------- --------- 7,007,153 5,486 593
15 16 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits (Note: Management contracts and compensatory plans or arrangements are underlined in the following list.)
Incorporation Exhibit by Reference Number Description of Document (if applicable) - ------- ----------------------- --------------- 3.1 Certificate of Incorporation of the Company * 3.2 3.2 By-Laws of the Company * 3.4 4.1 Loan Agreement between the Company and American National Bank and Trust Company of Chicago 4.2 Rights Agreement, dated June 18, 1998, between ** Exhibit 1 SPSS Inc. and Harris Trust and Savings Bank 10.1 Agreement between SPSS Inc. and Prentice Hall, Inc., dated April 1, 1998 15.1 Acknowledgment of Independent Certified Public Accountants Regarding Independent Auditors' Review Report 27.1 Financial Data Schedule 27.1a Financial Data Schedule (Restated)
- ------------------------------- * Previously filed with Amendment No. 2 to Form S-1 Registration Statement of SPSS Inc. filed on August 4, 1993 (Registration No. 33-64732) ** Previously filed with SPSS' Registration Statement on Form 8-A, filed on June 18, 1998 (b) Reports on Form 8-K There were no reports on Form 8-K filed by the Company during the fiscal quarter ended June 30, 1998 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPSS Inc. Date: August 14, 1998 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 undersigned, in his capacity as the principal financial officer of the Registrant. Date: August 14, 1998 By: /s/ Edward Hamburg ----------------------------------- Edward Hamburg Executive Vice-President, Corporate Operations and Chief Financial Officer 17 18 EXHIBIT INDEX
Exhibit Page Number Description of Document Number - ------- ----------------------- ------ 4.1 Loan Agreement 10.1 Agreement between SPSS Inc. and Prentice Hall, Inc. 15.1 Acknowledgement of Independent Certified Public Accountants Regarding Independent Auditors' Review Report 27.1 Financial Data Schedule 27.1a Financial Data Schedule (Restated)
18 EX-4.1 2 AGREEMENT 1 Exhibit 4.1 LOAN AGREEMENT AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO CREDIT FACILITY FOR SPSS, Inc. May 29, 1998 2 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS AND TERMS...........................................1 1.1 Definitions...........................................................1 1.2 GAAP.................................................................11 1.3 Borrower.............................................................11 1.4 Rules of Construction................................................11 2. LOANS - GENERAL TERMS..........................................12 2.1 Revolving Loan.......................................................12 2.2 Maximum Principal Amount.............................................12 2.3 Maturity Date; Termination of Loans..................................12 2.4 Authorized Disbursement of Proceeds..................................13 2.5 Borrowing Procedure..................................................13 2.6 Interest Rate........................................................13 2.7 Change of Laws.......................................................14 2.8 Regulatory Changes...................................................14 2.9 Advances Prior to LIBOR Rate Determination...........................15 2.10 Eurodollar Advances and Conversion...................................15 2.11 Interest Period Election.............................................15 2.12 Libor Brokerage Fee..................................................16 2.13 Usury................................................................16 3. PAYMENT TERMS..................................................16 3.1 Loan Account; Method of Making Payments..............................16 3.2 Interest Payments....................................................17 3.3 Principal Payments...................................................17
i 3 3.4 Place of Payment.....................................................17 3.5 Payment on Maturity and Prepayment...................................17 3.6 Advances to Constitute One Loan......................................17 3.7 Application of Payments and Collections..............................18 3.8 Monthly Statements...................................................18 4. LETTERS OF CREDIT..............................................20 4.1 Mechanics of Issuance................................................20 4.2 Letter of Credit Fees................................................20 4.3 Drawings and Reimbursement of Amounts Drawn Under Letters of Credit..21 4.4 Interest on Amounts Drawn Under Letters of Credit....................21 4.5 Obligations Absolute.................................................21 4.6 Indemnification; Nature of Bank's Dutie..............................22 4.7 Increased Costs and Taxes Relating to Letters of Credit..............23 4.8 Standard Letter of Credit Application................................24 5. GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS..............24 5.1 General Representations and Warranties...............................25 5.2 Reaffirmation of Warranties and Representations......................30 5.3 Survival of Warranties and Representations...........................31 6. COVENANTS AND CONTINUING AGREEMENTS............................31 6.1 Financial Covenants..................................................31 6.2 Affirmative Covenants................................................31 6.3 Negative Covenants...................................................35 6.4 Required Notices.....................................................36 6.5 Payment of Claims....................................................37 6.6 Year 2000 Compliance.................................................38 7. DEFAULT........................................................38
ii 4 7.1 Events of Default....................................................38 7.2 Remedies Cumulative..................................................40 7.3 Acceleration.........................................................40 7.4 Remedies.............................................................40 7.5 Injunctive Relief....................................................40 7.6 Advances During Unmatured Default....................................41 8. CONDITIONS PRECEDENT TO DISBURSEMENT...........................41 8. Checklist Items......................................................41 8.2 Necessary Actions....................................................41 8.3 Conditions Precedent.................................................41 9. GENERAL........................................................41 9.1 Compliance with ERISA................................................41 9.2 Costs................................................................42 9.3 Statement............................................................43 9.4 Notices..............................................................43 9.5 Amendments and Waivers...............................................44 9.6 No Implied Waiver; Remedies Cumulative...............................45 9.7 Severability.........................................................45 9.8 Incorporation of Other Agreements....................................45 9.9 Acceptance...........................................................46 9.10 Knowledge............................................................46 9.11 Waiver by Borrower...................................................46 9.12 Governing Law........................................................47 9.13 Waiver of Marshaling.................................................47 9.14 Limitation by Law....................................................47 9.15 Survival of Representations and Warranties...........................48
iii 5 9.16 Service of Process...................................................48 9.17 Representation by Counsel............................................48 9.18 Release of Bank......................................................48 9.19 Invalidated Payments.................................................48 9.20 Designated Person....................................................48 9.21 Headings.............................................................49 9.22 Counterparts.........................................................49 9.23 Fax Execution........................................................49 9.24 No Third Party Beneficiaries.........................................49 9.25 Domicile of Loans....................................................50 9.26 Entire Agreement.....................................................50 9.27 Construction.........................................................50 9.28 Successors and Assigns...............................................50 9.29 Waiver of Trial by Jury..............................................50
iv 6 LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement"), dated for reference purposes only as of May 29, 1998 by and between American National Bank and Trust Company of Chicago, ("Bank"), a national banking association with its principal place of business at 120 South LaSalle Street, Chicago, IL 60603, and SPSS, Inc., a Delaware corporation ("Borrower"), with its principal place of business at 233 South Wacker Drive, 11th Floor, Chicago, IL 60606. RECITALS: A. Borrower has requested and Bank has agreed to provide Borrower with a revolving credit facility in an amount not to exceed Ten Million Dollars ($10,000,000) (the "Loans"). B. Borrower intends to use the proceeds of the Loans for working capital and general corporate purposes. C. The parties deem it to be in their best interest to set forth their mutual agreements herein. NOW THEREFORE, in consideration of any loan, advance, extension of credit and/or other financial accommodation at any time made by Bank to or for the benefit of Borrower, and of the promises set forth herein, the parties hereto agree as follows: 1. DEFINITIONS AND TERMS. 1.1 Definitions. The following words, terms and/or phrases shall have the meanings set forth thereafter and such meanings shall be applicable to the singular and plural form thereof, giving effect to the numerical difference. (a) "Advance": any loan of monies made by Bank to Borrower pursuant to the terms of Section 2.1. (b) "Advance Date": with respect to each Advance, the Business Day upon which the proceeds of such Advance are to made available to Borrower. (c) "Affiliate": any Person (i) in which Borrower, one or more equity interest holders owning twenty-five percent (25%) or more of the total equity interest of Borrower, any Subsidiary, and/or any Parent, individually, jointly and/or severally, now or at any time or times hereafter, has or have an equity or other ownership interest equal to or in excess of twenty-five percent (25%) of the total equity of or other ownership interest in such Person; and/or (ii) which directly or indirectly through one or more intermediaries controls or is controlled by, or is under common control with Borrower; and/or (iii) any officer or director of Borrower or any Subsidiary. For purposes of this definition, 7 "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Stock, by contract or otherwise, and in any case shall include direct or indirect ownership (beneficially or of record) of, or direct or indirect power to vote, 25% or more of the outstanding shares of any class of capital stock of such Person (or in the case of a Person that is not a corporation, 25% or more of any class of equity interest). (d) "Agreement": this Loan Agreement, together with all amendments, modifications, extensions, supplements, restatements replacements and extensions hereto or hereof. (e) "and/or": one or the other or both, or any one or more or all, of the things or Persons in connection with which the conjunction is used. (f) "Assets": any and all real, personal and intangible property of a Person, including, without limitation, accounts, chattel paper, contract rights, letters of credit, instruments and documents, equipment, general intangibles, inventory, leases, options, licenses, and real property, whether now existing or hereafter acquired or arising. (g) "Bank": American National Bank and Trust Company of Chicago, a national banking association, and its successors and assigns. (h) "Borrower": SPSS, Inc., a Delaware corporation, and its permitted successors and assigns. (i) "Borrower's Liabilities": all obligations and liabilities of Borrower to Bank under the terms of this Agreement and the other Loan Documents, and all extensions and renewals or refinancing thereof, whether such obligation or liability is direct or indirect, secured or unsecured, joint or several, absolute or contingent, due or to become due, whether for payment or performance, whether heretofore arising, now existing or hereafter arising, however evidenced, created, incurred, acquired or owing and whether now contemplated or hereafter arising. Without limitation of the foregoing, such liability and obligations include the principal amount of Loans, interest, fees, indemnities or expenses under this Agreement and all other Loan Documents, and all extensions, renewals and refinancing thereof, whether or not such Loans were made in compliance with the terms and conditions of this Agreement or in excess of the obligation of Bank to lend. Borrower's Liabilities shall remain Borrower's Liabilities, notwithstanding any assignment or transfer or any subsequent assignment or transfer of any of the Borrower's Liabilities or any interest therein. (j) "Borrower's Obligations": all terms, conditions, warranties, representations, agreements, undertakings, covenants and provisions (other than Borrower's Liabilities) to be performed, discharged, kept, observed or complied with by Borrower to or for the benefit of Bank, under the terms of this Agreement and all other Loan Documents, and all extensions and renewals or refinancing thereof, whether such obligation is direct or indirect, secured or unsecured, joint or several, absolute or 2 8 contingent, due or to become due, whether heretofore arising, now existing or hereafter arising, however evidenced, created, incurred, acquired or owing and whether now contemplated or hereafter arising. Borrower's Obligations shall remain Borrower's Obligations, notwithstanding any assignment or transfer or any subsequent assignment or transfer of any of the Borrower's Obligations or any interest therein. (k) "Borrowing Request": a request for an Advance setting forth the information required pursuant to Section 2.5(a). (l) "Business Day": (i) For all purposes other than as covered by clause (ii) hereof, any day, other than a Saturday, Sunday, a day that is a legal holiday under the laws of the State of Illinois, or any other day on which banking institutions located in the State of Illinois are authorized or required by law or other governmental action to close; and (ii) with respect to determinations in connection with, and payments of principal and interest in Eurodollar Advances, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the London Interbank Eurodollar Market. (m) "Capitalized Lease" at any time any lease which is, or is required under GAAP to be, capitalized on the balance sheet of the lessee at such time, and "Capitalized Lease Obligation" of any Person at any time shall mean the aggregate amount which is, or is required under GAAP to be, reported as a liability on the balance sheet of such Person at such time as lessee under a Capitalized Lease. (n) "Charges": all national, Federal, state, county, city, municipal and/or other governmental (or any instrumentality, division, agency, body or department thereof, including without limitation the Pension Benefit Guaranty Corporation) taxes, levies, assessments, charges, liens, claims or encumbrances upon and/or relating to the Borrower's Assets, Liabilities, Borrower's business, Borrower's ownership and/or use of any of its Assets, Borrower's income and/or gross receipts and/or Borrower's ownership and/or use of any of its material Assets. (o) "Consolidated Group": Borrower and any Affiliates of Borrower required to file consolidated tax returns pursuant to Section 1502 of the Code. (p) "Costs": any and all reasonable costs and expenses (including, without limitation, the reasonable fees and expenses of any counsel, accountants, appraisers or other professionals) incurred by Bank at any time, in connection with: (i) the preparation, negotiation, execution and administration of this Agreement and all other Loan Documents; (ii) the preparation, negotiation and execution of any amendment or modification of this Agreement or the other Loan Documents; (iii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon Assets of Borrower; (iv) the exercise or enforcement of any of the rights of Bank hereunder; (v) any failure by Borrower to perform or observe any of the provisions hereunder; (vi) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Bank, Borrower or any other Person) in any way relating to this Agreement, 3 9 the other Loan Documents, Borrower's Liabilities, Borrower's affairs or any Affiliate's affairs in connection with which, if Bank is the plaintiff it makes a recovery or obtains any final order in favor of Bank, or if Bank is the defendant it is not found by a court of competent jurisdiction to be liable; (vii) any attempt to enforce any rights of Bank against Borrower or any other Person which may be obligated to Bank by virtue of this Agreement or the other Loan Documents in connection with which Bank makes a recovery or obtains a final order in Bank's favor; and (viii) performing any of the obligations relating to or payment of any of Borrower's Obligations hereunder in accordance with the terms hereof. (q) "Default Rate": interest at the rate of two percent (2%) per annum plus the Prime Interest Rate. (r) "Designated Person": any Person identified as a "Designated Person" on Borrower's Secretary's Certificate dated of even date herewith, as amended or superseded from time to time. (s) "Dollars" and "$": the lawful currency of the United States of America. (t) "Environmental Laws": any Federal, state or local law, rule, regulation, ordinance, order, code or statute applicable to Borrower or its property, in each case as amended (whether now existing or hereafter enacted or promulgated), controlling, governing or relating to the pollution or contamination of the air, water or land or concerning hazardous, special or toxic materials, wastes or substances, or any judicial or administrative interpretation of such laws, rules or regulations, including, without limitation, the Water Pollution Control Act (33 U.S.C. ss. 1251 et seq.), Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), Safe Drinking Water Act (42 U.S.C. ss. 3000(f) et seq.), Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), Clean Air Act (42 U.S.C. ss. 7401 et seq.), and Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.). (u) "Equipment Leases": all leases or similar agreements pursuant to which Borrower leases equipment. (v) "Eurodollar Advance": any portion of the Loan for which the interest rate is based on the Eurodollar Rate, whether or not Bank obtains Eurodollars equal to all or any portion of such Eurodollar Advance (w) "Eurodollar Rate": with respect to each Eurodollar Advance made at a time when Borrower's Liabilities are equal to or less than Two Million Five Hundred Thousand Dollars ($2,500,000), the rate equal to one and fifty one hundredths percent (1.50%) per annum plus the LIBOR Rate and with respect to each Eurodollar Advance made at a time when Borrower's Liabilities are more than Two Million Five Hundred Thousand Dollars ($2,500,000), the rate equal to one and seventy-five one hundredths percent (1.75%) per annum plus the LIBOR Rate. 4 10 (x) "Event of Default": the definition ascribed to this term in Section 7.1. (y) "Exchange Rate": means, on any date when an amount expressed in a currency other than Dollars is to be determined with respect to any Letter of Credit, the nominal rate of exchange of Bank in the New York foreign exchange market for the purchase by Bank (by cable transfer) of such currency in exchange for Dollars at 12:00 noon (Chicago time) one Business Day prior to such date (or otherwise in accordance with the normal practice of Bank), expressed as a number of units of such currency per one Dollar. (z) "Financials": those financial statements of Borrower, heretofore, concurrently herewith or hereafter delivered by or on behalf of Borrower to Bank, including but not limited to those financial statements and reports delivered by Borrower to Bank pursuant to Section 6.2(c). (aa) "GAAP": generally accepted accounting principles applied in the preparation of the financial statements of a Person with such changes thereto as: (i) shall be consistent with the then-effective principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors and successors, and (ii) shall be concurred in by the independent certified public accountants of recognized standing acceptable to Bank reviewing such financial statements of such Person. (bb) "Governmental Authority": any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal. grand jury or arbitrator, in each case whether foreign or domestic. (cc) "Guaranty Equivalent": any agreement, document or instrument pursuant to which a Person directly or indirectly guarantees, becomes surety for, endorses, assumes, agrees to indemnify the obligee of any other Person against, or otherwise agrees, becomes or remains liable (contingently or otherwise) for, such obligation, other than by endorsements of instruments in the ordinary course of business. Without limitation, a Guaranty Equivalent shall be deemed to exist if a Person agrees, becomes or remains liable (contingently or otherwise), directly or indirectly: (i) to purchase or assume, or to supply funds for the payment, purchase or satisfaction of, an obligation; (ii) to make any loan, advance, capital contribution or other investment in, or a purchase or lease of any property or services from, a 5 11 Person; (iii) to maintain the solvency of such Person; (iv) to enable such Person to meet any other financial condition; (v) to enable such Person to satisfy any obligation or to make any payment; (vi) to assure the holder of an obligation against loss; (vii) to purchase or lease property or services from such Person regardless of the non-delivery of or failure to furnish of such property or services; or (viii) in respect of any other transaction the effect of which is to assure the payment or performance (or payment of damages or other remedy in the event of nonpayment or nonperformance) of any obligation. (dd) "Indebtedness": with respect to any Person, at a particular time (without duplication): (i) all obligations on account of money borrowed by, or credit extended to or on behalf of, or for or on account of deposits with or advances to, such Person; (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments; (iii) all obligations of such Person for the deferred purchase price of property or services other than trade payables incurred in the ordinary course of business and on terms customary in the trade; (iv) all obligations secured by a Lien on property owned by such Person (whether or not assumed); and all obligations of such Person under Capitalized Leases (without regard to any limitation of the rights and remedies of the holder of such Lien or the lessor under such Capitalized Lease to repossession or sale of such property); (v) the face amount of all letters of credit issued for the account of such Person and, without duplication, the unreimbursed amount of all drafts drawn thereunder, and all other obligations of such Person associated with such letters of credit or draws thereon; (vi) all obligations of such Person in respect of acceptances or similar obligations issued for the account of such Person; (vii) all obligations of such Person under a product financing or similar arrangement; (viii) all obligations of such Person under any interest rate or currency protection agreement, interest rate or currency future, interest rate or currency option, interest rate or currency swap or cap or other interest rate or currency hedge agreement; and (ix) all obligations and liabilities with respect to unfunded vested benefits under any "employee benefit plan" or with respect to withdrawal liabilities incurred under ERISA by Borrower or any ERISA Affiliate to a "multiemployer plan", as such terms are defined under the Employee Retirement Income Security Act of 1974. (ee) "Indebtedness Instrument": any note, mortgage, indenture, chattel mortgage, deed of trust, loan agreement, hypothecation agreement, pledge agreement, security agreement, financing statement or other document, instrument or agreement evidencing or securing the payment of or otherwise relating to the borrowing of monies. Indebtedness Instruments shall include, but not be limited to the Loan Documents. (ff) "Interest Period": with respect to any Eurodollar Advance, the period commencing on the date such Eurodollar Advance is made or continued as a Eurodollar Advance, as the case may be, or the date on which a Prime Rate Advance is converted into such Eurodollar Advance as applicable, and ending one, two, three, six or twelve months thereafter, as Borrower may elect in the applicable Borrowing Request (or as Borrower shall be deemed to have elected, as applicable); provided that any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar 6 12 month, in which case such Interest Period shall end on the next preceding Business Day. No Interest Period shall terminate after the end of the Maturity Date. (gg) "Interest Rate": the Prime Interest Rate or the Eurodollar Rate, as determined in accordance with the provisions of Article 2. (hh) "Letter of Credit" or "Letters of Credit": any standby letters of credit issued or to be issued by Bank for the account of Borrower pursuant to Section 2.1(b) and Article 4. (ii) "Letter of Credit Usage": as at any date of determination, the sum of (i) the maximum aggregate undrawn amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of Credit honored by Bank and not theretofore reimbursed by Borrower (whether such reimbursement is out of the proceeds of Loans pursuant to Section 2.1(a) or otherwise). For purposes of this definition, any amount described in clause (i) or (ii) of the preceding sentence which is denominated in a currency other than Dollars shall be valued based on the applicable Exchange Rate for such currency as of the applicable date of determination . (jj) "LIBOR Breakage Fee": a fee equal to all losses (excluding loss of anticipated profits) costs, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Bank to fund or maintain the requested Eurodollar Advance, when, as a result of such failure on the part of Borrower or prepayment by Borrower (including, without limitation, any mandatory prepayment of principal and any prepayment resulting from the liabilities being declared due and payable in accordance with their terms hereof), interest on such Eurodollar Advance is not based on the applicable Eurodollar Rate for the requested Interest Period. (kk) "LIBOR Rate": for each Interest Period, a rate of interest, per annum, equal to: (i) the rate of interest determined by the Bank at which deposits in U.S. Dollars for the relevant Interest Period are offered based on information presented on the Telerate Screen as of 11:00 A.M. (London time) on the applicable Interest Rate Determination Date; provided that if more than one (1) offered rate appears on the Telerate Screen in respect of such Interest Period, the arithmetic mean of all such rates (as determined by the Bank) will be the rate used; provided further that if Telerate ceases to provide LIBOR quotations, such rate shall be the average rate of interest determined by the Bank at which deposits in U.S. Dollars are offered for the relevant Interest Period by banks or other financial institutions selected by Bank to banks in London interbank markets as of 11:00 A.M. (London time) on the applicable Interest Rate Determination Date, multiplied by (ii) the LIBOR Rate Reserve Percentage. The LIBOR Rate shall be adjusted automatically as of the effective date of each change in the LIBOR Rate Reserve Percentage. The LIBOR Rate shall be calculated in accordance with the foregoing whether or not Bank is actually required to hold reserves in connection with its eurocurrency funding or, if required to hold such reserves, is required to hold reserves at the LIBOR Rate Reserve Percentage. 7 13 (ll) "LIBOR Rate Reserve Percentage": for any day shall mean the percentage (expressed as a decimal, rounded upward to the nearest 1/100 of 1%), as determined in good faith by Bank (which determination shall be conclusive), which is in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) representing the maximum reserve requirement (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities") of a member bank in such system. (mm) "Lien": any mortgage, deed of trust, pledge, lien, hypothecation, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security. (nn) "Loan": any and all loans, advances, extensions of credit and/or other financial accommodations of any kind or nature made by Bank at any time to, for the benefit or at the request of Borrower pursuant to this Agreement and/or any of the other Loan Documents. (oo) "Loan Documents": this Agreement and the Other Agreements. (pp) "Loan Party": Borrower and every other Person who is a party to any one or more of the Loan Documents. (qq) "Maturity Date": May 29, 2001, or such earlier date as all of Borrower's Obligations shall be due and payable by acceleration or otherwise. (rr) "Maximum Principal Amount": the meaning set forth in Section 2.1(a). (ss) "Note": that certain revolving promissory note dated even date herewith, in the original principal amount of Ten Million Dollars ($10,000,000) made by Borrower payable to the order of Bank, as said note may hereafter be amended, restated, modified, supplemented, extended or replaced. (tt) "Notice of Issuance of Letter of Credit": means notice delivered by Borrower to Bank, in form and substance acceptable to Bank, together with any application for letter of credit that Bank requires in accordance with its customary practice for the issuance of letters of credit pursuant to Section 2.1(b) and Article 4 with respect to the proposed issuance of a Letter of Credit of the type requested (uu) "Organic Documents": with respect to any Person, its articles or certificate of incorporation, by-laws, shareholder's agreement, certificate of partnership, certificate of limited partnership, partnership agreement, articles of organization, operating agreement, or similar documents or agreements governing its management and the rights and privileges of its equity owners. 8 14 (vv) "Other Agreements": the Note, together with all other agreements, instruments and documents evidencing or securing the Loans or the transactions contemplated herein, including, without limitation, bond agreements, loan agreements, security agreements, guaranties, mortgages, deeds of trust, notes, applications and agreements for letters of credit, letters of credit, advances of credit, bankers acceptances, pledges, powers of attorney, consents, assignments, collateral assignments, contracts, notices, leases, financing statements and all other written matter heretofore, now and/or from time to time hereafter executed by and/or on behalf of Borrower, any other Loan Party and delivered to Bank, or issued by Bank upon the application and/or other request of, and on behalf of, Borrower. (ww) "Parent": any Person, now or at any time or times hereafter, owning or controlling (alone or with Borrower, any Subsidiary and/or any other Person) at least a majority of the issued and outstanding Stock or other ownership interest of Borrower or any Subsidiary (hereinafter defined). For purposes of this definition, "control" shall have the same meaning ascribed to this term in Section 1.1(c). (xx) "Permitted Liens": (i) any liens created in favor of Bank; (ii) liens for Charges which are not yet due and payable or which are expressly permitted pursuant to the terms hereof, or claims and unfunded liabilities under ERISA not yet due and payable or which are being contested in good faith; (iii) liens arising in connection with worker's compensation, unemployment insurance, old age pensions and social security benefits which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest any proceedings commenced for the enforcement of such lien shall have been duly suspended and such provision for the payment of such lien has been made on the books of Borrower (or the applicable Affiliate) as may be required by GAAP; (iv) liens incurred in the ordinary course of business to secure the performance of statutory obligations arising in connection with progress payments or advance payments due under contracts with the United States Government or any agency thereof entered into in the ordinary course of business; (v) any liens securing indebtedness of Borrower to any Persons in an aggregate amount less than $1,000,000; (vi) purchase money liens in connection with the acquisition of Assets, (vii) Liens granted solely upon Assets of Subsidiaries; and (viii) those liens disclosed on Schedule 5.1(g). (yy) "Person": any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, Federal, state, county, city, municipal or otherwise, including without limitation any instrumentality, division, agency, body or department thereof). (zz) "Prime Interest Rate": the prime or base rate of interest quoted from time to time by the American National Bank and Trust Company of Chicago as its base rate on corporate loans at large U.S. money center commercial banks on such day; provided that in the event the American National Bank and Trust Company of Chicago 9 15 ceases quoting a prime or base rate, then Prime Rate shall mean the per annum rate of interest quoted as the Bank Prime Loan Rate for the most recent weekday for which such rate is quoted in Statistical Release H.15 (519) published from time to time by the Board of Governors of the Federal Reserve System; provided further that in the event that both of the aforesaid indices cease to be published or to quote rates of the aforesaid types, the Prime Rate shall be determined from a comparable index chosen by Bank in good faith. The Prime Rate shall change effective on the date of the publication of any change in the applicable index by which the Prime Rate is determined. (aaa) "Prime Rate Advance": all or any portion of the Loan which is not a Eurodollar Advance. (bbb) "Records": all books, records, computer records, computer software, ledger cards, programs and other computer materials, customer and supplier lists, invoices, orders and other property and general intangibles at any time evidencing or relating to the Assets. (ccc) "SEC": the Securities and Exchange Commission. (ddd) "Securities": shall have the meaning ascribed to that term in the Securities Act of 1934. (eee) "Securities Laws": all applicable Federal and state securities laws and regulations promulgated pursuant thereto. (fff) "Stock": all shares, interests, participations or other equivalents (however designated) of or in a corporation, whether voting or non-voting, including, but not limited to, common stock, warrants, preferred stock, convertible debentures and all agreements, instruments and documents convertible, in whole or in part, into any one or more or all of the foregoing. (ggg) "Subsidiary": any Person at least a majority of whose issued and outstanding Stock or other ownership interests now or at any time hereafter is owned by Borrower. (hhh) "Tangible Net Worth": as determined at any time, the total of shareholders' equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock and subordinated indebtedness approved in writing by Bank) of a Person, less the sum of the total amount of any intangible assets, which, for purposes of this definition, shall include, without limitation, general intangibles, noncompetition agreements, consulting agreements, capitalized software costs, unamortized deferred charges and goodwill, all as determined in accordance with GAAP. (iii) "Unmatured Default": any event or condition which, with the passage of time or the giving of notice or both, would constitute an Event of Default hereunder. 10 16 1.2 GAAP. Except as otherwise defined in this Agreement or the other Loan Documents, all accounting terms used herein shall have the meaning ascribed to that term in accordance with GAAP. 1.3 Borrower. Whenever the context so requires, the use of "it" in reference to Borrower shall mean Borrower as defined above. 1.4 Rules of Construction. In this Agreement, unless a clear contrary intention appears: (a) the singular number includes the plural number and vice versa; reference to any gender includes each other gender; (b) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (c) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; provided that nothing in this clause is intended to authorize any assignment not otherwise permitted by this Agreement; (d) reference to any agreement, document or instrument means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, and reference to any note includes any note issued pursuant to any Loan Document in extension or renewal thereof and in substitution or replacement therefor; (e) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto: (f) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term: (g) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding;" and (h) reference to any law means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (i) The Article and Section headings herein are for convenience only and shall not affect the construction hereof. 11 17 2. LOANS - GENERAL TERMS 2.1 Revolving Loan/Letters of Credit. (a) Revolving Loan. Subject to the terms and conditions hereof, Bank shall make available to Borrower revolving Loans from time to time in an aggregate principal amount not to exceed at any time outstanding Ten Million Dollars ($10,000,000) (the "Maximum Principal Amount"). The Loans shall be further evidenced by the Note. The Loans shall be funded and interest shall accrue and be paid thereon in accordance with this Article 2. The entire unpaid principal balance plus accrued but unpaid interest on the Loans is due and payable on the Maturity Date. (b) Letters of Credit. In addition to the Loan made pursuant to this Section 2.1, Borrower may request, in accordance with the provisions of Article 4, from time to time and at any time prior to the Maturity Date, that Bank issue Letters of Credit for the account of and on behalf of Borrower for Borrower's working capital and general corporate purposes. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower herein set forth, Bank shall issue such Letters of Credit in accordance with the provisions of Section 4; provided that Borrower shall not request that Bank issue (and Bank shall not issue): (i) any Letter of Credit if, after giving effect to such issuance, the outstanding principal balance of the Loan plus the Letter of Credit Usage would exceed Ten Million Dollars ($10,000,000); and (ii) any Letter of Credit having an expiration date later than November 30, 2001, provided that Bank may agree that a Letter of Credit will automatically be extended for one or more successive periods. 2.2 Maximum Principal Amount. In the event that the outstanding principal balance of the Loan plus the Letter of Credit Usage exceeds the Maximum Principal Amount at any time, Borrower shall pay the amount of such excess to Bank, without notice or demand, and any amount not so paid shall bear interest at the Default Rate until paid. Borrower's obligation to pay principal pursuant to this Section 2.2 shall include (but not be limited to) an obligation to pay principal in an amount required to reduce the outstanding principal balance of the Loan plus the Letter of Credit Usage to an amount equal to or less than Ten Million Dollars ($10,000,000) at all times. This is an absolute obligation to pay to Bank the amount of the unpaid principal balance of the Loan plus the Letter of Credit Usage in excess of said Maximum Principal Amount, regardless of the cause of such excess. 2.3 Maturity Date; Termination of Loans. Bank's obligation to make any Advance to Borrower pursuant to the provisions hereof shall be in effect until the Maturity Date, unless sooner terminated ( a) by Bank upon the occurrence of an Event of Default, an Unmatured Default, or pursuant to the terms hereof or (b) by Borrower at any time upon no less than three (3) Business days' prior written notice, accompanied by payment in full all Borrower's 12 18 Liabilities then outstanding, including without limitation all principal and interest outstanding under Loans, together with all Costs. 2.4 Authorized Disbursement of Proceeds. Borrower hereby authorizes and directs Bank to disburse, for and on behalf of Borrower and for Borrower's account, the proceeds of any Loan to such Person as Borrower or any Designated Person shall direct. In addition to Advances of Loan proceeds made pursuant to a Borrowing Request made by Borrower from time to time, Borrower hereby irrevocably authorizes Bank to disburse proceeds of the Loan to pay: (a) interest which is accrued but unpaid and which is due and payable pursuant to the terms hereof and of the Note until the Loan is paid in full; and (b) for any and all Costs. The execution of this Agreement by Borrower shall, and hereby does, constitute an irrevocable direction and authorization to Bank so to disburse such funds described in this Section and to treat such Advances as money loaned pursuant to this Agreement and as indebtedness evidenced by the Note. No further direction or authorization from Borrower shall be necessary for Bank to make such Advances, and all such Advances shall satisfy, to the extent so disbursed, the obligations of Borrower hereunder and shall be evidenced by the Note. Notwithstanding anything to the contrary contained herein, Bank is under no duty or obligation to make such Advances and failure to make such Advances shall not be deemed to be a default by Bank or impair any of Bank's rights or remedies hereunder. 2.5 Borrowing Procedure. (a) In order to request an Advance, Borrower shall hand deliver or telecopy to Bank a duly completed Borrowing Request not later than 11:00 a.m. Chicago time: (i) at least two (2) Business Days before a proposed Eurodollar Advance and (ii) on the day of a proposed Prime Rate Advance. Each Borrowing Request shall be irrevocable and shall specify: (w) the number and location of the account to which funds are to be disbursed; (x) the date such Advance is to be made (which shall be a Business Day); (y) the amount of such Advance; and (z) if applicable, the information required to elect that such Advance be a Eurodollar Advance, in compliance with the provisions of Sections 2.10 and 2.11. (b) If Borrower in respect of an outstanding Eurodollar Advance shall not have delivered a Borrowing Request in accordance with Section 2.5(a) at least three (3) Business Days prior to the end of the Interest Period then in effect for such Eurodollar Advance and requesting that such Eurodollar Advance be refinanced, then Borrower shall (unless Borrower has notified the Bank not fewer than three (3) Business Days prior to the end of such Interest Period, that such Eurodollar Advance is to be repaid at the end of such Interest Period) be deemed to have delivered a Borrowing Request requesting that such Advance be refinanced with a new Advance of equivalent amount, and such new Advance shall bear interest at the Prime Interest Rate. 2.6 Interest Rate. The principal on the Note shall bear interest at the Prime Interest Rate or, to the extent Borrower has fully and timely complied with 13 19 the provisions of Sections 2.10 and 2.11, at the Eurodollar Rate. Unless Borrower has designated any Advance as a Eurodollar Advance in strict accordance with the terms hereof, Borrower's Liabilities shall bear interest at the Prime Interest Rate. Interest on all Prime Rate Advances and on all Eurodollar Advances shall be computed on a 360 day year for the actual number of days elapsed. After the occurrence of an Event of Default and during the continuation thereof, all Loans shall bear interest at the Default Rate. The unpaid principal balance of each Advance shall bear interest at the Interest Rate applicable thereto, determined by Bank in accordance with the provisions hereof, which determination shall be binding upon Borrower, absent manifest error. 2.7 Change of Laws. If Bank shall determine at any time after the date hereof that the adoption of any law, rule or regulation regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Bank's capital as a consequence of its obligations hereunder to a level below that which Bank could have achieved but for such adoption, change or compliance (taking into consideration Bank's policies with respect to capital adequacy) by an amount deemed by Bank to be material, then Borrower shall pay to Bank upon demand such amount or amounts, in addition to the amounts payable under any other provision of this Agreement or the Other Agreements, as will compensate Bank for such reduction. Determinations by Bank for purposes of this Section of the additional amount or amounts required to compensate Bank with respect to the foregoing shall be conclusive in the absence of manifest error. In determining such amount or amounts, Bank may use any reasonable averaging or attribution methods. Notwithstanding the foregoing, no amounts shall be payable by Borrower to Bank under the terms of this Section 2.7 if Liabilities are paid in full on or before ten (10) days after the date on which Bank shall have notified Borrower that amounts will be due under this Section 2.7. In the event of a prepayment pursuant to this Section 2.7, any LIBOR Breakage Fee otherwise payable pursuant to the terms of this Article 2 shall be waived by Bank and shall not be due or payable. 2.8 Regulatory Changes. Notwithstanding any other provision herein contained to the contrary, in the event that any regulatory change shall, in the reasonable determination of Bank, make it unlawful for Bank to make or to maintain any Eurodollar Advance or impose additional restrictions on Eurodollar Advances by Bank, then, the obligation of Bank to make or maintain any such Eurodollar Advance shall be terminated and all outstanding Eurodollar Advances shall automatically be converted to Prime Rate Advances. Bank shall, as promptly as practicable following any such determination, give Borrower a notice thereof that sets forth the basis for any such determination. After such 14 20 determination and while such determination is in effect, Bank shall not be required to make further Eurodollar Advances. 2.9 Advances Prior to LIBOR Rate Determination. Anything herein to the contrary notwithstanding, after notice but prior to making any requested Eurodollar Advance if, for any reason whatsoever, LIBOR Rates are not then being quoted for the requested Interest Period and in an amount approximating the amount of such Eurodollar Advance, Bank shall give Borrower prompt notice thereof and such Eurodollar Advance (if not yet made) shall be a Prime Rate Advance and no conversions into Eurodollar Advances shall be permitted and no new Eurodollar Advances shall be made so long as such condition exists. 2.10 Eurodollar Advances and Conversion. Provided no Event of Default or Unmatured Default has occurred and is continuing, Borrower shall have the option, subject to the other provisions of this Agreement, to: (i) request that any Advance or any portion of an Advance in a minimum amount of $500,000 and in multiples of $100,000, shall be deemed to be a Eurodollar Advance by giving telephonic notice to Bank at least two (2) Business Days prior to the day any Eurodollar Advance is to be made hereunder specifying the applicable Interest Period; provided that Borrower gives Bank written confirmation by facsimile of its telephonic notice on the same Business Day as such telephone notice is given with respect to such Eurodollar Advance, and (ii) convert on any Business Day, all or any portion of the outstanding principal amount of any Advance or any portion of an Advance, in a minimum amount of $500,000 and in multiples of $100,000, from one type of interest rate advance to another type of interest rate advance by giving at least two (2) Business Days prior telephonic notice to Bank thereof; provided that Borrower gives Bank written confirmation of its telephonic notice by facsimile on the same Business Day that such telephonic notice is given with respect to such conversion hereunder. Notwithstanding the foregoing: (y) no Eurodollar Advance may be converted into a Prime Rate Advance pursuant to this Section 2.10, except effective on the last day of the Interest Period applicable thereto, and (z) Borrower shall have no more than five (5) Eurodollar Advances with different interest periods at any one time. 2.11 Interest Period Election. Borrower may, by prior telephonic notice to Bank, elect the Interest Period(s) to be applicable to all or any portion of any Eurodollar Advance upon the expiration of the Interest Period then applicable to such Eurodollar Advance; provided that such notice is given to Bank at least two (2) Business Days prior to the expiration of the then Interest Period and that Borrower gives written confirmation by facsimile of its telephonic notice on the same Business Day that such telephonic notice is given. In the event Borrower does not make such an election with respect to all or any portion of a Eurodollar Advance for which the Interest Period is expiring, then, upon the expiration of such Interest Period, the portion of such Eurodollar Advance for which no such election has been made shall automatically convert to a Prime Rate Advance. 15 21 2.12 Libor Brokerage Fee. In the event of any prepayment of an Advance prior to the end of the then applicable Interest Period (by acceleration or otherwise) or in the event any Advance is not made after delivery of a Borrowing Request in accordance with the terms hereof, for any reason whatsoever, Borrower shall pay to Bank an amount equal to the LIBOR Breakage Fee. Any fee payable under this Sections 2.12 not paid when due shall bear interest at the Default Rate. 2.13 Usury. The provisions of this Section shall govern and control over any irreconcilably inconsistent provision contained in this Agreement or in any other document evidencing or securing the Loan. Bank shall never be entitled to receive, collect, or apply as interest hereon (for purposes of this Section, the word "interest" shall be deemed to include any sums treated as interest under applicable law governing matters of usury and unlawful interest), any amount in excess of the Highest Lawful Rate (hereinafter defined) and, in the event Bank ever receives, collects, or applies as interest any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and shall be treated hereunder as such; and, if the principal of this Agreement is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, Borrower and Bank shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Agreement, provided, that if this Agreement is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the Highest Lawful Rate, Bank shall refund to Borrower the amount of such excess and, in such event, Bank shall not be subject to any penalties provided by any laws for contracting for, charging or receiving interest in excess of the Highest Lawful Rate. "Highest Lawful Rate" shall mean the maximum rate of interest which Bank is allowed to contract for, charge, take, reserve or receive under applicable law after taking into account, to the extent required by applicable law, any and all relevant payments or charges hereunder. 3. PAYMENT TERMS 3.1 Loan Account; Method of Making Payments. Bank shall maintain a Loan Account on its books in which shall be recorded: (i) all Loans made by Bank to Borrower pursuant to this Agreement; (ii) all payments made by Borrower on all Loans; and (iii) all other appropriate debits and credits as provided in this Agreement, including, without limitation, all fees, charges, expenses and interest. All entries in the Loan Account shall be made in accordance with Bank's customary accounting practices, in effect from time to time. The failure of Bank to record any of the foregoing shall not in any way limit Borrower's obligations under this Agreement. 16 22 3.2 Interest Payments. (a) Accrued interest on all Prime Rate Advances shall be payable monthly, in arrears, on the last Business Day of each month during the term hereof, without notice or demand. (b) Accrued interest on any Eurodollar Advance shall not be due and payable monthly, but, instead, shall be payable in arrears on the last day, of the Interest Period applicable thereto. 3.3 Principal Payments. The unpaid principal balance, plus all accrued but unpaid interest shall be due and payable in full on the Maturity Date, without notice or demand. 3.4 Place of Payment. All payments to Bank hereunder and under the Other Agreements shall be payable in immediately available funds on or before 3:00 p.m. Chicago time at the principal place business of Bank, or such place or places as Bank may designate in writing to Borrower. All of such payments to Persons other than Bank shall be payable at such place or places as Bank may designate in writing to Borrower. Borrower's Liabilities will be payable as set forth in the Note, this Agreement, and the Other Agreements. 3.5 Payment on Maturity and Prepayment. On the Maturity Date, whether by acceleration or otherwise, Borrower shall pay to Bank, in full, in cash or other immediately available funds, the outstanding amount of the Loan. Each Prime Rate Advance may be repaid at any time, without premium or penalty by Borrower giving telephonic notice to Bank of such prepayment no later than 3:00 p.m. Chicago time on the date of such prepayment, confirmed in writing by facsimile of its telephonic notice on the same day. Each Eurodollar Advance may be prepaid on the last day of the Interest Period applicable thereto, but only by Borrower giving telephonic notice to Bank of such prepayment at least two (2) Business Days prior to the day of such prepayment, such notice confirmed in writing by facsimile on the day of the telephonic notice. Prepayment of any Eurodollar Advance during an Interest Period is expressly prohibited. In the event of an attempted prepayment of any Eurodollar Advance during any Interest Period, Bank, at Borrower's option, shall either: (i) hold such funds in a non-interest bearing cash collateral account to secure Borrower's Liabilities and to apply such funds to Borrower's Liabilities on the last day of the Interest Period, or (ii) apply such funds to Borrower's Liabilities, in which event Borrower shall pay to Bank a LIBOR Breakage Fee immediately upon demand therefor, and any amount not so paid shall bear interest at the Default Rate. 3.6 Advances to Constitute One Loan. All Advances, loans and any other financial accommodations provided pursuant to the terms hereof by Bank to Borrower shall constitute one loan and all indebtedness and obligations of 17 23 Borrower to Bank under this Agreement, the Other Agreements or otherwise shall constitute one general obligation. 3.7 Application of Payments and Collections. (a) Application of Payments. Bank shall have the right unilaterally (and without notice to or the consent of any Person) to allocate any and all payments which may be received by or tendered to Bank made by Borrower or any other Person at any time or from time to time and which relate in any way to the Loan or any other of Borrower's Liabilities then due and payable in any order of priority as Bank in its reasonable discretion shall elect, as follows: (i) to the payment of any Costs; (ii) to accrued but unpaid interest, penalties and late payment fees; and (iii) to principal; provided that Bank shall not allocate payments in a manner which would create a LIBOR Breakage Fee or other fee or penalty payable by Borrower which would not otherwise be imposed. Borrower (y) irrevocably waives the right to direct the application of payments and collections received by Bank from or on behalf of Borrower, and (z) agrees that Bank shall have the continuing exclusive right to apply and reapply any and all such payments and collections against the Loan or any other Borrower's Liabilities or Liabilities then due and payable in such manner as Bank may deem appropriate, notwithstanding any entry by Bank upon any of its books and records. (b) Reapplication of Payments. To the extent that Bank receives any payment on account of Borrower's Liabilities, and any such payment(s) and/or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, subordinated and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy act, state or federal law, common law or equitable cause, then, to the extent of such payment(s) or proceeds received, Borrower's Liabilities or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment(s) and/or proceeds had not been received by Bank and applied on account of the Borrower's Liabilities. 3.8 Monthly Statements. All Advances to Borrower and all other debits and credits provided for in this Agreement shall be evidenced by entries made by Bank in its internal data control systems showing the date, amount and reason for each such debit or credit. Until such time as Bank shall have rendered to Borrower written statements of account as provided herein, the balance in the Loan Account, as set forth on Bank's most recent statement, shall be rebuttably presumptive evidence of the amounts due and owing to Bank by Borrower. At Bank's option, Bank may render a monthly statement to Borrower setting forth the balance of the Loan Account, including principal, interest, costs, penalties, charges and other fees. Each such statement shall be subject to subsequent adjustment by Bank and Bank's right to reapply payments in accordance with Section 3.7(b), but shall, as to statements of principal and interest then due or having been paid, absent manifest errors or omissions, be presumed correct and binding upon Borrower and shall constitute an account stated unless, within thirty (30) days after receipt of any statement from Bank, Borrower shall deliver 18 24 to Bank written objection thereto, specifying the error or errors, if any, contained in such statement. 19 25 4. LETTERS OF CREDIT 4.1 Mechanics of Issuance. (a) Notice of Issuance. Whenever Borrower desires the issuance of a Letter of Credit, it shall deliver to Bank a Notice of Issuance of Letter of Credit no later than 10:00 A.M. (Chicago time) at least three (3) Business Days in advance of the proposed date of issuance. The Notice of Issuance of Letter of Credit shall specify (i) the proposed date of issuance (which shall be a Business Day), (ii) the face amount of the Letter of Credit, in Dollars (which amount, in the case of a drawing under a Letter of Credit which is denominated in a currency other than Dollars, shall be calculated by reference to the applicable Exchange Rate) as quoted by Bank to Borrower in connection with such Letter of Credit, (iii) the expiration date of the Letter of Credit, (iv) the name and address of the beneficiary, and (v) the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, including a precise description of any documents and the verbatim text of any certificates to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require Bank to make payment under the Letter of Credit; provided that, anything to the contrary in this Agreement notwithstanding, Borrower may, with Bank's consent, deliver a Notice of Issuance of Letter of Credit electronically to Bank, in which such event Borrower shall be deemed for all purposes hereunder and the other Loan Documents to have delivered a written Notice of Issuance of Letter of Credit hereunder. Borrower shall notify Bank prior to the issuance of any Letter of Credit in the event that any of the matters to which Borrower is required to certify in the applicable Notice of Issuance of Letter of Credit is no longer true and correct as of the proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit, Borrower shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Borrower is required to certify in the applicable Notice of Issuance of Letter of Credit. (b) Issuance of Letter of Credit. Upon satisfaction or waiver of the conditions set forth herein, Bank shall issue the requested Letter of Credit in accordance with Bank's standard operating procedures; provided that the Bank, in its sole and absolute discretion, may require changes in the text of the proposed Letter of Credit or any such documents or certificates, and that no Letter of Credit shall require payment against a conforming draft to be made thereunder on the same Business Day that such draft is presented if such presentation is made after 10:00 A.M. (Chicago time) on such Business Day; provided further that Bank shall not be obligated to issue any Letter of Credit denominated in a foreign currency which in the judgment of Bank is not readily and freely available. 4.2 Letter of Credit Fees. Borrower agrees to pay the following amounts to Bank with respect to Letters of Credit issued by Bank (a) an issuance fee equal to 1.5% of the aggregate maximum amount available to be drawn under such Letter of Credit for each 12 month period or portion thereof during which such Letter of Credit is outstanding and (b) all issuing costs of Bank. 20 26 4.3 Drawings and Reimbursement of Amounts Drawn Under Letters of Credit. (a) Responsibility of Bank With Respect to Requests For Drawings. In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, Bank shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. (b) Reimbursement by Borrower of Amounts Drawn Under Letters of Credit. In the event Bank has determined to honor a request for drawing under a Letter of Credit issued by it, Bank shall immediately notify Borrower, and Borrower shall reimburse Bank on or before the Business Day immediately following the date on which such drawing is honored (the "Reimbursement Date") in an amount in Dollars (which amount, in the case of a drawing under a Letter of Credit which is denominated in a currency other than Dollars, shall be calculated by reference to the applicable Exchange Rate on the date of such drawing) in same day funds equal to the amount of such drawing; provided that, anything contained in this Agreement to the contrary notwithstanding, (i) unless Borrower shall have notified Bank prior to 10:00 A.M. (Chicago time) on the date of such drawing that Borrower intends to reimburse Bank for the amount of such drawing with funds other than the proceeds of Loans made pursuant to Section 2.1(a), Borrower shall be deemed to have authorized Bank to make a Loan on the Reimbursement Date in an amount equal to the amount of such drawing, and (ii) subject to satisfaction or waiver of all conditions to the making of Loans, Bank shall, on the Reimbursement Date, make a Loan in the amount of such drawing, the proceeds of which shall be applied directly by Bank to reimburse Bank for the amount of such drawing. If for any reason proceeds of a Loan are not available to Borrower in accordance with Section 2.1(a) in amount of such drawing, Borrower shall reimburse Bank, on demand, an amount in same day funds equal to the excess of the amount of such drawing over the aggregate amount of such Loans, if any, which are so received. 4.4 Interest on Amounts Drawn Under Letters of Credit. Borrower agrees to pay to Bank, with respect to drawings made under any Letters of Credit issued by it, interest on the amount paid by Bank in respect of each such drawing from the date of such drawing to but excluding the date such amount is reimbursed by Borrower (including any such reimbursement out of the proceeds of Loans pursuant to Sections 2.1(a) and 4.3 at the Prime Interest Rate. 4.5 Obligations Absolute. The obligation of Borrower to reimburse Bank for drawings made under the Letters of Credit issued by it and to repay any Loans made by Bank or other obligations of Borrower pursuant to Sections 4.3 and 4.4 above shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the following circumstances: 21 27 (a) any lack of validity or enforceability of any Letter of Credit; (b) the existence of any claim, set-off, defense or other right which any Person may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), or whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Person and the beneficiary for which any Letter of Credit was procured); (c) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or accurate in any respect; (d) payment by Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; (e) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Person; (f) any breach of this Agreement or any other Loan Document by any party thereto; (g) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (h) the fact that an Event of Default or an Unmatured Default shall have occurred and be continuing; provided, in each case, that payment by Bank under the applicable Letter of Credit shall not have constituted willful misconduct of Bank or its officers, employees or agents under the circumstances in question (as determined by a final judgment of a court of competent jurisdiction). 4.6 Indemnification; Nature of Bank's Duties. 22 28 (a) Indemnification. In addition to amounts payable as provided in any other provision of this Section 4, Borrower hereby agrees to protect, indemnify, pay and save harmless Bank and its officers, employees or agents from and against any and all claims, demands, liabilities, damages, losses, and reasonable costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel) which Bank may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by Bank, other than as a result of the willful misconduct of Bank or its officers, employees or agents as determined by a final judgment of a court of competent jurisdiction or, subject to the following clause (ii), the wrongful dishonor by Bank of a proper demand for payment made under any Letter of Credit issued by it, or (iii) the failure of Bank to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Governmental Acts"). (b) Nature of Bank's Duties. As between Borrower and Bank, Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by Bank by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, Bank shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of Bank, including without limitation any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of Bank's rights or powers hereunder. (c) Limitation of Bank's Liability. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this Section 4.6, any action taken or omitted by Bank under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put Bank under any resulting liability to Borrower. 4.7 Increased Costs and Taxes Relating to Letters of Credit. Without limiting the other provision of Article 4, in the event that Bank shall determine 23 29 (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any change after the date hereof in any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by Bank with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-govern-mental authority (whether or not having the force of law): (a) subjects Bank (or its applicable lending or letter of credit office) to any additional tax (other than any tax on the overall net income of Bank) with respect to the issuing or maintaining of any Letters of Credit or the purchasing or maintaining of any participations therein or any other obligations under this Section 4, whether directly or by such being imposed on or suffered by Bank; (b) imposes, modifies or holds applicable any reserve (including without limitation any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by Bank; or (c) imposes any other condition on or affecting Bank (or its applicable lending or letter of credit office) regarding this Article 4 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to Bank of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any mount received or receivable by Bank (or its applicable lending or letter of credit office) with respect thereto; then, in any case, Borrower shall promptly pay to Bank, upon receipt if the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate Bank for any such increased cost or reduction in amounts received or receivable hereunder. Bank shall deliver to Borrower a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Bank under this Section 4.7, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 4.8 Standard Letter of Credit Application. Notwithstanding Section 9.8 below, if any provision contained in this Agreement is in conflict, or inconsistent with any provision of a Letter of Credit Application executed by Borrower and delivered to and accepted by Bank in connection with this Agreement, then the provision(s) of such Letter of Credit Application shall control. 5. GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS 24 30 5.1 General Representations, Warranties and Covenants. Except as disclosed in writing to Bank concurrently herewith, Borrower warrants and represents to and covenants with Bank that: (a) Organization. Borrower is and at all times hereafter shall be a corporation, duly organized and existing and in good standing under the laws of the State of Delaware and qualified or licensed to do business and in good standing in all states in which the laws thereof require Borrower to be so qualified and/or licensed and in which the failure to so qualify could have a material adverse effect on the business, Assets or condition (financial or otherwise) of Borrower or its ability to perform its obligations under the Loan Documents, including without limitation the States of Illinois and Delaware. (b) Entity Power. Borrower has corporate power and authority to own its property and to transact the business in which it is engaged or presently proposes to engage. Borrower has the corporate right, power and capacity and is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and the other Loan Documents to which it is a party, and all such action has been duly and validly authorized by all necessary corporate proceedings on its part. Without limitation of the foregoing, Borrower has the corporate power and authority to borrow pursuant to the Loan Documents to the fullest extent permitted hereby and thereby from time to time, and has taken all necessary corporate action to authorize such borrowings. (c) Violation of Organic Documents and Agreements. Neither the execution and delivery of this Agreement or any other Loan Document, nor consummation of the transactions herein or therein contemplated, nor performance of or compliance with the terms and conditions hereof or thereof, does or will (i) violate or conflict with any Law, or (ii) violate, conflict with or result in a breach of any term or condition of, or constitute a default under, or result in (or give rise to any right, contingent or otherwise, of any Person to cause) any termination, cancellation, prepayment or acceleration of performance of, or result in the creation or imposition of (or give rise to any obligation, contingent or otherwise, to create or impose) any lien upon any of property of Borrower pursuant to, or otherwise result in (or give rise to any right, contingent or otherwise, of any Person to cause) any change in any right, power, privilege, duty or obligation of Borrower under or in connection with (a) the Organic Documents of Borrower, (b) any agreement or instrument creating, evidencing or securing any Indebtedness or Guaranty Equivalent to which Borrower is a party or by which its or any of its properties (now owned or hereafter acquired) may be subject or bound, or (c) any other agreement or instrument or arrangement to which Borrower is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound. (d) Execution and Binding Effect. This Agreement and each other Loan Document to which Borrower is a party and which is executed and delivered or required to be executed and delivered on or before the date of which this representation and warranty is made, or deemed made, has been duly and validly executed and delivered by Borrower. This Agreement and each such other Loan Document constitutes, and each other Loan Document when executed and delivered by Borrower will constitute, the legal, 25 31 valid and binding obligations of Borrower, enforceable against Borrower in accordance with its terms. (e) Ownership (i) Schedule 5.1(e) sets forth all classes of stock of Borrower, the shareholders thereof (other than members of the general public), addresses of each such shareholder, number of shares owned and how the shares are held. (ii) Schedule 5.1(e) (as may be amended from time to time) sets forth all options, warrants and other rights to acquire Stock or other equity interests of Borrower, the nature of such option, warrant or right and the conditions for the exercise thereof. Bank hereby expressly consents to the transfer, issuance or conveyance of Stock and/or other Equity Interests of any Person in accordance with such options, warrants and rights. (iii) Borrower is not, and will not be, subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock. All of the outstanding shares of Borrower's capital stock are and at all times will be validly issued, fully paid and nonassessable. There are no statutory or contractual stockholders' preemptive rights with respect to Borrower's shares. Borrower has not violated and will not violate any applicable federal or state securities laws in connection with the offer, sale and issuance of any of its capital stock. There are no agreements between Borrower's stockholders with respect to the voting or transfer of Borrower's capital stock. (f) Fictitious Names. Each of the fictitious names, if any, used by Borrower during the five (5) year period preceding the date of this Agreement is set forth on Schedule 5.1(f) attached hereto (as amended from time to time) and none of such fictitious names are registered trademarks or tradenames with the U.S. Patent and Trademark Office, except as set forth in Schedule 5.1(f). (g) Liens/Title. Schedule 5.1(g) is a true, accurate and complete list of all Liens, relating to the Assets of Borrower on the date hereof. At all times following acquisition thereof, Borrower shall have good, indefeasible and merchantable title to and ownership of all of its Assets, free and clear of all liens, claims, security interests and encumbrances, except the Permitted Liens. (h) Financial Warranty. Borrower: (i) is now, and at all times hereafter shall be generally paying its debts as they mature, (ii) now owns, and shall at all times hereafter own, property which, at a fair valuation, is greater than the sum of its debt, and (iii) now 26 32 has, and shall have at all times hereafter, capital sufficient to carry on its business and transactions and all businesses and transactions in which it is about to engage. (i) Proceedings. There are no actions or proceedings which are pending or threatened against Borrower which might result in any material and adverse change in its business, operations, Assets, condition (financial or otherwise) or its ability to fully perform its obligations and liabilities under the Loan Documents to which it is a party. (j) Intentionally Deleted. (k) Adequate Licenses. Borrower possesses adequate Assets, licenses, patents, copyrights, trademarks and tradenames to continue to conduct its business as previously conducted by it and as contemplated in the foreseeable future except such licenses, patents, copyrights, trademarks and trade names the failure of which to obtain could not have a material adverse effect on Borrower's business, operations, Assets, condition (financial or otherwise) or ability to perform its obligations under those Loan Documents to which it is a party. (l) Government Permits; Consents. (i) Borrower has and is in good standing with respect to all governmental permits, certificates, consents and franchises necessary to continue to conduct its business as previously conducted prior to the date hereof and to own or lease and operate its properties as now owned or leased by it. None of said permits, certificates, consents or franchises contain any term, provision, condition or limitation more burdensome than such as are generally applicable to Persons engaged in the same or similar business as the Borrower. (ii) Except for the actions of Borrower's Board of Directors authorizing this Agreement and the related transactions and documents, Borrower does not require the approval, consent or waiver by any other Person (including but not limited to shareholders, partners, members, equity owners, holders of Indebtedness Instruments, or any owner of any lien upon the Assets of any one or more of them or their Affiliates) for the consummation of the transactions contemplated herein, including but not limited to the borrowing of the Loan, and the payment and performance of all Borrower's Liabilities and Borrower's Obligations. (m) Charge; Restrictions. To the best of Borrower's knowledge, Borrower is not a party to (nor are any of its Assets otherwise subject to) any contract or agreement or subject to any Charge restriction, judgment, decree or order materially and adversely affecting its business, property, assets, operations or condition, financial or otherwise. 27 33 (n) Compliance with Laws. To the best of Borrower's knowledge, Borrower, is not and will not be during the term hereof, in violation of any applicable statute, regulation, order or ordinance of the United States of America, of any state, city, town, municipality, county or of any other jurisdiction, or of any agency thereof, including the Federal Reserve Board, in any respect materially and adversely affecting its business, operations, Assets, or condition (financial or otherwise) or its ability to perform its obligations under those Loan Documents to which it is a party. (o) Compliance with Indebtedness Instruments. Borrower is not and at no time during the term hereof shall be in default under any Indebtedness Instrument. (p) Financials. The Financials heretofore delivered by Borrower, or any other Loan Party to Bank, fairly and accurately present the assets, liabilities and financial conditions and results of operations of Borrower, and such other Persons described therein as of and for the periods ending on such dates and have been prepared in accordance with generally accepted accounting principles and such principles have been applied on a basis consistently followed in all material respects throughout the periods involved. (q) Taxes. All tax and information returns required to be filed by or on behalf of Borrower have been properly prepared, executed and filed. All taxes, assessments, fees and other Charges upon Borrower, or upon any of its properties, incomes, sales or franchises which are due and payable have been paid other than those not yet delinquent and payable without premium or penalty, and except for those being diligently contested in good faith by appropriate proceedings, and in each case adequate reserves and provisions for taxes have been made on the books of Borrower. The reserves and provisions for taxes on the books of Borrower are adequate for all open years and for its current fiscal period. Borrower does not know of any proposed additional assessment or basis for any material assessment for additional taxes (whether or not reserved against). The federal, state and local income tax liabilities of Borrower have been finally determined by the Internal Revenue Service and other relevant taxing authorities, or the time for audit has expired, for all fiscal periods ending on or prior to December 31,1994 and all such liabilities (including all deficiencies assessed following audit) have been satisfied. (r) No Adverse Change. There has been no material and adverse change in the Assets, liabilities or financial condition of Borrower since the date of the Financials. (s) No Indebtedness. Except as disclosed in the most recent Financials heretofore delivered by Borrower to Bank or otherwise disclosed in writing to Bank, none of Borrower nor any Affiliate has any Indebtedness (except for Indebtedness arising in the ordinary course of its business since the dates reflected in the Financials that is not Indebtedness for borrowed money), has guaranteed or entered into any Guaranty Equivalent (other than as a result of the endorsement of any instrument of items of payment for deposit or collection in the ordinary course of business or as otherwise expressly permitted pursuant to the terms hereof) the obligations of any Person, and there are no actions or proceedings which are pending or, to the best of Borrower's knowledge, 28 34 threatened against Borrower or any Affiliate which, in any of the foregoing cases, are reasonably likely to result in any material adverse change in its financial condition or materially adversely affect its assets or its ability to fully perform and satisfy its obligations under the Loan Documents. (t) Intentionally Deleted. (u) No Liability on Bank. The execution, delivery and performance by Borrower and each other Loan Party of this Agreement and/or the Other Agreements will not, except to the extent caused by independent actions of Bank, impose on or subject Bank to any liability, whether fixed or contingent, in respect of any Environmental Law relating to the operation of Borrower's business. Bank's exercise of any of the rights or remedies described in this Agreement or in any of the Other Agreements shall not constitute a breach of any provision contained in any agreement, instrument or document concerning the assignment or license of, or the payment of royalties for, any patents, patent rights, tradenames, trademarks, trade secrets, know-how, copyrights or any other form of intellectual property now or at any time or times hereafter protected as such by any applicable law. (v) Affiliates. Schedule 5.1(v) attached hereto is a true, accurate and complete schedule of Borrower's Affiliates, together with a description of Borrower's relationship to each such Affiliate. Borrower is not a partner (general or limited) of any partnership, a party to any joint venture or owns (beneficially or of record) any equity or similar interest in any Person (including but not limited to any interest pursuant to which Borrower has or may in any circumstance have an obligation to make capital contributions to, or be generally liable for or on account of the liabilities, acts or omissions of such other Person). (w) Real Property; Environmental Issues. Borrower does not now own and at no time in the last five (5) years has owned, any real property. Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment with respect to any real property. (x) Investment Company Act and Public Utility Holding Company Act.. Borrower is not (a) an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended, (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (c) subject to any other law which purports to restrict or regulate the ability to borrow money or obtain credit. (y) Intellectual Property. Attached hereto as Schedule 5.1(y) is a true, accurate and complete list of all United States and foreign patents, trademarks, tradenames, service marks, copyrights and applications therefor owned and or used by Borrower (the "Intellectual Property Rights"). Except as set forth on Schedule 5.1(y), 29 35 the Intellectual Property Rights are owned by Borrower or Borrower will own or possess the royalty-free licenses or other rights to use all Intellectual Property Rights. To the best of Borrower's knowledge, none of the products or processes used in Borrower's business conflicts with or infringes or has infringed upon any patents, trademarks, trade names, service marks or copyrights of any other person or entity; and to the best of Borrower's knowledge, Borrower has the full right to conduct its business as heretofore conducted by Borrower, without incurring license fees or royalty or other payment obligations to any person or entity in respect of the Intellectual Property Rights. (z) WARN. Borrower is now, and at all times during the term or any renewal term hereof Borrower shall be, in compliance with the Worker's Adjustment and Retraining Notification Act. (aa) REG U et al. Borrower warrants and represents to Bank that Borrower shall use the proceeds of all Loans solely to and for general corporate purposes and consistently with all applicable laws and statutes. Borrower's use of the proceeds of any Loan made by Bank are legal and proper uses (duly authorized by all requisite action of the board of directors of Borrower), in accordance with applicable laws, rules and regulations, as in effect from time to time. Borrower's execution and delivery of this Agreement or any of the other Loan Documents and Borrower's conduct of its business and use of proceeds of the Loan does not and will not directly or indirectly violate or result in a violation of the Securities Exchange Act of 1934, as amended, or Regulations U, G, T and X of the Board of Governors of the Federal Reserve System (12 CFR 221, 207, 220 and 224, respectively). Borrower further warrants and represents to Bank and covenants with Bank that Borrower is not in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loans will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. (bb) Fiscal Year End. Currently and at all times when Borrower's Liabilities are outstanding, Borrower's fiscal year will end December 31. (cc) Disclosure. To the best knowledge of Borrower, neither this Agreement nor any Loan Document nor any statement, list, certificate or other document or information, nor any schedules to this Agreement or any other Loan Document, delivered or to be delivered to Bank, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make statements contained herein or therein, in light of the circumstances in which they are made, not misleading. 5.2 Reaffirmation of Warranties, Representations and Covenants. Each request for an Advance made by Borrower pursuant to this Agreement or the Other Agreements shall constitute (i) an automatic warranty and representation by Borrower to Bank that there does not then exist an Event of Default or an Unmatured Default, and (ii) a reaffirmation as of the date of said Borrowing Request that each and every warranty and representation and covenant of 30 36 Borrower contained in this Article 5 and other sections of this Agreement and in the Other Agreements, is true and correct in all material respects, except where such representation or warranty specifically relates to an earlier date. 5.3 Survival of Warranties and Representations. Borrower covenants, warrants and represents to Bank that all representations and warranties of Borrower contained in this Agreement and the Other Agreements shall be true on the date hereof, and shall survive the execution, delivery and acceptance hereof and thereof by the parties thereto and the closing of the transactions described herein and therein or related hereto or thereto. Unless expressly limited by the terms of this Article 5, each representation and warranty shall be deemed to be remade concurrently with each Advance hereunder. 6. COVENANTS AND CONTINUING AGREEMENTS. 6.1 Financial Covenants. Borrower shall, at all times during the term hereof, measured quarterly: (a) maintain a ratio of total liabilities (less deferred revenue) to Tangible Net Worth of less than 1.35 to 1; (b) maintain a ratio of current assets to current liabilities of greater than 1.5 to 1; and (c) maintain Tangible Net Worth greater than the applicable amount below from and after each of the dates identified below: May 29, 1998 $19,000,000 January 1, 1999 $20,000,000 January 1, 2000 $21,000,000 January 1, 2001 $22,000,000 All covenants set forth herein shall be measured quarterly, upon receipt of the statements delivered to Bank pursuant to Section 6.2(c)(iii) or the annual consolidated financial statements delivered in accordance with Section 6.2(c)(i), if available. 6.2 Affirmative Covenants. Borrower warrants and represents to and covenants with Bank that Borrower shall, unless Bank otherwise consents thereto in writing, do all of the following during the term hereof: (a) Representation and Warranties. To the extent any representation or warranty contained herein refers to an event or state of facts which exists on the date hereof and shall exist during the term hereof or at the time of each Advance hereunder, said representation or warranty shall be deemed to be an affirmative covenant of Borrower to take all actions, omit to take such actions or cause such actions to be taken which shall 31 37 be necessary or desirable to cause such representation or warranty to be true and accurate at all times during the term hereof. To the extent any representation, warranty or covenant herein (including the negative covenants set forth in Section 6.3) relates to any other Person, it shall be deemed to be a covenant of Borrower to cause such Person to comply with or otherwise perform such representation, warranty or covenant, whether or not Borrower has the legal, corporate or other ability to cause such compliance or performance. (b) Corporate Existence. Borrower shall preserve and maintain its corporate existence, rights, privileges and franchises in the jurisdiction of its incorporation or organization, and qualify and remain qualified to do business in each other jurisdiction in which such qualification is necessary in view of its business or operations, except such jurisdictions where failure to qualify would not have a material adverse effect on Borrower's, business, Assets, operations, condition (financial or otherwise) or ability to perform its obligations under the Loan Documents. (c) Records; Reports. Borrower covenants with Bank that Borrower shall keep Records and prepare financial statements and shall cause to be furnished to Bank the following (all of the foregoing and following which comprise financial statements are to be kept and prepared in accordance with GAAP applied on a basis consistent with the Financials unless Borrower's certified public accountants concur in any changes therein and such changes are consistent with then applicable GAAP). (i) As soon as available but not later than ninety (90) days after the close of each fiscal year of Borrower, a balance sheet of Borrower as at the end of such year, the related statement of operations (including income statement) for such year and a reconciliation of capital for such year, all certified on an unqualified basis by a firm of independent certified public accountants selected by Borrower and acceptable to Bank, in Bank's sole and absolute discretion. (ii) As soon as available but not later than forty-five (45) days after the end of each calendar quarter hereafter, a balance sheet of Borrower as at the end of, and the related statement of operations for, both such calendar quarter and the portion of such Borrower's fiscal year then elapsed, all reviewed by a firm of independent certified public accountants selected by Borrower and acceptable to Bank, in Bank's sole and absolute discretion. (iii) Concurrently with delivery to its shareholders, copies of all financial and other information delivered by Borrower to such Persons, including without limitation, its proxy statements and annual reports to stockholders. Concurrently with delivery to the SEC by Borrower, copies of all reports filed by Borrower with the SEC, including without limitation, all reports on Forms 10K, 10Q or 8K 32 38 promulgated under the Securities Exchange Act of 1934, as amended. (iv) Concurrently with delivery of the Financials required pursuant to Sections 6.2(c)(i) and (ii) hereof, a certificate executed by the President, Treasurer or Chief Financial Officer of Borrower that such Financials present fairly the financial position and results of operations of Borrower for the applicable period, and that no Event of Default or Unmatured Default has occurred and is continuing (including but not limited to compliance with the covenants set forth in Section 6.1) or if an Event of Default or Unmatured Default has occurred, setting forth the details of such event and the action which Borrower proposes to take with respect thereto. (v) In satisfaction of Borrower's obligation to deliver to Bank the items identified at (i), (ii) and (iii) above, Borrower's executive officer's certificate to be delivered to Bank pursuant to (iv) above may itemize those Financials, shareholder information and SEC filings which at the relevant dates are available in full text on the world wide web; provided that such executive officer's certificate shall identify the world wide web location of all documents that are not SEC filings available in full text in a timely fashion in the EDGAR database located at www.sec.gov. All of the foregoing information that Bank expressly requests, together with all other information required to be delivered to Bank pursuant to (I), (ii) and (iii) above, shall be delivered to Bank by Borrower in paper form. (vi) Such other data and information (financial and otherwise) as Bank, from time to time, reasonably may request bearing upon or related to Borrower's financial condition and/or results of operations. (d) Insurance. Borrower, at its sole cost and expense, shall keep and maintain: (i) policies of insurance against all hazards and risks ordinarily insured against by others in similar business or as reasonably requested in writing by Bank; and (ii) public liability insurance relating to Borrower's ownership and use of its Assets. All such policies of insurance shall be in form, with insurers and in such amounts as may be satisfactory to Bank. Promptly upon Bank's request, Borrower shall deliver to Bank the original (or certified) copy of each policy of insurance, and evidence of payment of all premiums for each such policy. Such policies of insurance (except those of public liability) shall contain an endorsement, in form and substance acceptable to Bank, showing losses payable to Bank. Such endorsement or an independent instrument furnished to Bank, shall provide that all insurance companies will give Bank at least thirty (30) days prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of Borrower or any other Person shall affect the right of Bank to recover under 33 39 such policy or policies of insurance in case of loss or damage. Borrower hereby directs all insurers under such policies of insurance (except those of public liability) following an Event of Default to pay all proceeds payable thereunder directly to Bank. Following an Event of Default, Borrower, irrevocably, appoints Bank (and all officers, employees or agents designated by Bank) as Borrower's true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. In the event Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, then Bank, without waiving or releasing any of Borrower's Obligations or Borrower's Liabilities or any Event of Default or Unmatured Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Bank deems advisable. All sums so disbursed by Bank, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand. The Bank shall also have been named as an additional insured with respect to Borrower's liability insurance. (e) Payment of Charges. Borrower shall pay promptly, when due, all Charges and Borrower, shall not permit the Charges to arise or to remain unpaid, and will promptly discharge the same. In the event Borrower, at any time or times hereafter, shall fail to pay the Charges or to obtain such discharges as required herein, Borrower promptly shall so advise Bank thereof in writing. Bank may, without waiving or releasing any of Borrower's Obligations or Borrower's Liabilities or any Event of Default or Unmatured Default hereunder, in its sole and absolute discretion, at any time or times thereafter, make such payment, or any part thereof, or obtain such discharge and take any other action with respect thereto which Bank deems advisable. All sums so paid by Bank and any expenses, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand. Notwithstanding the foregoing, Borrower, may permit or suffer the Charges to attach to its Assets and may dispute, without prior payment thereof, the Charges, on the conditions that: (i) Borrower in good faith, shall be contesting the same in an appropriate proceeding diligently pursued; (ii) enforcement thereof against any Assets of Borrower shall be stayed; and (iii) appropriate reserves therefor shall have been established on the Records of Borrower in accordance with GAAP. (f) Pay Debts. Borrower shall pay or discharge or otherwise satisfy all Indebtedness at or before maturity or before the same becomes delinquent; provided that Borrower shall not be required to pay any Indebtedness while the same is being contested by it in good faith and by appropriate proceedings so long as Borrower shall have set aside on its books reserves in accordance with GAAP with respect thereto and title to any property of Borrower is not jeopardized. 34 40 (g) Compliance with Laws. Borrower shall comply with all laws, rules, regulations and governmental orders (federal, state and local), including all Environmental Laws, having applicability to it or to the business or businesses at any time conducted by it, where the failure to so comply would have a material adverse effect, either individually or in the aggregate, on the business, Assets, operations, condition (financial or otherwise) or its ability to perform its obligations under the Loan Documents. (h) Perform Obligations. Borrower shall duly and punctually pay and perform each of its obligations under this Agreement and the Other Agreements in accordance with the terms thereof. (i) Operating and Disbursement Accounts. Borrower shall maintain all of its general operating accounts and primary disbursement accounts at Bank. Schedule 6.2(i) sets out all depository, investment and other accounts maintained by Borrower with financial institutions and/or brokers other than Bank. Borrower promptly shall deliver an amended Schedule 6.2(i) to Bank reflecting each addition to and deletion of such accounts. 6.3 Negative Covenants. Borrower warrants and represents to and covenants with Bank that Borrower shall not, without Bank's prior written consent, which Bank may or may not give in its sole and absolute discretion, concurrently or hereafter do any of the following: (a) Sell or Encumber Assets. Borrower, shall not assign, sell or transfer any of its Assets to any Person, other than in the ordinary course of business, nor permit, grant, or suffer a security interest, lien, claim or encumbrance upon any of its Assets, except the Permitted Liens. (b) Attachment. Borrower, shall not permit or suffer any levy, attachment or restraint to be made affecting any of its Assets; (c) Receiver. Borrower, shall not permit or suffer any receiver, trustee or assignee for the benefit of creditors, or any other custodian to be appointed to take possession of all or any of its Assets. (d) Amend Organizational Documents; Business Objectives. Borrower, shall not make any change: (i) in its Organic Documents or capital structure; or (ii) in any of its business objectives, purposes and operations, including by undertaking additional business activities. Borrower shall not engage in any business not of the same general type as those conducted by it on the date hereof. (e) Mergers and Acquisitions. Neither Borrower nor any Subsidiary shall liquidate, dissolve, enter into any merger, consolidation, partnership, joint venture or other combination, except that any Person which is in the general line of business of Borrower may merge into or with or be acquired by Borrower or any Subsidiary, provided that Borrower or such Subsidiary, as applicable, shall be the continuing or surviving entity. 35 41 (f) Adverse Transactions. Borrower, shall not enter into any transaction which materially and adversely affects its ability to perform its obligations under the Loan Documents or to pay any other Indebtedness. (g) Investments. Borrower shall not make any investment in the Stock, other equity interests in, or obligations of any Person; provided that in connection with Borrower's management of its cash on a short-term basis in the ordinary course of business Borrower may invest in obligations of other Persons that are cash or cash equivalents and provided that Borrower may create new Subsidiaries of which Borrower is the 100% owner of all equity interests. (h) Loan; Guaranty Debt. Borrower shall not make any loan to any Person. Borrower has not entered into and shall not enter into any Guaranty Equivalents. (i) Borrow Indebtedness; Pay Indebtedness. Other than amounts loaned by Bank to Borrower hereunder, Borrower shall not incur any Indebtedness for borrowed money in excess on $1,000,000 of unsecured borrowings in the aggregate outstanding at any one time. Except in the ordinary course of business, Borrower, shall not defease, prepay, repay, purchase, redeem or otherwise acquire any of its Indebtedness for borrowed money. (j) Issue Power of Attorney. Except pursuant to this Agreement and the Other Agreements, Borrower, shall not issue any power of attorney or other contract or agreement giving any Person power or control over the day-to-day operations of Borrower's, business, other than in connection with Permitted Liens or Indebtedness expressly permitted pursuant to the terms of this Agreement. (k) Amendment of Credit Agreements. Except in the ordinary course of business, Borrower shall not amend, modify or extend any note, credit agreement, security agreement or other document, instrument of agreement evidencing or securing Indebtedness of Borrower, without in each case Bank's prior written consent. 6.4 Required Notices (a) In addition to those notices required elsewhere in this Agreement, Borrower shall notify Bank promptly after obtaining knowledge of: (i) except as otherwise previously disclosed in writing to Bank, any event or occurrence which Borrower has determined has caused a material loss or decline in value of Borrower's, Assets due to casualty or any other adverse occurrence and the estimated (or actual, if available) amount of such loss or decline; (ii) the institution of any suit or administrative proceeding which, if determined adversely to Borrower, is reasonably likely to materially adversely affect the operations, financial condition or business of Borrower; 36 42 (iii) Borrower, becoming subject to any Charge, restriction, judgment, decree or order which could materially and adversely affect Borrower's business, operations, Assets, condition (financial or otherwise) or ability to perform its respective obligations under the Loan Documents. (iv) the commencement of any lockout, strike or walkout relating to any labor contract to which Borrower is a party; (v) except as otherwise previously disclosed, any event or occurrence which Borrower has determined will have a material adverse affect on the ability of any obligor of a Pledged Note to repay the Note; (vi) the occurrence of a default by Borrower, under any agreement, document or instrument to which it is a party which could materially and adversely affect its business, operations, Assets, condition (financial or otherwise) or ability to perform its respective obligations under the Loan Documents; (vii) the filing of a petition under any section or chapter of the United States Bankruptcy Code or any similar law or regulation shall be filed by or against Borrower or Borrower shall make an assignment for the benefit of its creditors or if any case or proceeding is filed by or against Borrower for its dissolution or liquidation; (viii) the making of an application for the appointment of a receiver, trustee or custodian for any of the assets of Borrower; (ix) as soon as possible and in any event within five (5) days after Borrower shall have obtained knowledge of the occurrence of an Event of Default or Unmatured Default, the written statement of the chief financial officer of Borrower setting forth the details of such event and the action which Borrower proposes to take with respect thereto; and (x) the exercise of any holder of any option, warrant or right to purchase any equity interest in Borrower, other than the exercise of rights disclosed in Section 5.1(e). 6.5 Payment of Claims. Bank, in its sole and absolute discretion, without waiving or releasing any of Borrower's Liabilities or Borrower's Obligations or any Event of Default or Unmatured Event of Default, may at any time or times hereafter, but shall be under no obligation to, pay, acquire and/or accept an assignment of any security interest, lien, encumbrance or claim asserted by any Person against the Assets of Borrower. All sums paid by Bank in respect thereof and all reasonable Costs relating thereto incurred by Bank or for which 37 43 Bank becomes obligated on account thereof shall be part of Borrower's Liabilities payable by Borrower to Bank on demand and any amount not paid on demand shall bear interest at the Default Rate. 6.6 Year 2000 Compliance. (a) Borrower is currently reviewing its computer and management information systems to determine whether they are adequate for the conduct of Borrower's business as presently conducted and as proposed to be conducted and Borrower is actively addressing all known material requirements for systems integration, upgrade and replacement, and Borrower covenants and agrees promptly to notify Bank in writing of any facilities or software inadequacies that could reasonably be expected to have a material adverse effect on the business of the Borrower. (b) The Borrower, will be Year 2000 Compliant on or before March 31, 1999 and at all times thereafter. As used in the preceding sentence, "Year 2000 Compliant" means the ability of the software and other information processing capabilities of Borrower to correctly interpret and process all data in whatever form so as to avoid errors that may otherwise occur because of the inability of software or other information processing capabilities to recognize accurately the year 2000 or subsequent dates. (c) Any reprogramming required to permit the proper functioning of the computer and management information systems of the Borrower during and following the year 2000 will be completed by March 31, 1999 and the cost of such reprogramming is not expected to have a material adverse effect on the business of the Borrower. 7. DEFAULT 7.1 Events of Default. The occurrence of any one of the following events shall constitute a default ("Event of Default") under this Agreement: (a) If Borrower fails or neglects to perform, keep or observe any of Borrower's Obligations and the same is not cured within thirty (30) days after such default or, if such default is not susceptable to cure within thirty (30) days, then within ninety (90) days so long as Borrower is actively taking all commercially reasonable measures to cure the same; provided that all failures, if any, to timely pay Borrower's Liabilities are governed by (c) below and that a breach of any of the provisions, terms, conditions or covenants contained in Sections 6.2(d), 6.3 and 6.4 shall automatically be an Event of Default without any notice or cure period; (b) If any representation, warranty or material statement, report or certificate made or delivered by Borrower, or any of its directors, officers, authorized employees or agents, to Bank is not true and correct; (c) If Borrower fails to pay any of Borrower's Liabilities, when due and payable or declared due and payable and the same is not cured within five (5) days, 38 44 provided however, that Interest shall accrue at the Default Rate commencing immediately after non-payment; (d) If Borrower shall be in default under the terms of any Indebtedness Instrument, other than the Loan Documents; (e) If Borrower fails or neglects to perform, keep or observe any of Borrower's Obligations contained in Section 6.2(e) and the same is not cured within ten (10) days after Bank gives Borrower notice of such default; (f) If any of Borrower's Assets or any portion thereof are attached, seized, subjected to a writ of distress warrant, or are levied upon, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not terminated or dismissed within forty-five (45) days thereafter; (g) If a petition under any section or chapter of the United States Bankruptcy Code or any similar law or regulation shall be filed by Borrower, or if Borrower shall make an assignment for the benefit of its creditors or if any case or proceeding is filed by Borrower for its dissolution or liquidation; (h) If Borrower is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs or if a petition under any section or chapter of the United States Bankruptcy Code or any similar law or regulation is filed against Borrower or if any case or proceeding is filed against Borrower for its dissolution or liquidation and such injunction, restraint or petition is not dismissed or stayed within forty-five (45) days after the entry or filing thereof; (i) If an application is made by Borrower for the appointment of a receiver, trustee or custodian for any of its assets; (j) If an application is made by any Person other than Borrower for the appointment of a receiver, trustee, or custodian for any of the Assets of Borrower and the same is not dismissed within forty-five (45) days after the application therefor; (k) Except as expressly permitted pursuant to Section 6.2(e), (i) if a notice of any Charge is filed of record with respect to all or any of Borrower's Assets, or (ii) if any Charge becomes a lien or encumbrance upon any of its assets and the same is not released within forty-five (45) days after the same becomes a lien or encumbrance; (l) The occurrence of an Event of Default under any of the Other Agreements, which is not cured within the time, if any, specified therefor in such Other Agreement; (m) If any final non-appealable judgment for the payment of money in excess of $1,000,000 (after giving effect to any amount covered by insurance as to which the insurer shall not have defied or questioned its obligation to pay) shall be rendered against Borrower and the same shall remain undischarged for a period of thirty (30) days during 39 45 which execution shall not be effectively stayed or diligently contested in good faith by appropriate proceedings; (n) If Borrower or any ERISA Affiliate (i) shall effect a complete or partial withdrawal (as defined in ERISA Sections 4203 or 4205) from a Multiemployer Plan, if such withdrawal could subject either Borrower or any ERISA Affiliate to liability; (ii) shall fail to pay when due an amount that is payable by it to the PBGC or to an Employee Benefit Plan; (iii) has instituted against it by a fiduciary of any Multiemployer Plan an action to enforce ERISA Section 515 and such proceedings shall not have been dismissed within thirty (30) days thereafter; (iv) has imposed against it any tax under Code Section 4980B(a); (v) has assessed against it by the Secretary of Labor a civil penalty with respect to any Employee Benefit Plan under ERISA Section 502(c) or 502(l); (vi) shall apply for a waiver of the minimum funding standards of the Code; or (vii) shall permit any other event or condition to occur or exist with respect to an Employee Benefit Plan that could subject either Borrower or any ERISA Affiliate to liability; (o) Except as set forth in Section 7.1(d) or (e), a default by Borrower shall occur under any agreement, document or instrument (other than this Agreement or any of the other Loan Documents) now or hereafter existing, to which Borrower is a party and the effect of such default is reasonably likely to have a material adverse effect on the financial conditions or business operations of such Loan Party; and (p) If Borrower dissolves, liquidates or fails to maintain its corporate existence, without the prior written consent of Bank. 7.2 Remedies Cumulative. All of Bank's rights and remedies under this Agreement and the Other Agreements are cumulative and non-exclusive. 7.3 Acceleration. Upon the occurrence an Event of Default and the continuation thereof, without notice by Bank to or demand by Bank to Borrower, Bank shall have no further obligation to and may then forthwith cease advancing monies, extending credit or issuing letters of credit to or for the benefit of Borrower under this Agreement and the Other Agreements. Upon an Event of Default, without notice by Bank to or demand by Bank to Borrower, all Borrower's Liabilities shall be due and payable, forthwith. 7.4 Remedies. Upon the occurrence of an Event of Default and the continuation thereof, Bank, in its sole and absolute discretion, may exercise any and all rights and remedies that it may have under the other Loan Documents, at law or in equity. 7.5 Injunctive Relief. Borrower recognizes that upon the occurrence of an Event of Default, no remedy of law will provide adequate relief to Bank, and agrees that Bank shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. 40 46 7.6 Advances During Unmatured Default. Upon the occurrence of any Unmatured Default or Event of Default, Bank shall not be obligated to make any Advances; provided that, nothing contained herein shall prohibit Bank from making any Advances. 8. CONDITIONS PRECEDENT TO DISBURSEMENT 8.1 Checklist Items. The obligation of Bank to make the Loan to Borrower is subject to the condition precedent that, in addition to satisfaction of the conditions set forth in Sections 8.2 and 8.3, Bank shall have received, prior to the first disbursement of the proceeds of any of the Loan hereunder all documents, instruments, agreements, notes, evidences of Borrower's authority, and all other instruments as Bank may reasonably request, including but not limited to all items on the documentation checklist, delivered by Bank to Borrower prior to the date hereof. 8.2 Necessary Actions. The obligation of Bank to make the Loan to Borrower is subject to the further condition precedent that all proceedings taken in connection with the transactions contemplated by this Agreement, and all instruments, authorizations and other documents applicable thereto, shall be reasonably satisfactory in form and substance to Bank and its counsel. 8.3 Conditions Precedent. In addition to the foregoing, prior to Bank making any and all Loans hereunder, all of the following shall have been satisfied in a manner satisfactory to Bank: (a) no change in the condition or operations, financial or otherwise, of Borrower shall have occurred which change, in the sole credit judgment of Bank, may have a material adverse effect on Borrower; (b) no litigation shall be outstanding or have been instituted or threatened which Bank determines to be material against Borrower; (c) all of the representations and warranties of Borrower set forth in this Agreement and each of the Other Agreements to which Borrower is a party shall be true and correct on the date of the contemplated Loan to the same extent as originally made on such date; and (d) no Event of Default or Unmatured Default shall exist or be continuing. 9. GENERAL 9.1 ERISA Matters. (a) Representations and Warranties. Borrower hereby represents and warrants and covenants and agrees that: 41 47 (i) There are no Employee Benefit Plans maintained or sponsored by or participated in or contributed to by Borrower or any of its Subsidiaries or other Affiliates or to which Borrower or any of its Subsidiaries or other Affiliates have any obligations; and (ii) Borrower shall not, and shall not permit any of its Subsidiaries or other Affiliates to establish, maintain, contribute to or otherwise be or become obligated with respect to one or more Employee Benefit Plans without first receiving the prior written consent of Bank, which Bank may grant or withhold in its sole and absolute discretion. (b) Definitions. For purposes of this Section 9.1, the following definitions shall apply: (i) "Code" shall mean the Internal Revenue Code of 1986, as amended. (ii) "Employee Benefit Plan" shall mean an employee benefit plan within the meaning of Section 3(3) of ERISA that is maintained, sponsored, participated in or contributed to by Borrower or any ERISA Affiliate. (iii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor thereto. (iv) "ERISA Affiliate" shall mean any corporation, trade or Business that is, along with Borrower, a member of a controlled group of trades or businesses, or a member of any group of organizations, within the meaning of Sections 414(b), (c), (m) or (o) of the Code, and any regulations thereunder. 9.2 Costs/Service Charges. Borrower hereby agrees that it shall reimburse Bank on demand, as part of Borrower's Obligations, for any and all Costs and any amount not paid on demand shall bear interest at the Default Rate. Borrower acknowledges that Bank will charge Borrower monthly service charges for various services performed by Bank in connection with the Loan and/or any other aspect of the relationship between Borrower and Bank, which charges shall be such as are generally imposed on customers of Bank for similar services. Borrower hereby agrees that Bank may charge such service charges against Borrower's operating account at Bank, or in the absence of sufficient collected balances in such operating account to satisfy such service charges, the amount thereof shall become a Loan hereunder bearing interest at the Prime Interest Rate. 42 48 9.3 Statement. Each statement of account by Bank delivered to Borrower relating to Borrower's Liabilities shall be presumed correct and accurate and shall constitute an account stated between Borrower and Bank unless Bank subsequently corrects such statement of its own volition or, within thirty (30) days after Borrower's receipt of said statement, Borrower delivers to Bank, by registered or certified mail addressed to Bank at the address specified in Section 9.4, written objection thereto specifying the error or errors, if any, which Borrower asserts are contained in any such statement. 9.4 Notices. Any and all notices given in connection with this Agreement shall be deemed adequately given only if in writing (which term "writing", for all purposes of this Agreement and the other Loan Documents, shall include original signatures and other writings transmitted by telecopy) and addressed to the party for whom such notices are intended at the address set forth below. All notices shall be sent by personal delivery, Federal Express or other over-night messenger service, first class registered or certified mail, postage prepaid, return receipt requested or by other means at least as fast and reliable as first class mail. A written notice shall be deemed to have been given to the recipient party on the earlier of (a) the date it shall be delivered to the address required by this Agreement; (b) the date delivery shall have been refused at the address required by this Agreement; or (c) with respect to notices sent by mail, the date as of which the postal service shall have indicated such notice to be undeliverable at the address required by this Agreement. Any and all notices referred to in this Agreement, or which either party desires to give to the other, shall be addressed as follows: 43 49 IF TO BORROWER: SPSS, Inc. 233 South Wacker Drive 11th Floor Chicago, IL 60606 Attn: William R. Nelson Telecopy: 312-329-3560 IF TO BANK: American National Bank and Trust Company of Chicago 120 South LaSalle Street Second Floor Chicago, IL 60603 Attn: Erik J. Langeland Telecopy: 312-661-3566 WITH A COPY TO: Sachnoff & Weaver, Ltd. Suite 2900 30 South Wacker Drive Chicago, Illinois 60606 Attn: Frank D. Ballantine, Esq. Telecopy: 312-207-6400
The above addresses may be changed by notice of such change, mailed as provided herein, to the last address designated. 9.5 Amendments and Waivers. This Agreement and the other Loan Documents may not be modified, altered or amended except by an agreement in writing signed by Borrower and Bank. Borrower expressly agrees that for purposes of this Agreement and each and every other Loan Document: (i) this Agreement and each and every other Loan Document shall be a "credit agreement" under the Illinois Credit Agreements Act, 815 ILCS 160/1 et. seq. (the "Act"); (ii) the Act applies to this transaction including, but not limited to, the execution of this Agreement and each and every other Loan Document; and (iii) any action on or in any way related to this Agreement and each and every other Loan Document shall be governed by the Act. Borrower may not sell, assign or transfer this Agreement or the Other Agreements or any portion thereof, including, without limitation, Borrower's rights, titles, interests, remedies, powers and/or duties hereunder or thereunder. Borrower hereby consents to Bank's sale, assignment, transfer or other disposition, at any time and from time to time hereafter, of this Agreement or the Other Agreements, or of any portion thereof or participation therein, including, without limitation, Bank's rights, titles, interests, remedies, powers and/or duties. 44 50 9.6 No Implied Waiver; Remedies Cumulative. Bank's failure at any time or times hereafter to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Bank of an Event of Default or an Unmatured Default by Borrower or any other Loan Party under this Agreement or the Other Agreements shall not suspend, waive or affect any other Event of Default or Unmatured Default by Borrower or any other Loan Party under this Agreement or the Other Agreements, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or the Other Agreements and no Event of Default or Unmatured Default by Borrower or any other Loan Party under this Agreement or the Other Agreements shall be deemed to have been suspended or waived by Bank unless such suspension or waiver is by an instrument in writing signed by an officer of Bank and directed to Borrower or such applicable other Loan Party specifying such suspension or waiver. 9.7 Severability. If any provision (in whole or in part) of this Agreement or the other Loan Documents or the application thereof to any person or circumstance is held invalid or unenforceable, then such provision shall be deemed modified, restricted, or reformulated to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement or the other Loan Document, as the case may require, and this Agreement and such other Loan Document shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified, restricted, or reformulated or as if such provision had not been originally incorporated herein or therein, as the case may be. The parties further agree to seek a lawful substitute for any provision found to be unlawful. If such modification, restriction or reformulation is not reasonably possible, the remainder of this Agreement and the other Loan Documents and the application of such provision to other persons or circumstances will not be affected thereby and the provisions of this Agreement and the other Loan Documents shall be severable in any such instance. 9.8 Incorporation of Other Loan Documents. The provisions of the Other Agreements are incorporated in this Agreement by this reference thereto. Except as otherwise provided in this Agreement and except as otherwise provided in the Other Agreements by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in the Other Agreements or the other Loan Documents, Bank shall have the right to elect, in its sole and absolute discretion, which provision shall govern and control. Except to the extent provided to the contrary in this Agreement and in the other Loan Documents, no termination or cancellation (regardless of cause or procedure) of this Agreement or the Other Agreements shall in any way affect or impair the powers, 45 51 obligations, duties, rights and liabilities of Borrower or Bank in any way or respect relating to (a) any transaction or event occurring prior to such termination or cancellation, and/or (b) any of the undertakings, agreements, covenants, warranties and representations of Borrower contained in this Agreement or the Other Agreements. All such undertakings, agreements, covenants, warranties and representations shall survive such termination or cancellation. 9.9 Acceptance. This Agreement and the other Loan Documents are submitted by Borrower to Bank (for Bank's acceptance or rejection thereof) at Bank's principal place of business as an offer by Borrower to borrow monies from Bank now and from time to time hereafter and shall not be binding upon Bank or become effective until and unless accepted by Bank, in writing, at said place of business. If so accepted by Bank, this Agreement and the other Loan Documents and the other Loan Documents shall be deemed to have been made at said place of business. 9.10 Knowledge. As used herein the phrase "to the best of Borrower's knowledge" or words of such import shall mean all knowledge, including, actual knowledge and knowledge of matters which any reasonable person in such position knew or should have known, of the respective officers, directors and managers of Borrower. 9.11 Waiver by Borrower. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR REQUIRED BY LAW, BORROWER WAIVES (A) PRESENTMENT, DEMAND AND PROTEST, NOTICE OF PROTEST, NOTICE OF PRESENTMENT, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY BANK ON WHICH BORROWER MAY IN ANY WAY BE LIABLE; (B) ALL RIGHTS TO NOTICE AND A HEARING PRIOR TO BANK'S TAKING POSSESSION OR CONTROL OF, OR TO BANK REPLEVY, ATTACHMENT OR LEVY UPON THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING BANK TO EXERCISE ANY OF BANK'S REMEDIES; AND (C) THE BENEFIT OF ALL VALUATION, APPRAISEMENT, EXTENSION AND EXEMPTION LAWS. 46 52 9.12 Governing Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS HAVE BEEN DELIVERED FOR ACCEPTANCE BY BANK IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY (A) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS AGREEMENT; (B) IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT; (C) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (D) AGREES NOT TO INSTITUTE OR MAINTAIN ANY LEGAL ACTION OR PROCEEDING AGAINST BANK OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR IMPAIR BANK'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR BANK'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. 9.13 Waiver of Marshaling. All rights of marshaling of assets of Borrower, including any such right with respect to the Pledged Property, are hereby waived by Borrower. 9.14 Limitation by Law. All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 47 53 9.15 Survival of Representations and Warranties. All representations and warranties contained in this Agreement or made in writing by Borrower in connection herewith shall survive the execution and delivery of this Agreement and repayment of Borrower's Liabilities. Any investigation by Bank shall not diminish in any respect whatsoever its rights to rely on such representations and warranties. 9.16 Service of Process. Borrower hereby irrevocably appoints and designates CT Corporation System, Inc., 208 S. LaSalle Street, Chicago, IL 60604 as its true and lawful attorney-in-fact and duly authorized agent for service of legal process and agrees that service of such process upon such agent and attorney-in- fact shall constitute personal service of such process upon Borrower. 9.17 Representation by Counsel. Borrower hereby represents that it has been represented by competent counsel of its choice in the negotiation and execution of this Agreement and the other Loan Documents; that it has read and fully understood the terms hereof; Borrower and its counsel have been afforded an opportunity to review, negotiate and modify the terms of this Agreement, and that it intends to be bound hereby. In accordance with the foregoing, the general rule of construction to the effect that any ambiguities in a contract are to be resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Agreement. 9.18 Release of Bank. Borrower releases Bank from any and all causes of action or claims which Borrower may now or hereafter have for any asserted loss or damage to Borrower claimed to be caused by or arising from any act or omission to act on the part of Bank, its officers, agents or employees, except for willful misconduct or gross negligence. 9.19 Invalidated Payments. To the extent that either Bank receives any payment on account of Borrower's Liabilities, and any such payment(s) and/or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, subordinated and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy act, state or federal law, common law or equitable cause, then, to the extent of such payment(s) or proceeds received, Borrower's Liabilities or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment(s) and/or proceeds had not been received by Bank and applied on account of Borrower's Liabilities. 9.20 Designated Person. Until Bank is notified by Borrower to the contrary in accordance with Section 9.4, the signature upon this Agreement or upon any of the Other Agreements of any partner, manager, employee or agent of Borrower, or of any other Person designated in writing to Bank by any of the foregoing, or of a "Designated Person" (as that term is defined in Borrower's 48 54 Secretary's Certificate of even date herewith, constituting one of the Other Agreements) shall bind Borrower and be deemed to be the duly authorized act of Borrower. 9.21 Headings. The descriptive headings of the various provisions of this Agreement and the other Loan Documents are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. 9.22 Counterparts. This Agreement and the other Loan Documents may be executed in any number of counterparts, and by the different parties hereto and thereto on the same or separate counterparts, each of which when so executed and delivered shall be deemed to be an original; all the counterparts for each such Loan Document shall together constitute one and the same agreement. 9.23 Fax Execution. For purposes of negotiating and concluding this Agreement and the Loan Documents (including any subsequent amendments thereto), any signed document transmitted by facsimile machine ("FAX") shall be treated in all manner and respects as an original document, except that delivery by FAX shall not constitute delivery for the purposes of notices delivered pursuant to Section 9.4 above. The original signature of any party that is transmitted by FAX shall be considered for these purposes as an original signature. Any document delivered by FAX shall be considered to have the same binding legal effect as an original document, provided that an original of the faxed document was mailed by certified or registered first class US Mail or personally delivered to the recipient. At the request of either party, any FAX document subject to this Agreement shall be re-executed by both parties in an original form. The undersigned parties hereby agree that neither shall raise the use of the FAX or the fact that any signature or document was transmitted or communicated through the use of a FAX as a defense to the formation of this Agreement or any other Loan Document. 9.24 No Third Party Beneficiaries. This Agreement is solely for the benefit of the Bank, Borrower and their respective successors and assigns (except as otherwise expressly provided herein) and nothing contained herein shall be deemed to confer upon any Person other than Borrower and its successors and assigns any right to insist on or to enforce the performance or observance of any of the obligations contained herein. All conditions to the obligations of the Bank to make the Loans hereunder are imposed solely and exclusively for the benefit of the Bank and its respective successors and assigns and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms and no other Persons shall under any circumstances be deemed to be a beneficiary of such conditions. 49 55 9.25 Domicile of Loans. Bank may make, maintain or transfer any of its Loans hereunder to, or for the account of, any branch office, subsidiary or affiliate of Bank. 9.26 Entire Agreement. This Agreement and the other Loan Documents constitute the entire agreement of Borrower and Bank with respect to the subject matter hereof and supersede all prior and contemporaneous negotiations, agreements, understandings and communications. No representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon Bank unless expressed herein or therein. No course of dealing, course or performance, trade usage or parole evidence of any nature, whether based on actions, omissions or circumstances occurring or existing heretofore or hereafter, may be used in any way to alter or supplement the terms hereof. 9.27 Construction. In this Agreement, unless the context otherwise clearly requires, references to the plural include the singular, the singular the plural, and the part the whole; the neuter case includes the masculine and feminine cases; and "or" is not exclusive. In this Agreement, any references to property (and similar terms) include an interest in such property (or other item referred to); "include," "includes," "including" and similar terms are not limiting; and "hereof," "herein," "hereunder" and similar terms refer to this Agreement as a whole and not to any particular provision; and "expenses," "costs," "out-of-pocket expenses" and similar terms include the charges of in-house counsel, auditors and other professionals of the relevant Person to the extent that such amounts are routinely identified and charged under such Person's cost accounting system. Section and other references in this Agreement are to this Agreement unless otherwise specified. 9.28 Successors and Assigns. This Agreement shall be binding upon Borrower and its successors and assigns, and shall inure to the benefit of and be enforceable by Bank and its successors and assigns. Without limitation of the foregoing, Bank (and any successive assignee or transferee) from time to time may assign or otherwise transfer all or any portion of its rights or obligations under the Loan Documents (including all or any portion of any commitment to extend credit), or any Borrower's Liabilities, to any other Person, and such (including any Borrower's Liabilities resulting from extension of credit by such other Person under or in connection with the Loan Documents) shall be and remain Borrowers entitled to the benefit of this Agreement, and to the extent of its interest in such Borrowers such other Person shall be vested with all the benefits in respect thereof granted to Bank in this Agreement or otherwise. 9.29 Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY LAW, BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS 56 AGREEMENT OR THE OTHER AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN CONNECTION HEREWITH. BORROWER HEREBY EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR BANK TO MAKE THE LOAN. 51 57 IN WITNESS WHEREOF, this Loan Agreement has been duly executed as of the day and year specified at the beginning hereof. BORROWER: SPSS, INC. a Delaware corporation By: /s/ William R. Nelson ------------------------------------ Title: Treasurer BANK: AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO By: /s/ Erik Langeland ------------------------------------ Title: Commercial Banking Officer 58 Schedule of Schedules Schedule 5.1(e) Schedule of Shareholders, Stock and Options Schedule 5.1(f) Schedule of Fictitious Names Schedule 5.1(g) Schedule of Permitted Liens Schedule 5.1(v) Schedule of Affiliates Schedule 5.1(y) Schedule of Intellectual Property Rights Schedule 6.2(i) Schedule of Depository Accounts 59 Schedule 5.1(e) Schedule of Shareholders, Stock and Options 3 60 Schedule 5.1(f) Schedule of Fictitious Names 4 61 Schedule 5.1(g) Schedule of Permitted Liens 5 62 Schedule 5.1(v) Schedule of Affiliates 6 63 Schedule 5.1(y) Schedule of Intellectual Property Rights 7 64 Schedule 6.2(I) Schedule of Depository Accounts 8 EX-10.1 3 AGREEMENT 1 Exhibit 10.1 AGREEMENT Agreement made this 1st day of April 1998 by and between SPSS Inc. ("SPSS") with offices at 444 North Michigan Avenue, Chicago, IL 60611 and PRENTICE-HALL, INC. ("PH") with offices at One Lake Street, Upper Saddle River, NJ 07458. WHEREAS, SPSS has developed certain computer software which it desires to modify and license to PH for purposes of distribution and marketing, and certain books it would like PH to market and distribute; and WHEREAS, PH desires to distribute and market such computer software and books; NOW THEREFORE, in consideration of the mutual premises and agreements contained herein, it is hereby agreed as follows: 1. Definitions 1.1 "Agreement" shall mean this agreement, together with all exhibits hereto, as each may be amended from time to time in accordance with the terms hereof. 1.2 "Commercial SPSS Software" shall mean any version of any software developed by or on behalf of SPSS during the term hereof which is intended primarily for research and/or analysis in business, government and academia. 1.3 "Contract Software" shall refer to the following software in all formats, by all media, on all platforms and for all computer and operating systems, now known or hereafter developed: (i) the software developed by SPSS and listed on Exhibit A, (ii) all new SPSS Educational Versions as defined below; and (iii) all Updates of the foregoing. 1.4 "Designation" shall be defined as set forth in paragraph 4.3. 1.5 "Deliverables" shall mean the work product of the development work to be performed by SPSS in connection with any new SPSS Educational Version or Update which is to be delivered to PH under the terms of this Agreement. 1.6 "Delivery Date" shall mean the dates that shall be mutually agreed upon by the parties, by which each of the Contract Software is to be delivered. 1.7 "Documentation" shall mean the manuals, works and documentation which explains the operation of and provides support for the use of the Contract Software and Other SPSS Software, in all formats and media, now known or hereafter developed, and all revisions and new editions thereof, as set forth in Exhibit C. 1.8 "Errors" shall be defined as set forth in paragraph 13.1(i). 9 2 1.9 "Net Cash Received" shall mean sales of copies of the Products invoiced to the customer, exclusive of taxes and shipping charges, less actual returns and bad debt. 1.10 "Net Price" shall mean the price that PH charges to its customer. 1.11 "New Products" shall mean new SPSS Educational Versions of the Other SPSS Software, new Documentation and new Titles, collectively. 1.12 "Other SPSS Integrated Version" shall mean any new SPSS Educational Version combined with documentation, CD-ROM electronic books referenced in exhibit G, and text-specific data relating to a textbook(s) published by a publisher other than PH, and packaged with that textbook, and without separate print documentation, Products or Titles. 1.13 "Other SPSS Software" shall mean any existing SPSS Commercial Software other than the Contract Software, and all new Commercial SPSS software. 1.14 "Per Unit Cost" shall have the meaning set forth in paragraph 9.2. 1.15 "PH/SPSS Integrated Version" shall mean any SPSS Educational Version combined with text-specific data relating to PH textbook(s) and documentation, and packaged with the PH textbook(s), and without separate print documentation, Products or Titles. 1.16 "Products" shall refer to the Contract Software, the Documentation and the Titles, collectively. 1.17 "Relationship Managers" shall mean the respective persons appointed by each of the parties pursuant to paragraph 5.1 to serve as representative of such party for the purpose of this Agreement. 1.18 "Secondary Schools" shall mean schools for students in the 7th through 12th grades the United States, and their equivalents in other parts of the Territory. 1.19 "SPSS Educational Version" shall mean any version of any English-language software developed by or on behalf of SPSS during the term hereof which (i) constitutes an adaptation of English-language Commercial SPSS Software; (ii) is intended primarily for use in an undergraduate academic or instructional setting; and (iii) is for sale to students, secondary schools or 2 or 4 year colleges for academic or instructional use. 1.20 "SPSS Titles" shall mean all print materials listed on Exhibit B and all other print materials prepared by SPSS during the term of this Agreement, in all formats and media, now known or hereafter developed, and all revisions and new editions thereof, other than Documentation and SPSS promotional materials. 1.21 "Territory" shall mean the United States, Canada, Australia, Austria, Germany, Holland, Hong Kong, Indonesia, Japan, Korea, Malaysia, Singapore, Sweden, Taiwan, Thailand, and Vietnam. 1.22 "Updates" shall mean any revised version or new release of the Contract Software which alters, modifies, enhances, improves, corrects errors of or replaces or substitutes for such Contract Software. 10 3 2. Grant of Rights 2.1 SPSS grants to PH, during the term hereof, (i) the right and license (exclusive except as stated in paragraph 2.2) to distribute and fulfill orders for the Products, alone or in conjunction with other products, through all channels of distribution now or hereafter existing, for use in Secondary Schools and 2 and 4 year undergraduate institutions, throughout the Territory; (ii) the non-exclusive right and license, shared with SPSS, its subsidiaries and its appointed software distributors, provided such subsidiaries and software distributors are not substantially in the business of educational publishing, to market and promote the Products for sale by PH throughout the Territory; and (iii) subject to terms to be negotiated, the exclusive option to distribute and fulfill orders for the PH/SPSS Integrated Versions from Secondary Schools and 2 and 4 year undergraduate institutions, throughout the Territory. 2.2 Notwithstanding paragraph 2.1(i), SPSS shall retain (i) the non-exclusive right itself to distribute the Documentation and Titles directly in any market; (ii) the non-exclusive right to distribute the Documentation and Titles through local distributors in any portion of the Territory outside the United States and Canada; (iii) the non-exclusive right itself or through local distributors to distribute the Contract Software in the Secondary Schools market worldwide; (iv) the right to enter into agreements with any other party to produce, market, sell, and/or distribute Other SPSS Integrated Versions worldwide; and (v) the right to distribute the Products for internal (SPSS) use and in connection with SPSS customer support. In addition, in consideration of paragraph 18.1, Allyn & Bacon shall not have any distribution rights under this Agreement. 2.3 PH shall have the non-exclusive right, but not the obligation, to prepare, publish and distribute works about SPSS software other than and in addition to the Titles ("Additional Titles"), and SPSS agrees that PH shall have the non-exclusive right to display SPSS Marks, alone or in conjunction with PH's Marks, on such Additional Titles and in related advertising and promotional materials, subject to paragraph 4. 3. New Product Development and Rights. 3.1 The parties agree that, during the term hereof, the development of New Product shall be made in accordance with the following procedures: (a) SPSS shall notify PH in writing about any new English-language Commercial SPSS Software, at or about the time that such software is first shipped. (b) At any time during the term hereof, PH or SPSS may request in writing that the other party consider the development of any New Product. If the other party agrees, the parties will then negotiate in good faith the terms under which SPSS will develop such New Product, including, delineation of the deliverables, any required testing, delivery dates and advances, if any, to be paid as set forth in paragraph 11.2(a). (c) Such New Product shall be subject to the terms and conditions of this Agreement and shall thereafter be included in the definition of "Products." 11 4 3.2 During the term of this Agreement, in no event shall SPSS have the right to distribute or fulfill orders for New Products or to license such rights to others, except as specifically set forth in paragraph 2.2 or solely to the extent that PH declines to distribute a new SPSS Educational Software product in accordance with paragraph 11.3(b). 3.3 In the event that SPSS is acquired by or is merged or consolidated into another corporation and SPSS is not a surviving corporate entity, this Agreement shall continue in effect in accordance with its terms following such acquisition, merger or consolidation only with respect to (i) the Products as defined herein as of the date immediately prior to the acquisition, merger or consolidation, (ii) any Updates, and (iii) any New Products which are based upon such Products. 3.4 SPSS shall not be in breach of this Agreement if SPSS become a party to an agreement allowing a third party to sell new SPSS Educational Versions as a result of an existing agreement acquired by SPSS as a consequence of a merger, consolidation or acquisition of all or substantially all of the stock or assets of another corporation, provided that SPSS shall have no right to renew any such agreement beyond its then current term. 4. Advertising of Product and Use of Trademarks 4.1 SPSS grants to PH, during the term hereof, all rights necessary for the advertisement, promotion and distribution of the Products, including, but not limited to, the right to use excerpts from the Products and the right to use the trade names, trademarks, trade dress, service marks and such other distinctive marks ("Marks") of SPSS. SPSS shall have final approval of any use of SPSS Marks, and any advertisements and promotional materials reflecting SPSS Marks. SPSS approval shall not be unreasonably withheld or delayed. 4.2 SPSS shall have the right, during the term hereof, to advertise, publicize and promote the fact that PH is the exclusive distributor of the Products in the Territory. PH shall have final approval of any use of any PH Marks and any advertisements and promotional materials reflecting PH Marks. PH approval shall not be unreasonably withheld or delayed. 4.3 The parties may agree to jointly develop a distinctive designation combining the SPSS Marks and the PH Marks (the "Designation") for display on the Products and in connection with the advertising and promotion of the Products. Each party shall have the right to approve the final design of the Designation and the use of the Designation. Neither party shall make use of the Designation except in connection with the Products. Each party's right to use the Designation shall cease upon expiration of the Agreement, subject to each party's right, as set forth herein, to distribute any inventory in its possession. 4.4 The parties agree that approval may be assumed for any advertisement, promotional piece or use of a Mark that is substantially similar to one previously approved. Should a party disapprove of an advertisement, promotional piece or use of a Mark, such party shall promptly specify for the other party what changes are to be made to secure approval, consistent with the intent of both parties in entering this Agreement. 4.5 Nothing in this Agreement creates in PH or SPSS any rights to the Marks of the other party, except as specifically set forth herein. 12 5 5. Cooperation of Parties 5.1 Upon execution of this Agreement, PH and SPSS shall each appoint one Relationship Manager and shall promptly notify the other party in writing of the identity and location of such person and of any changes if they occur. 5.2 PH and SPSS Relationship Managers shall be responsible for the following activities: (a) Representing PH and SPSS, respectively, in matters relating to the performance of this Agreement, including the periodic review of marketing plans for the Products; (b) Submitting and receiving the Deliverables and other materials and documents to be delivered under this Agreement; (c) Proposing and developing any modifications to the payment schedule; (d) Proposing and developing any modifications to the Products; (e) Proposing and agreeing on specifications and scheduling for creation of any New Products; (f) Arranging any meeting to be held between the parties; and (g) Preparing and implementing market research studies if such studies are deemed by PH and SPSS to be necessary, provided however that each party may implement at its own expense market research that is not agreed to by the other party and the other party shall cooperate with such research. 5.3 PH shall be entitled, but not obligated, to conduct periodic on-site reviews, with reasonable notice and during normal business hours, of SPSS's development of Educational or Integrated Versions of any software produced by SPSS and the manufacturing of the Products. PH agrees that it will coordinate the time for such on-site reviews with SPSS. 6. Preparation of Software Deliverables 6.1 SPSS shall use all customary and commercially reasonable efforts to develop functional specifications for any new software Deliverables. 6.2 SPSS shall use all customary and commercially reasonable efforts to create and deliver these Deliverables to PH's Relationship Manager (or his or her designee) in accordance with the requirements of this Agreement. SPSS's responsibilities shall include, without limitation, designing packaging for the Products and, upon request by PH, reviewing for accuracy any and all advertising, catalogs or other promotional materials pertaining to the Products. Notwithstanding anything set forth herein to the contrary, SPSS shall deliver the final versions of all new SPSS Educational Versions and Updates by the final Delivery Dates as agreed upon by the parties pursuant to paragraphs 3.1(b) or 8.1, as applicable. In the event that SPSS fails to do so, PH may exercise its rights under paragraphs 19.1 or 19.2, as applicable. 6.3 PH and SPSS agree that each will act reasonably and in good faith in connection with the preparation and acceptance of the Deliverables as outlined in this paragraph 6. 13 6 7. Production of Documentation and Titles 7.1. SPSS shall produce each SPSS Title as set forth in Exhibit B and all Documentation as set forth on Exhibit C in accordance with the print specifications set forth in Exhibit D. In the event any of the Titles or Documentation has to be changed due to circumstances beyond the control of SPSS, SPSS shall advise PH in writing and, in such event, submit alternative Documentation and Title of equivalent quality for approval by PH. In the event PH does not approve any Documentation and Title, PH may exercise its rights pursuant to paragraph 19.2 and produce the Documentation and Titles itself. 8. Preparation of Revisions of Product 8.1 In the event the parties determine that an Update or a revision or enhancement of Documentation or a Title ("Revision") is necessary to keep the Product competitive in the marketplace, the parties will negotiate in good faith the terms for the specifications, Deliverables, any testing, Product Advances, if any, as set forth in paragraph 11.2, and the Delivery Dates. PH and SPSS will act reasonably and in good faith in connection with the preparation and approval of these Updates and Revisions. Such Updates and/or Revisions shall thereafter be subject to the terms and conditions of this Agreement and shall be included in the definition of "Contract Software," "Documentation", and/or "Title", as applicable. 9. Ordering, Shipment and Distribution 9.1 PH agrees to submit written orders to SPSS for specified quantities of the Products from time to time during the term of this Agreement. Notwithstanding anything set forth herein to the contrary, PH shall not be obligated to order or purchase any copies of the Products. 9.2 SPSS shall provide PH with its forecast of the per unit price to be paid by PH for the Products (the "Per Unit Cost") within seven (7) working days of receipt of a PH order. Such Per Unit Cost shall be no more than the per unit paper, printing and binding costs for the Documentation and the Titles and the per unit cost for duplication of the Contract Software. Within seven (7) working days of its receipt of such forecast, PH will notify SPSS that SPSS should commence fulfillment of the order as set forth herein or that PH is able to secure the manufacture of the applicable Product at a Per Unit Cost which is less than SPSS's forecast. 9.3 If PH is able to secure the manufacture of the applicable Product on the same schedule as SPSS at a lower Per Unit Cost, SPSS will have 14 working days to notify PH that SPSS will fulfill PH's order at such lower Per Unit Cost. In such event, the quality of the Products shall not vary from the Contract Software of the initial order or the print specifications set forth in Exhibit D, as applicable. If SPSS does not fulfill PH's order at the lower Per Unit Cost, PH may exercise its rights pursuant to paragraph 19 and manufacture the applicable Product itself. 9.4 If SPSS is to fulfill PH's order, SPSS shall do so within 45 working days of receipt of PH's order and shall furnish PH with the following three sets of shipping documents in advance of shipping: the original negotiable bill of lading, packing list and commercial invoice per PH's shipping instructions. PH will pay SPSS the per unit price within 45 working days after acceptance by PH of the delivered Products. 9.5 Shipments by SPSS shall be F.O.B. destination and SPSS assumes all risk of loss or damage to the Products until delivered to PH. SPSS agrees to ship the Products in accordance with PH's instructions and to be responsible for arranging freight and insurance and shipping and handling. PH agrees to reimburse SPSS for the freight, insurance and shipping and handling charges, provided that PH first approves such charges. Products 14 7 shall be shipped in saleable condition and copies received which are not in saleable condition or which are returned to PH by the end-user as defective shall at the option of SPSS, be returned to SPSS at SPSS's expense or destroyed by PH at SPSS's expense. 9.6 SPSS agrees to place on all copies of the Products delivered to PH an ISBN and bar code as directed by PH and to supply such other product identification codes as PH shall reasonably request. 9.7 SPSS agrees to promptly turn over to PH all orders for the Products, except as set forth in paragraph 2.2, for fulfillment by PH and to inform all customers of PH's exclusive distributorship. 9.8 Except as set forth in paragraph 4.4, all matters pertaining to pricing, discounts, marketing and selling of the Products shall be determined by PH. 10. PH Distribution and Promotion 10.1 PH agrees: (a) to use customary and reasonable efforts to promote sales of the Products, including preparing and producing all advertising copy, catalogs and other promotional materials deemed necessary by PH, (b) to fulfill orders received for the Products. (c) to encourage authors of works on statistics or other subjects directly related to SPSS products who have entered into agreements with PH to refer to or describe SPSS products, including the Contract Software, within such works when appropriate. (d) that SPSS may purchase copies of the Documentation, Titles and/or other PH titles in accordance with PH's standard discount policies for distribution to fulfill orders that may be received by SPSS during the performance of customer service. (e) to maintain sufficient inventory of the Products to fulfill the demand for the Products. (f) to provide SPSS with monthly statements describing the sales of the Products, by the fifteenth working day of the following month. (g) to allow SPSS to attend and participate in PH meetings, such as sales meetings, as may be reasonably requested by SPSS. (h) to encourage PH editors to contract with SPSS to do "PH/SPSS Integrated Versions." 11. Compensation 11.1 As full consideration for all rights and licenses granted or relinquished hereunder and the initial and ongoing services to be provided by SPSS, PH agrees to pay to SPSS: (a) A royalty of 25% on sales of each of the Contract Software based on the net cash received by PH from sales of the Contract Software in the United States and Canada. 15 8 (b) A royalty of 30% on sales of each of the Titles based on the net cash received by PH from the sales of each Title in the United States and Canada.. (c) A royalty of 35% on sales of the Documentation based on the net cash received by PH from the sales of Documentation in the United States and Canada. (d) A royalty of 17.5% for sales of the Contract Software, Titles and Documentation outside the United States and Canada. If PH packages or sells Products together with other products ( a "Package" or "Value Pack"), the net price of such Product for the purpose of calculating royalty payment will be an amount equal to the Product's net price divided by the sum of the net prices of each individual product in the Package, multiplied by the net price of the Package. No royalty shall be paid on copies of the Product (i) destroyed or returned to SPSS pursuant to paragraph 12 or (ii) on copies given away gratis to instructors for review or promotional purposes. 11.2 (a) PH agrees to pay to SPSS an advance against royalties for each new SPSS Educational Version or Update ("Advance") equal to 50% of the expected first year royalty which shall have been mutually agreed upon by the parties for the new SPSS Educational Version or Update at issue, payable as follows: (i) one-half, upon SPSS's commencement of the development of the new SPSS Educational Version or Update; and (ii) one-half, within 30 days after the initial date of PH's distribution of such new SPSS Educational Version or Update. (b) Notwithstanding anything set forth in paragraph 11.2 (a) to the contrary, if SPSS does not deliver by the final Delivery Dates agreed upon by the parties pursuant to paragraphs 3.1(b) or 8.1, as applicable, (i) final operational new SPSS Educational Versions or Updates which substantially conform to the specifications to be agreed to by the parties and/or (ii) related Documentation which is materially accurate, PH shall have the right to reduce the Advance by 50%. Furthermore, in the event that SPSS fails to deliver final versions of such new SPSS Educational Versions or Updates within one year from the final agreed Delivery Date and the first portion of the Advance has been paid as set forth in paragraph 11.2(a)(i), PH may notify SPSS in writing that it will no longer accept delivery of such new SPSS Educational Version or Update, and PH shall have the right to recover any Advance made to SPSS in connection with such new SPSS Educational Version or Update from any amounts otherwise due to SPSS hereunder. PH agrees that, if sales of a new SPSS Educational Version or Update or any other Product do not enable PH to recover the Advance for such new SPSS Educational Version or Update, SPSS will have no obligation to repay PH the uncovered portion of such Advance. Nothing set forth in this paragraph 11.2(b) shall be deemed to be or construed as a waiver of any other rights or remedies that PH may have under this Agreement or at law or in equity. 11.3 (a) In the event that PH requests that SPSS develop an Update, PH shall notify SPSS, and provide an estimate of the Advance. If in the good faith judgment of SPSS, the development costs for such Update would be more than double the amount of the Advance, SPSS shall have the absolute right to decline to do the Update upon notice to PH in writing. If for any other reason, SPSS does not believe that such development is commercially reasonable, SPSS shall notify PH thereof, in writing, specifying the reasons for such determination. In the latter case, if, PH still desires SPSS to commence development of such Update, PH will notify SPSS thereof, in writing, in which event, the parties shall comply with the procedures set forth in paragraphs 3 or 8 and 16 9 11.2, as applicable, except that the Advance will be multiplied by two and SPSS shall receive royalties as set forth in paragraph 11.1. PH agrees that, if its sales of such Update do not enable PH to recover the Advance for such Update, SPSS will have no obligation to repay PH the unrecovered portion of such Advance. (b) In the event that SPSS wishes to develop a new SPSS Educational Version or Update and PH does not believe that the development and/or distribution of such new SPSS Educational Version or Update is commercially reasonable, PH shall notify SPSS in writing, specifying the reasons for such determination. If, notwithstanding PH's opinion, SPSS desires to commence development of such new SPSS Educational Version or Update, SPSS will notify PH in writing. At such time, PH will notify SPSS, in writing, either that it wishes to comply with the procedures set forth in paragraphs 3 or 8 and 11.2, as applicable, or that it will not pay an Advance for such new SPSS Educational Version or Update. If PH notifies SPSS that it will not pay an Advance, SPSS may offer a third party the right to develop and distribute such new SPSS Educational Version or Update, provided that PH shall have the right of last refusal to match any terms offered by the third party. If SPSS and the third party enter into an agreement, such new SPSS Educational Version or Update shall not be included in the definition of "Contract Software" and SPSS shall not use the Designation (as defined in paragraph 4.3) in connection with such new SPSS Educational Version or Update. 11.4 PH will report on the sale of the Products by March 31 and September 30 of each year ("Reporting Dates") for the six month period ending the prior December 31 and June 30, respectively. With each report of sales, PH will make settlement for any balance shown to be due less a reasonable reserve for returns. 11.5 Except as limited in paragraph 11.3(a), all Advances paid to SPSS hereunder shall be recoupable from royalties otherwise payable pursuant to paragraph 11.1 and 11.3. In the event that, as of any Reporting Date, the total royalties earned on the sale of the Products ("Earned Royalties") do not exceed the aggregate amount of the advance payments made to SPSS hereunder (other than any Advance pursuant to paragraph 11.3(a)) ("Aggregate Advance"), PH shall be entitled to reduce any future advance payments by the amount that the Aggregate Advance exceeds the Earned Royalties. 11.6 The parties agree that, during the term hereof, at the expiration of each Fiscal Year (January 1 through December 31), PH will provide SPSS with a report setting forth (i) PH's total Per Unit Costs (as defined in paragraph 9.2) for the Products sold by PH during such Fiscal Year ("Fiscal Unit Costs") and (ii) PH's total Net Cash Received for the Products sold, during such fiscal year ("Fiscal Net Sales"). If the Fiscal Unit Costs total less than 19% of the Fiscal Net Sales ("Budget Costs"), PH will pay SPSS one-half of the difference between the Budget Costs and Fiscal Unit Costs. If the Fiscal Unit Costs total more than the Budget Costs, SPSS will pay PH one-half of the difference between the Budget Costs and Fiscal Unit Costs. Any payments due under this paragraph 11.6 will be made within 60 days of the end of each Fiscal Year and will be considered separate from any royalty payments made under this Agreement. 11.7 PH will maintain relevant records with respect to any royalty report or statement provided to SPSS under the Agreement for a two year period from the date of the statement. SPSS may, at SPSS's expense, during normal business hours and upon reasonable notice not more frequently than once each year, on its own or using a competent professional representative, examine the relevant records pertaining to the statement for the purpose of verifying its accuracy. SPSS agrees to keep confidential all information relating to the business affairs of PH and to impose such obligation on his/her representatives. Royalty statements will be final and binding upon SPSS after two years. In the event any underpayment or overpayment is discovered, PH shall promptly pay any underpayment and SPSS shall repay any overpayment or allow PH to take a credit for such overpayment. 17 10 12. Discontinue Distribution If PH decides that the public demand for any Product no longer warrants its continued marketing and distribution, PH will notify SPSS thereof, whereupon, SPSS may request that PH return any remaining inventory of such Product to SPSS for distribution by SPSS, and PH will do so, provided that SPSS (i) pays for all freight and insurance expenses and shipping and handling charges in connection therewith, (ii) gives PH a full refund at the per unit price for such inventory. If SPSS does not purchase such inventory from PH within 15 days of PH's notification, PH may either destroy or sell it, as PH deems appropriate, provided however that any buyer shall be bound by the terms set forth in this Agreement, and that if PH sells the inventory, royalties will be paid to SPSS pursuant to paragraph 11. 13. Representations and Warranties 13.1 SPSS represents and warrants that: (a) It has full power and authority to grant the rights granted hereunder; (b) It is financially sound and technically competent to perform its obligations hereunder, and agrees that any change in such status shall be immediately communicated in writing to PH; (c) It shall develop the Contract Software in accordance with customary professional standards applicable to the development of software. (d) The development, preparation and manufacture of the Products shall be in accordance with and shall not violate applicable federal, state and local laws, rules and regulations and that SPSS shall obtain all permits or permissions required to be in compliance therewith; (e) No licenses, grant of rights or permissions other than as set forth herein is required for PH to exercise all rights granted hereunder; (f) Except to the extent developed by PH or its employees, the Deliverables and all portions thereof shall be developed by SPSS employees or by consultants who have executed enforceable non-disclosure and "work made for hire" agreements with SPSS. SPSS shall at all times remain responsible for the Deliverables and the final Products and for all obligations, warranties and indemnities of SPSS pursuant to this Agreement. (g) Neither the Deliverables nor the Products nor their content, promotion, advertisement, sale, distribution, disposition or use by end-users will infringe or violate any copyright, patent, trade secret, trademark, right of publicity or privacy or other personal or proprietary right of any third party or contain any defamatory, libelous or obscene materials or any matter injurious to man or machine. SPSS represents that, during the term of this Agreement, it will do all things necessary to maintain its copyright protection in the Products; (h) The performance of the terms of this Agreement and of SPSS's obligations hereunder shall not breach any separate agreement by which SPSS is bound; and (i) During the term hereof, the Contract Software will be substantially free of errors that interfere with its use under normal use and conditions, and the Documentation and Titles will not contain substantially inaccurate information that interferes with its use (collectively, and respectively, "Errors"). (a) If PH determines that the Contract Software or Documentation or Titles contain any such Error, it shall promptly send a written notice to SPSS describing the Error (and, in the case of the Contract Software) the 18 11 conditions under which the Error arose. SPSS shall promptly test the Contract Software and review the Documentation or Title. (b) If the Error is in the Contract Software, SPSS will promptly inform PH of its classification of the severity of the error, using the same process and scale as it does for its Commercial SPSS software and what action SPSS considers to be commercially reasonable to address the Error based on that classification. SPSS may elect to correct the Error immediately, provide a workaround for the Error, correct the Error in a future version, or whatever else it deems commercially reasonable, including not addressing the Error. If PH finds SPSS' actions to be insufficient, PH, at its option and expense, may exercise its rights under paragraph 19 and take such corrective steps as it deems necessary. (c) If the Error is in the Documentation or Title, SPSS will promptly inform PH of what SPSS considers to be commercially reasonable to address the Error. SPSS may elect to correct the Error immediately, correct the Error in a future edition, or whatever else it deems commercially reasonable. If PH finds SPSS' actions to be insufficient, PH, at its option and expense, may exercise its rights under paragraph 19 and take such corrective steps as it deems necessary. EXCEPT AS OTHERWISE SET FORTH HEREIN, THE WARRANTIES SET FORTH IN THIS SUB-PARAGRAPH 13(i) ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT TO THE PERFORMANCE OF THE CONTRACT SOFTWARE. SPSS MAKES NO OTHER WARRANTIES WITH RESPECT TO THE PERFORMANCE OF THE CONTRACT SOFTWARE, INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WHICH ARE SPECIFICALLY EXCLUDED. 13.2 SPSS shall provide PH with complete, packaged Contract Software with documentation containing licenses, all warranties, disclosures and representations concerning the Contract Software and its use, and such licenses, warranties, disclosures and representations of SPSS will be extended to the end user. PH has no authority, express or implied, to make any representations, warranties, or disclosures to customers or users concerning the Contract Software or their use beyond that information and documentation which is provided by SPSS. 13.3 PH represents and warrants that: (a) It possesses full power and authority to enter into this Agreement and to fulfill its obligations hereunder; (b) It is financially sound and competent to perform its obligations hereunder, and agrees that any change in such status shall be immediately communicated in writing to SPSS; (c) The performance of the terms of this Agreement and of PH's obligations hereunder shall not breach any separate agreement by which PH is bound; (d) Its marketing and distribution of the Products shall be in accordance with and shall not violate applicable federal, state and local laws, rules and regulations; (e) All contributions of PH to the Deliverables which do not originate with SPSS, shall not infringe intellectual property rights of third parties. 14. Maintenance and Support and Training 14.1 SPSS shall provide technical support to the instructors adopting the Contract Software, via telephone, during SPSS's normal business hours, Monday through Friday, except official holidays. SPSS shall provide PH with an example of a document informing the instructors that such support is available and PH will 19 12 distribute copies of such document to such instructors. PH shall not be required or obligated to provide support or maintenance to end-users of the Software but may do so if the technical support provided by SPSS is not satisfactory. 14.2 At PH's request, SPSS will provide, free of charge, to PH such reasonable number of hours of support and technical training relating to the use and operation of the Contract Software as PH deems reasonably necessary to effectuate the purpose of this Agreement. 15. Term/Termination 15.1 This Agreement shall become effective as of the date hereof and extend for a period of five (5) years unless terminated sooner as set forth in paragraph 15.5 or extended as set forth in paragraphs 15.2 or 15.4. 15.2 PH shall have the option to renew this Agreement for an additional five (5) year term ("Renewal Term") upon written notice to SPSS in the event that royalties earned in connection with the sale of the Products total at least $2,750,000 (inclusive) at the date of expiration of the Term or PH agrees to tender the difference. 15.3 If aggregate royalties paid to SPSS for sales of the Products have reached $1,100,000 by the conclusion of the second year of this Agreement, all rights set forth in paragraph 2 shall remain in effect for the full term of the Agreement. If PH fails to pay such royalties by the conclusion of the second year of the Agreement, PH's right to distribute and fulfill orders for the Titles and Documentation shall continue as set forth in paragraph 2, but PH's right to distribute and fulfill orders for the SPSS Educational Versions shall become non-exclusive for the balance of the Term, provided that SPSS: a) notifies PH in writing, at least 30 days in advance, of its intention to exercise its rights under this provision; b) repays to PH all outstanding unearned Advances; c) agrees to allow PH to return inventory of SPSS Educational Versions in excess of a 1 year supply (as determined by PH's prior year's sales); and d) agrees to offer PH equivalent or substantially similar terms (royalty percentage and Advances) to those SPSS offers any other party distributing or fulfilling orders for SPSS Educational Versions. 15.4 In the event that PH fails to recover all Advance payments made to SPSS hereunder (other than Advances made pursuant to paragraph 11.3(a) from royalties otherwise payable to SPSS hereunder as of the date of expiration of the Agreement, the Initial Term shall be automatically extended for an additional nine (9) month period, except that PH's right to distribute and fulfill orders for the Products will be non-exclusive. PH shall have no obligation to pay additional advances in connection with such extension. 15.5 This Agreement may be terminated immediately by a party upon written notice to the other under any of the following conditions: (a) if the other party shall be declared insolvent or bankrupt; (b) if a petition is filed in any court and not dismissed in ninety (90) days to declare the other party bankrupt or for a reorganization under the Bankruptcy Law or any similar statute; 20 13 (c) if a Trustee in Bankruptcy or a Receiver or similar entity is appointed for the other party; or (d) if the other party is in breach of a material term or condition of this Agreement and fails to cure such breach within 30 days of receipt of notice of such breach. 15.6 Upon expiration or termination of this Agreement in accordance with the terms hereof, PH shall have the non-exclusive right to market and distribute its inventory of the Products, subject to any royalty obligations as set forth herein. Notwithstanding the foregoing, SPSS shall have the right to request that PH return such inventory to SPSS, provided that SPSS (i) pays for all freight and insurance expenses and shipping and handling charges in connection therewith, and (ii) gives PH a full refund at the Per Unit Cost for such inventory. In the event of return to SPSS, no royalties shall be due SPSS, and PH shall have no further rights to market and distribute the Products. The parties agree to continue their cooperation in order to effect an orderly termination of their relationship. 16. Indemnification 16.1 SPSS shall indemnify, defend and hold harmless PH against all claims, demands, suits, liabilities, losses, damages, judgments, settlements, costs and expenses, including attorneys' fees and court costs, that PH may sustain or incur by reason of any breach or alleged breach of any representation, warranty or covenant contained in this Agreement or as a result of, in connection with or arising out of the end-users' use of the Products, including, without limitation, as a result of, in connection with or arising out of any error, failure, defect or other fault of the Products, except to the extent that SPSS did not create, through its actions or omissions, such error, failure, defect or fault. In the event that SPSS does not repay PH the damages, costs or expenses incurred by PH hereunder in a timely manner, PH shall have the right to withhold sums otherwise due to SPSS under this Agreement. 16.2 If, in response to a notice of claim or a threat of suit for infringement or violation of any copyright, patent or other intellectual property right, SPSS prepares a non-infringing version of the Commercial SPSS Software or procures the right to continue to reproduce, use or distribute the intellectual property at issue in connection with the Commercial SPSS Software, SPSS agrees to take the same corrective measures in connection with the corresponding SPSS Educational Version. 16.3 PH shall indemnify, defend and hold harmless SPSS against all claims, demands, suits, liabilities, losses, damages, judgments, settlements, costs and expenses, including attorneys' fees and court costs, that SPSS may sustain or incur by reason of any breach or alleged breach of any representation, warranty or covenant made by PH hereunder. 16.4 If a claim, suit, proceeding, action or demand (hereinafter referred to as "Claim") is made against a party indemnified pursuant to this paragraph 16 ("Indemnitee"), the Indemnitee will promptly notify the other party ("Indemnitor") of such Claim. Indemnitor may elect to undertake the defense of such Claim, with legal counsel approved by Indemnitee (which approval shall not be unreasonably withheld), provided, however, that Indemnitor shall not be entitled to assume the defense on Indemnitee's behalf for any Claim which seeks an order, injunction, or other equitable relief against Indemnitee. Should such a Claim be brought, Indemnitee shall have the right to assume and control the defense of such Claim, at Indemnitor's expense. Should Indemnitor elect to assume the defense of a Claim pursuant to the provisions of this paragraph and legal defenses are available to Indemnitee which are different from or in addition to those available to Indemnitor, or a conflict exists which precludes representation of Indemnitee and Indemnitor by the same counsel, Indemnitee may retain counsel to act as co-counsel on behalf of Indemnitee, at the expense of Indemnitor. In the event that Indemnitor desires to settle 21 14 any Claim that it is defending, Indemnitee shall have the right to approve any settlement providing for any relief other than the payment of money; which approval shall not be unreasonably withheld. 16.5 The parties agree that the party controlling the defense of a Claim shall have the reasonable cooperation and assistance of the other party in the defense of such Claim. 17. Confidentiality 17.1 Each party hereto (the "Disclosing Party") may disclose to the other ("Recipient") Confidential Information to further the performance of this Agreement. Confidential Information includes, but is not limited to, technical and business information relating to Disclosing Party's products, research and development, production, costs, engineering processes, profit or margin information, finances, customers, marketing and future business plans. Confidential Information also may include proprietary or confidential information of another party that Disclosing Party is under an obligation to keep confidential. All Confidential Information shall remain the sole property of Disclosing Party and Recipient shall have no rights to the Confidential Information, except as set forth herein. Recipient agrees that it shall hold the Confidential Information in strict confidence. Recipient further agrees that it shall not make any disclosure of the Confidential Information (including methods or concepts utilized in the Confidential Information) to anyone without the express written consent of Disclosing Party, except to employees, consultants or agents to whom disclosure is necessary to the performance of this Agreement. Recipient shall take all reasonable steps to ensure the confidentiality of all Confidential Information. 17.2 After expiration or termination of this Agreement, upon request, Recipient shall promptly return all originals and copies thereof of any requested Confidential Information disclosed by Disclosing Party which has been fixed in any tangible means of expression. Notwithstanding the foregoing, PH shall have no obligation to turn over any information or items that it needs to exercise its rights hereunder, including, without limitation, paragraphs 15.6 and 19. 17.3 Notwithstanding the provisions of this Agreement, nothing received by Recipient shall be considered to be Confidential Information if: (i) it has been published or is otherwise readily available to the public other than by breach of this Agreement; (ii) it has been rightfully received by Recipient from a third party without Confidentiality limitations; (iii) it was known to or rightfully in the possession of Recipient at the time of disclosure; (iv) it has been intentionally disclosed by Disclosing Party to a third party without restriction on disclosure; or (v) it is required to be disclosed by law or court order, provided that prior written notice of such required disclosure and a reasonable opportunity to oppose or limit disclosure is given to Disclosing Party. 18. Exclusive Product PH agrees that, as of the date hereof and for the Term hereof: 18.1 The Simon & Schuster Higher Education Division (which shall include all the college divisions of Prentice-Hall, Inc., but excluding Allyn & Bacon and its operating divisions ) will refrain from entering into agreements with SPSS competitors listed in Exhibit F ("SPSS Competitors") for the distribution of educational versions of software that compete with the Contract Software, such software being also listed in Exhibit F. Exhibit F may be amended by mutual consent of the parties in response to changes in industry conditions, which consent shall not be unreasonably withheld. 18.2 Notwithstanding the foregoing, the Simon & Schuster Higher Education Division may enter into agreements with SPSS Competitors or any other party to produce Integrated Versions of SPSS Competitors' products. As used in this Agreement, "Integrated Versions of SPSS Competitors' Products" shall mean 22 15 any new educational version of an SPSS Competitor's product combined with documentation, CD-ROM electronic books of such products, and text-specific data relating to a textbook(s) published by PH, and packaged with that textbook, and without separate print documentation, Competitors' products or titles. 18.3 PH shall not be in breach of paragraph 18.1 if the Simon & Schuster Higher Education Division or its divisions become a party to and fulfills the terms of such an agreement as a consequence of the acquisition of the Simon & Schuster Higher Education Division, or a merger, consolidation or acquisition of all or substantially all of the stock or assets of another corporation ("Acquisition"). 18.4 If PH acquires all or substantially all of the stock or assets of, or merges with, an SPSS Competitor during the Initial Term, it will notify SPSS thereof. In such event, SPSS has the option to terminate PH's right to renew this Agreement as set forth in paragraph 15.2 upon written notification to PH at least 90 days prior to the expiration of the Initial Term. 19. Escrow/SPSS Breach In the event that (i) SPSS is in material breach of any term, provision or condition of this Agreement; (ii) SPSS ceases to exist, to function as a going concern, or to conduct its operations in the normal course of business; (iii) SPSS is declared insolvent or bankrupt or makes an assignment for the benefit of its creditors; (iv) a petition is filed in any court and not dismissed in ninety days to declare SPSS bankrupt for a reorganization under Bankruptcy Law or any similar statute; (v) a Trustee in bankruptcy or a receiver or similar entity is appointed for SPSS; or (vi) in the circumstances set forth in paragraphs 6.2, 7.1, 9.3, 13.1(i) or 17.2: 19.1 PH shall be given access to copies of the full proprietary source language statements of the most recent versions of the Contract Software and related documentation (hereinafter "Source Code Package") in accordance with the terms set forth in an agreement substantially similar to the Escrow Agreement annexed hereto as Exhibit E which shall be executed by SPSS, PH and the escrow agent simultaneous with or immediately following the execution of this Agreement. PH shall have the right to use such Source Code Package to reproduce, duplicate and manufacture copies of the Contract Software, at its expense, and to exercise all rights granted hereunder with respect to the Contract Software in accordance with the terms set forth herein. In cases where PH has access to the Source Code Package as a result of a material breach by SPSS, PH agrees to use such Source Code Package only to the extent necessary to perform the obligation that SPSS has breached. (a) Upon execution of this Agreement, such Source Code Package shall be deposited with the escrow agent pursuant to the Escrow Agreement and maintained, during the term hereof, in a form sufficient to permit a data processing professional familiar with such software to create an executable copy of such Contract Software. Such Source Code Package shall include precise identification of all compilers, library packages, utilities and linkers necessary to generate executable code. (b) When and if, during the term of this Agreement, SPSS provides PH with new SPSS Educational Versions of Other SPSS Software, or Updates, as the case may be, then within 10 days of acceptance of such software by PH, SPSS shall deposit a Source Code Package for such software and give notice of such delivery. (c) All fees and expenses charged by the escrow agent shall be borne as set forth in Exhibit E. 19.2 PH shall have the right to print copies of the Documentation and the Titles, at its expense, and to exercise all rights granted hereunder with respect to the Documentation and the Titles in accordance with the terms set forth herein. Upon PH's request and at its expense, SPSS shall deliver the film of the Documentation 23 16 and the Titles to PH. If SPSS fails to do so, PH shall have the right to have such film produced at PH's expense. Notwithstanding anything contained herein to the contrary, SPSS shall retain copyright ownership rights to the Documentation and Titles, subject to PH's rights under this Agreement. 19.3 PH may exercise all rights under this paragraph 19 without any liability to SPSS except for any royalty payments that may be due as set forth herein. 19.4 Nothing set forth in this paragraph 19 shall be deemed to be or construed as a waiver of any other rights or remedies that PH may have under this Agreement or at law or in equity. 20. General 20.1 Except as set forth in paragraph 16, each party waives any right it may have to special, consequential or incidental damages, including lost profits, even if such party provides advance notice of the possibility of such damages. 20.2 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND FULLY PERFORMED THEREIN. Exclusive jurisdiction for all suits, proceedings, disputes, controversy or claim arising out of, in connection with, or in relation to this Agreement, or the breach thereof, shall be only in the appropriate state court located in New York County or the federal court sitting in the Southern District of New York. 24 17 20.3 This Agreement, the Exhibits annexed hereto, and the Source Code Escrow Agreement, constitute the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments, writings and all other communications between the parties, both oral and written. This Agreement may not be released, discharged, changed or modified except by an instrument in writing signed by a duly authorized officer of each of the parties. The terms of this Agreement shall prevail in the event that there shall be any variance with the terms and conditions of any invoice or other such document submitted by SPSS or any purchase order or any other such document submitted by PH. This Agreement shall not be valid until signed and accepted by both parties and no change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. 20.4 It is expressly agreed that under no circumstances shall this Agreement create any actual or apparent authority, partnership or relationship of employer and employee between the parties. This Agreement shall not be construed as authority for either party to act for the other party or to make commitments of any kind for the accounts of, or on behalf of, the other party, except to the extent, and for the purposes, expressly provided for and set forth herein. 20.5 All notices contemplated or required hereunder shall be given in writing and shall become effective on the date actually delivered by hand and received by recipient, five days after being mailed by certified or registered mail, postage prepaid, return receipt requested, or one day after being sent by overnight courier services, freight prepaid: To PH: Prentice-Hall, Inc. One Lake Street Upper Saddle River, NJ 07458 Attention: President, PH College, Engineering Science & Math With a copy to: Simon & Schuster Legal Department One Lake Street Upper Saddle River, NJ 07458 Attention: Vice President and Deputy General Counsel To SPSS: SPSS Inc. 444 North Michigan Avenue Chicago, IL 60611 Attention: Edward Hamburg Chief Financial Officer and Executive Vice President 20.6 This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 20.7 If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other part or provision of this Agreement. 25 18 20.8 No waiver by any party of any breach of any provision hereof shall constitute a waiver of any other breach of that or any other provision hereof. 20.9 Nothing contained herein can be deemed or construed to limit PH's discretion in the operation of any part or aspect of its business, except as set forth herein. 20.10 All remedies, rights and obligations contained in this Agreement shall be cumulative and none of them shall limit or preclude any remedy or right available under this Agreement or at law or in equity. 20.11 Following the expiration or termination of this Agreement, whether by its terms, operation of law or otherwise, the terms, provisions and conditions set forth in paragraphs 13, 14, 15.6, 16, 17, and 20 as well as any term, provision or condition required for the interpretation of this Agreement or necessary for the full observation and performance by each party hereto of all rights and obligations arising prior to the date of expiration or termination shall survive such expiration or termination. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by a duly authorized officer as of the date set forth above. SPSS INC. By: /s/ Mark Battaglia -------------------- Title: Executive Vice President ------------------------- PRENTICE-HALL, INC. By: /s/ Jerome Grant ------------------ Title: Editor-in-Chief ---------------- 26 19 EXHIBIT A Contract Software S/034 SPSS/PC+ Studentware Plus 0-13-178021-2 SPSS 6.1 for Windows Student Version 0-13-486077-2 SPSS 6.1 for Windows for the Business Student 0-13-486085-3 SPSS 6.1 for the Macintosh Student Version 0-13-350091-8 SPSS 7.5 for Windows Student Version, CD ROM 0-13-631680-8 SPSS 7.5 for Windows Student Version, 3.5" disks 0-13-656919-6 SPSS 8.0 for Windows Student Version 0-13-687377-4 SYSTAT 6.0 for Windows Student Version 0-13-659970-2 SYSTAT 8.0 for Windows Student Version -------------
27 20 EXHIBIT B TITLES S/028 SPSS Guide to Data Analysis of SPSS/PC+, 2/e 0-13-178443-9 SPSS Guide to Data Analysis Version 4.0 0-13-178096-4 SPSS 6.1 Guide to Data Analysis 0-13-437054-6 SPSS 6.1 for Windows Brief Guide 0-13-455677-1 SPSS 7.5 Guide to Data Analysis 0-13-656877-7 SPSS 7.5 for Windows Brief Guide 0-13-656885-8 SPSS 8.0 Guide to Data Analysis 0-13-687484-3 SPSS 8.0 for Windows Brief Guide 0-13-687914-4 SYSTAT 6.0 for Windows Brief Guide, 0-13-618885-0 Introductory Statistics with SYSTAT 0-13-903329-7
28 21 EXHIBIT C DOCUMENTATION S/070 SPSS Reference Guide Version 4.0 0-13-177858-7 SPSS Base System User's Guide 4.0 0-13-177866-8 SPSS Advanced Statistics User's Guide 0-13-177940-0 SPSS/PC+ Base System User's Guide Version 5.0 0-13-177692-4 SPSS/PC+ Professional Statistics Version 5.0 0-13-177700-9 SPSS/PC+ Advanced Statistics Version 5.0 0-13-177718-1 SPSS for Windows Base System User's Guide Release 6.0 0-13-178856-6 SPSS 6.1 Base System User's Guide, Part 1, UNIX Version 0-13-459651-0 SPSS 6.1 Base System User's Guide, Open VMS Version 0-13-462441-6 SPSS 6.1 Base System User's Guide, Part 1, Mac Version 0-13-438862-3 SPSS 6.1 Base System User's Guide, Part 2 0-13-438870-4 SPSS Professional Statistics 6.1 0-13-190125-7 SPSS Advanced Statistics 6.1 0-13-200065-2 SPSS 6.1 Base System Syntax Reference Guide 0-13-438250-1 SPSS 6.1 for Windows Update 0-13-182338-8 SPSS Base 7.0 for Windows User's Guide 0-13-476300-9 SPSS Base 7.0 Applications Guide 0-13-476318-1 SPSS Base 7.0 Syntax Reference Guide 0-13-476326-2 SPSS Advanced Statistics 7.0 Update 0-13-476334-3 SPSS Base 7.5 Applications Guide 0-13-656992-7 SPSS Professional Statistics 7.5 0-13-656935-8 SPSS Advanced Statistics 7.5 0-13-656927-7 SPSS Base 7.5 User's Guide 0-13-657214-6 SPSS Base 7.5 Syntax Reference Guide 0-13-656943-9
29 22 EXHIBIT C Continued SPSS Base 8.0 Graphics 0-13-095891-3 SPSS Base 8.0 User's Guide 0-13-688590-X SPSS Base 8.0 Syntax Reference Guide 0-13-688533-0 SPSS Advanced Statistics 8.0 0-13-688400-8 SPSS Base 8.0 Applications Guide 0-13-687949-7 SYSTAT for Windows Version 5, Getting Started 0-13-437237-9 SYSTAT for Windows Version 5, Data 0-13-437245-X SYSTAT for Windows Version 5, Statistics 0-13-437252-2 SYSTAT for Windows Version 5, Graphics 0-13-437062-7 SYSTAT 6.0 for Windows: Command Reference 0-13-654310-3 SYSTAT 6.0 for Windows: Data 0-13-654485-1 SYSTAT 6.0 for Windows: Graphics 0-13-654393-6 SYSTAT 6.0 for Windows: Statistics 0-13-654352-9 SYSTAT 7.0: Command Reference 0-13-644618-3 SYSTAT 7.0: New Statistics 0-13-644627-2 SYSTAT 7.0: Graphics 0-13-676909-8 SYSTAT 7.0: Data 0-13-676917-9 SYSTAT 7.0: Statistics 0-13-679739-3
30 23 EXHIBIT D Print Specifications for Documentation and Titles Page sizes: 7" x 9" 7-3/8" x 9' 8-1/2' x 12" Binding: Perfect or layflat Saddle stitch (not greater than 104 pages) Text stock: 45# New Era Matte or equivalent brightness 78+, opacity 89+ Text prints: Black only Black and second color Cover stock: 80# LOE Dull 10 pt. Carolina Cover is film laminated or UV coated on one side Cover prints: Two colors: 2-0-0-2 Packaging: Bulk in cartons Pallet size: 40" x 48" or as required Over/under Margins: 10%
31 24 EXHIBIT E ESCROW # SOURCE CODE ESCROW AGREEMENT between PRODUCER, FORT KNOX and SINGLE LICENSEE This Escrow Agreement ("Agreement") is made as of this day of ----- , 1998, by and between SPSS Inc. ("Producer"), Fort Knox Escrow - ----------------- Services, Inc. ("Fort Knox") and Prentice-Hall, Inc. ("Licensee"). Preliminary Statement. Producer intends to deliver to Fort Knox a sealed package containing magnetic tapes, disks, disk packs, or other forms of media, in machine readable form, and the written documentation prepared in connection therewith, and any subsequent updates or changes thereto (the "Deposit Materials") for the computer software products (the "System(s)"), all as identified from time to time on Exhibit 2 hereto. Producer desires Fort Knox to hold the Deposit Materials, and, upon certain events, deliver the Deposit Materials (or a copy thereof) to Licensee, in accordance with the terms hereof. Now, therefore, in consideration of the foregoing, of the mutual promises hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Delivery by Producer. Within fifteen (15) days after execution of this Agreement, Producer shall deliver to Fort Knox the Deposit Materials. Fort Knox shall hold the Deposit Materials in accordance with the terms hereof. Fort Knox shall have no obligation to verify the completeness or accuracy of the Deposit Materials. 2. Duplication; Updates. (a) Fort Knox may duplicate the Deposit Materials by any means in order to comply with the terms and provisions of this Agreement, provided that Licensee shall bear the expense of duplication. Alternatively, Fort Knox, by notice to Producer, may require Producer to reasonably promptly duplicate the Deposit Materials. (b) Producer shall deposit with Fort Knox any modifications, updates, new releases or documentation related to the Deposit Materials by delivering to Fort Knox an updated version of the Deposit Materials ("Additional Deposit") as soon as practicable after the modifications, updates, new releases and documentation have been developed by Producer. Fort Knox shall have no obligation to verify the accuracy or completeness of any Additional Deposit or to verify that any Additional Deposit is in fact a copy of the Deposit Materials or any modification, updates, or new release thereof. If the Additional Deposit is an upgrade to the Deposit Materials, Fort Knox shall return the original Deposit Materials to the Producer. 3. Notification of Deposits. Simultaneous with the delivery to Fort Knox of the Deposit Materials or any Additional Deposit, as the case may be, Producer shall deliver to Fort Knox and to Licensee a written statement specifically identifying all items deposited and stating that the Deposit 32 25 Materials or any Additional Deposit, as the case may be, so deposited have been inspected by Producer and are complete and accurate. 4. 4.1 Delivery by Fort Knox to Licensee. Fort Knox shall deliver the Deposit Materials, or a copy thereof, to Licensee only in the event that: (a) Producer notifies Fort Knox to effect such delivery to Licensee at a specific address, the notification being accompanied by a check payable to Fort Knox in the amount of one hundred dollars ($100.00); or (b) Fort Knox receives from Licensee: (i) written notification (with specific details) that Producer has failed in a material respect to support the applicable Systems as required by the license agreement ("License Agreement") between Licensee and Producer or that Producer has otherwise defaulted in a material respect under the License Agreement ("Producer Default"); (ii) evidence satisfactory to Fort Knox that Licensee has previously notified Producer of such Producer Default in writing; (iii) a written demand that the Deposit Materials be released and delivered to Licensee; (iv) a written undertaking from the Licensee that the Deposit Materials being supplied to the Licensee will be used only as permitted under the terms of the License Agreement; (v) specific instructions from the Licensee for this delivery; and (vi) a certified or cashier's check payable to Fort Knox in the amount of five hundred dollars ($500.00). (c) If the provisions of paragraph 4.1(a) are satisfied, Fort Knox shall, within five business days after receipt of the notification and check specified in paragraph 4.1(a), deliver the Deposit Materials in accordance with the applicable instructions. (d) If the provisions of paragraph 4.1(b) are met, Fort Knox shall, within five (5) business days after receipt of all the documents specified in paragraph 4.1(b), send by certified mail to Producer a photostatic copy of all such documents. Producer shall have ten (10) days from the date on which Producer receives such documents ("Objection Period") to notify Fort Knox of its objection ("Objection Notice") to the release of the Deposit Materials to Licensee and to request that the issue of Licensee's entitlement to a copy of the Deposit Materials be submitted to arbitration in accordance with the following provisions: (i) If Producer shall send an Objection Notice to Fort Knox during the Objection Period, the matter shall be submitted to, and settled by arbitration by, a panel of three (3) arbitrators chosen by the Illinois Regional Office of the American Arbitration Association in accordance with the rules of the American Arbitration Association. The arbitrators shall apply Illinois law. At least one (1) arbitrator shall be reasonably familiar with the computer software industry. The decision of the arbitrators shall be binding and conclusive on all parties involved, and judgment upon their decision may be entered in a court of competent jurisdiction. All costs of the arbitration incurred by Fort Knox, including reasonable attorneys' fees and costs, shall be paid by the party which does not prevail in the arbitration; provided, 33 26 however, if the arbitration is settled prior to a decision by the arbitrators, the Producer and Licensee shall each pay 50% of all such costs. (ii) Producer may, at any time prior to the commencement of arbitration proceedings, notify Fort Knox that Producer has withdrawn the Objection Notice. Upon receipt of any such notice from Producer, Fort Knox shall reasonably promptly deliver the Deposit Materials to Licensee in accordance with the instructions specified in paragraph 4.1(b)(v). (e) If, during the Objection Period, Fort Knox has not received an Objection Notice from Producer, then Fort Knox shall reasonably promptly deliver the Deposit Materials to Licensee in accordance with the instructions specified in paragraph 4.1(b)(v). 4.2 Delivery by Fort Knox to Producer. Fort Knox shall release and deliver the Deposit Materials to Producer upon termination of this Agreement in accordance with paragraph 7(a) hereof. 4.3 Notwithstanding the provisions of paragraph 4.1, if Licensee believes in good faith that it will suffer irreparable harm to its business and operations in the event of delay caused by compliance with the terms of paragraph 4.1, or in the event that release of the Deposit Materials is wrongfully delayed by Licensor, Licensee may petition a court of competent jurisdiction for injunctive relief to prevent such delay and/or to order release of the Deposit Materials. Any and all costs incurred by Fort Knox in connection therewith, including reasonable attorneys' fees and costs, shall be borne 50% by each of Producer and Licensee. 5. Indemnity. Producer and Licensee shall, jointly and severally, indemnify and hold harmless Fort Knox and each of its directors, officers, agents, employees and stockholders ("Fort Knox Indemnitees") absolutely and forever, from and against any and all claims, actions, damages, suits, liabilities, obligations, costs, fees, charges, and any other expenses whatsoever, including reasonable attorneys' fees and costs, that may be asserted against any Fort Knox Indemnitee in connection with this Agreement or the performance of Fort Knox or any Fort Knox Indemnitee hereunder. 6. Disputes and Interpleader. (a) In the event of any dispute between any of Fort Knox, Producer and/or Licensee relating to delivery of the Deposit Materials by Fort Knox or to any other matter arising out of this Agreement, Fort Knox may submit the matter to any court of competent jurisdiction in an interpleader or similar action. Any and all costs incurred by Fort Knox in connection therewith, including reasonable attorneys' fees and costs, shall be borne 50% by each of Producer and Licensee. (b) Fort Knox shall perform any acts ordered by any court of competent jurisdiction, without any liability or obligation to any party hereunder by reason of such act. 7. Term and Renewal. (a) The initial term of this Agreement shall be two years, commencing on the date hereof (the "Initial Term"). This Agreement shall be automatically extended for an additional term of one year ("Additional Term") at the end of the Initial Term and at the end of each Additional Term hereunder unless, on or before ninety (90) days prior to the end of the Initial Term or an Additional Term, as the case may be, any party notifies the other parties that it wishes to terminate the Agreement at the end of such term. 34 27 (b) In the event of termination of this Agreement in accordance with paragraph 7(a) hereof, Licensee shall pay all fees due Fort Knox and shall promptly notify Licensee that this Agreement has been terminated and that Fort Knox shall return to Producer all copies of the Deposit Materials then in its possession. (c) In the event of termination of this Agreement in accordance with paragraph 8(b) hereof, Producer shall promptly notify Licensee that this Agreement has been terminated. 8. Fees. Producer shall pay to Fort Knox the applicable fees in accordance with Exhibit 1 as compensation for Fort Knox's services under this Agreement. (a) Payment. Fort Knox shall issue an invoice to Producer following execution of this Agreement ("Initial Invoice"), on the commencement of any Additional Term hereunder, and in connection with the performance of any additional services hereunder. Payment is due upon receipt of invoice. All fees and charges are exclusive of, and Producer is responsible for the payment of, all sales, use and like taxes. Fort Knox shall have no obligations under this Agreement until the Initial Invoice has been paid in full by Producer. (b) Nonpayment. In the event of non-payment of any fees or charges invoiced by Fort Knox, Fort Knox shall give notice of non-payment of any fee due and payable hereunder to the Producer and, in such an event, the Producer shall have the right to pay the unpaid fee within ten (10) days after receipt of notice from Fort Knox. If Producer fails to pay in full all fees due during such ten (10) day period, Fort Knox shall give notice of non-payment of any fee due and payable hereunder to Licensee and, in such event, Licensee shall have the right to pay the unpaid fee within ten (10) days of receipt of such notice from Fort Knox. Upon payment of the unpaid fee by either the Producer or Licensee, as the case may be, this Agreement shall continue in full force and effect until the end of the applicable term. Failure to pay the unpaid fee under this paragraph 8(b) by both Producer and Licensee shall result in termination of this Agreement. 9. Ownership of Deposit Materials. The parties recognize and acknowledge that ownership of the Deposit Materials shall remain with Producer at all times. 10. Available Verification Services. Upon receipt of a written request from Licensee, Fort Knox and Licensee may enter into a separate agreement pursuant to which Fort Knox will agree, upon certain terms and conditions, to inspect the Deposit Materials for the purpose of verifying its relevance, completeness, currency, accuracy and functionality ("Technical Verification Agreement"). Upon written request from Producer, Fort Knox will issue to Producer a copy of any written technical verification report rendered in connection with such engagement. If Fort Knox and Licensee enter into such Technical Verification Agreement, Producer shall reasonably cooperate with Fort Knox by providing its facilities, computer systems, and technical and support personnel for technical verification whenever reasonably necessary. If requested by Licensee, Producer shall permit one employee of Licensee to be present at Producer's facility during any such verification of the Deposit Materials. Results of shall technical verification shall be kept in confidence by the parties. 11. Bankruptcy. Producer and Licensee acknowledge that this Agreement is an "agreement supplementary to" the License Agreement as provided in Section 365 (n) of Title 11, United States Code (the "Bankruptcy Code"). Producer acknowledges that if Producer as a debtor in possession or a trustee in Bankruptcy in a case under the Bankruptcy Code rejects the License Agreement or this Agreement, Licensee may elect to retain its rights under the License Agreement and this Agreement as provided in 35 28 Section 365 (n) of the Bankruptcy Code. Upon written request of Licensee to Producer or the Bankruptcy Trustee, Producer or such Bankruptcy Trustee shall not interfere with the rights of Licensee as provided in the License Agreement and this Agreement, including the right to obtain the Source Material from Fort Knox. 12. Miscellaneous. (a) Remedies. Except for actual fraud, gross negligence or intentional misconduct, Fort Knox shall not be liable to Producer or to Licensee for any act, or failure to act, by Fort Knox in connection with this Agreement. Any liability of Fort Knox regardless of the cause shall be limited to the actual cost of new blank magnetic media. Fort Knox will not be liable for special, indirect, incidental or consequential damages hereunder. (b) Natural Degeneration; Updated Version. In addition, the parties acknowledge that as a result of the passage of time alone, the Deposit Materials are susceptible to loss of quality ("Natural Degeneration"). It is further acknowledged that Fort Knox shall have no liability or responsibility to any person or entity for any Natural Degeneration. For the purpose of reducing the risk of Natural Degeneration, Producer shall deliver to Fort Knox a new copy of the Deposit Materials at least once every three years. (c) Permitted Reliance and Abstention. Fort Knox may rely and shall be fully protected in acting or refraining from acting upon any notice or other document believed by Fort Knox in good faith to be genuine and to have been signed or presented by the proper person or entity. Fort Knox shall have no duties or responsibilities except those expressly set forth herein. (d) Independent Contractor. Fort Knox is an independent contractor, and is not an employee or agent of either the Producer or Licensee. (e) Amendments. This Agreement shall not be modified or amended except by another agreement in writing executed by the parties hereto. (f) Entire Agreement. This Agreement, including all exhibits hereto, supersedes all prior discussions, understandings and agreements between the parties with respect to the matters contained herein, and constitutes the entire agreement between the parties with respect to the matters contemplated herein. All exhibits attached hereto are by this reference made a part of this Agreement and are incorporated herein. (g) Counterparts; Governing Law. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. This Agreement shall be construed and enforced in accordance with the laws of the State of Illinois. (h) Confidentiality. Fort Knox will hold and release the Deposit Materials only in accordance with the terms and conditions hereof, and will maintain the confidentiality of the Deposit Materials and will use the Deposit Materials only in accordance with this Agreement. (i) Notices. All notices, requests, demands or other communications required or permitted to be given or made under this Agreement shall be in writing and shall be delivered by hand or by commercial 36 29 overnight delivery service which provides for evidence of receipt, or mailed by certified mail, return receipt requested, postage prepaid, and addressed as follows: (i) If to Producer: to the address listed on the signature page hereof (ii) If to Licensee: to the address listed on the signature page hereof (iii) If to Fort Knox: Fort Knox Escrow Services, Inc. 3539-A Church Street Clarkston, Georgia 30021-1717 Attn: Contracts Administrator If delivered personally or by commercial overnight delivery service, the date on which the notice, request, instruction or document is delivered shall be the date on which delivery is deemed to be made, and if delivered by mail, the date on which such notice, request, instruction or document is received shall be the date on which delivery is deemed to be made. Any party may change its address for the purpose of this Agreement by notice in writing to the other party as provided herein. (j) Survival. Paragraphs 5, 6, 8, 9 and 11 shall survive any termination of this Agreement. (k) No Waiver. No failure on the part of any party hereto to exercise, and no delay in exercising any right, power or single or partial exercise of any right, power or remedy by any party will preclude any other or further exercise thereof or the exercise of any other right, power 37 30 or remedy. No express waiver or assent by any party hereto to any breach of or default in any term or condition of this Agreement shall constitute a waiver of or an assent to any succeeding breach of or default in the same or any other term or condition hereof. IN WITNESS WHEREOF each of the parties has caused its duly authorized officer to execute this Agreement as of the date and year first above written. Fort Knox Escrow Services By: Title: Producer By: Title: Address: Attention: Licensee By: Title: Address: Attention: 38 31 EXHIBIT 1 Fees to be paid by Producer shall be as follows: Initialization fee (one time only) $ 750 Annual maintenance/storage fee (includes one Deposit Material update) $ 800/Product Additional Updates $ 100/Product (above one per year) Payable by Licensee: Due Upon Licensee's Request for Release of Deposit Materials $500/Product per Licensee A ten percent discount is credited towards the initialization fee for current Fort Knox clients. Fees due upon receipt of signed contract or deposit material, whichever comes first. Thereafter, fees shall be subject to their current pricing, provided that such prices shall not increase by more than 10% per year. 39 32 EXHIBIT 2 B-1 Product Name -------------------------------------------------------------- Version # --------------------------------------------------------------------- Description of Materials Deposited: Date: ----------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Updates Version # --------------------------------------------------------------------- Description of Materials Deposited: Date: ----------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- B-2 Product Name -------------------------------------------------------------- Version # --------------------------------------------------------------------- Description of Materials Deposited: Date: ----------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Updates Version # --------------------------------------------------------------------- Description of Materials Deposited: Date: ----------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 40 33 EXHIBIT F SPSS COMPETITORS
COMPANY PRODUCT - ------- ------- STATSOFT ALL MINITAB ALL SAS Institute/Abacus SAS/JMP/STATVIEW DATADESK ALL MANUGISTICS STATGRAPHICS STATA ALL QUALITY AMERICA ALL PQ SYSTEMS ALL HERTZLER ALL DATAMYTE ALL MATHSOFT S+ PRODUCT
41 34 EXHIBIT G ELECTRONIC BOOKS Content contained in the following book(s) may be included in electronic format on CDs sold as part of "Other SPSS Integrated Versions" as defined in paragraph 1.2. ISBN# 013-455677-1 SPSS 6.1 for Windows Brief Guide ISBN# 013-656885-8 SPSS 7.5 for Windows Brief Guide ISBN# 013-687914-4 SPSS 8.0 for Windows Brief Guide ISBN# 013-618885-0 SYSTAT 6.0 for Windows Brief Guide Content from other titles may be added from time to time with written consent of the Publisher. 42 EX-15.1 4 ACK OF INDEP CERTIFIED PUBLIC ACCOUNTANT 1 Exhibit 15.1 Acknowledgment of Independent Certified Public Accountants Regarding Independent Auditors' Review Report The Board of Directors SPSS Inc.: With respect to the Registration Statements on Form S-8 (nos. 333-25869, 33-73130, 33-80799, 33-73120, and 33-74402) of SPSS Inc., we acknowledge our awareness of the use therein of our report dated July 31, 1998 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. /s/ KPMG Peat Marwick LLP Chicago, Illinois August 12, 1998 43 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 3-MOS 6-MOS JUN-30-1998 JUN-30-1998 JUN-30-1998 JUN-30-1998 0 $10,010 0 0 0 30,886 0 1,436 0 2,974 0 45,169 0 33,349 0 20,735 0 70,643 0 27,495 0 0 0 0 0 0 0 90 0 39,905 0 70,643 29,158 57,658 29,158 57,658 2,574 5,009 2,574 5,009 22,267 43,286 21 128 55 98 4,339 9,250 1,488 3,173 2,851 6,077 0 0 0 0 0 0 2,851 6,077 0.32 0.68 0.30 0.64
EX-27.1A 6 FINANCIAL DATA SCHEDULE (RESTATED)
5 3-MOS 6-MOS JUN-30-1997 JUN-30-1997 JUN-30-1997 JUN-30-1997 0 $6,664 0 0 0 26,153 0 1,283 0 2,341 0 38,641 0 28,045 0 16,876 0 63,523 0 27,423 0 0 0 0 0 0 0 88 0 32,437 0 63,523 26,726 54,038 26,726 54,038 2,426 5,015 2,426 5,015 22,132 42,425 127 153 22 65 2,275 6,792 998 2,601 1,277 4,191 0 0 0 0 0 0 1,277 4,191 0.15 0.48 0.13 0.44
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