SPSS Spss Inc. (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.      )

Filed by the registrant þ
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o Preliminary proxy statement
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þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to § 240.14a-12

SPSS Inc.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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September 1, 2009

Dear Stockholder:

 

You are cordially invited to attend a special meeting of stockholders of SPSS Inc. to be held on October 2, 2009 at 9:00 a.m., Central time, at the corporate headquarters of SPSS Inc. located at 233 South Wacker Drive, Chicago, Illinois 60606. At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of July 27, 2009, as it may be amended from time to time, among SPSS Inc., a Delaware corporation, International Business Machines Corporation, a New York corporation, and Pipestone Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of IBM. Pursuant to the merger agreement, Pipestone Acquisition Corp. will merge with and into SPSS with SPSS continuing as the surviving corporation in the merger.

 

If the merger is completed, holders of SPSS Common Stock will be entitled to receive $50.00 in cash, or the “merger consideration,” without interest and less any applicable withholding taxes, for each share of SPSS Common Stock owned by them as of the effective time of the merger.

 

Our board of directors has approved and declared advisable the merger agreement and the merger and declared that it is in the best interests of the stockholders of SPSS that SPSS enter into the merger agreement and consummate the merger. Our board of directors unanimously recommends that you vote “FOR” adoption of the merger agreement at the special meeting.

 

Our board of directors considered a number of factors in evaluating the transaction and consulted with its legal and financial advisors in so doing. The enclosed proxy statement provides detailed information about the merger agreement and the merger. We encourage you to read the proxy statement carefully.

 

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. The merger agreement must be adopted by the affirmative vote of holders of a majority of the outstanding shares of our Common Stock. Therefore, if you do not return your proxy card, submit your proxy via the Internet or telephone or attend the special meeting and vote in person, it will have the same effect as if you voted “AGAINST” adoption of the merger agreement. Only stockholders who owned shares of SPSS Common Stock at the close of business on August 31, 2009, the record date for the special meeting, will be entitled to notice of, and to vote at, the special meeting. On behalf of the board of directors, we urge you to vote your shares of Common Stock by completing, signing, dating and returning the enclosed proxy card, or by submitting your proxy via the Internet or telephone as soon as possible, even if you currently plan to attend the special meeting.

 

Thank you for your support. We look forward to seeing you at the special meeting.

 

Sincerely,

 

 

Jack Noonan
Chairman of the Board, Chief Executive Officer
and President

 

This proxy statement is dated September 1, 2009 and is first being mailed to

stockholders of SPSS on or about September 2, 2009.

 

SPSS Inc.
233 South Wacker Drive
Chicago, Illinois 60606

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT

 

Notice is hereby given that a special meeting of stockholders of SPSS Inc., a Delaware corporation, will be held on October 2, 2009, at 9:00 a.m., Central time, at the corporate headquarters of SPSS Inc. located at 233 South Wacker Drive, Chicago, Illinois 60606, for the following purposes:

 

1. to consider and vote upon the adoption of the Agreement and Plan of Merger, dated as of July 27, 2009, as it may be amended from time to time, among SPSS Inc., a Delaware corporation, International Business Machines Corporation, a New York corporation, and Pipestone Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of IBM, as more fully described in the enclosed proxy statement;

 

2. to consider and vote upon a proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes in favor of adopting the merger agreement at the time of the special meeting; and

 

3. to transact such other business as may properly come before the meeting or any adjournment of the meeting.

 

You are entitled to vote at the special meeting if you were a stockholder of record at the close of business on August 31, 2009. Your vote is important. The affirmative vote of the holders of a majority of the outstanding shares of our Common Stock is required to adopt the merger agreement and the affirmative vote of the holders of a majority of the shares of our Common Stock, present in person or represented by proxy and entitled to vote at the special meeting, is required to approve the proposal to adjourn the special meeting.

 

Holders of SPSS Common Stock who do not vote in favor of adoption of the merger agreement are entitled to appraisal rights under Delaware law in connection with the merger if they comply with all applicable requirements of Delaware law. See “The Merger — Appraisal Rights” beginning on page 32 of the proxy statement and Annex C to the proxy statement.

 

All stockholders are cordially invited to attend the special meeting in person. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy or submit your proxy via the Internet or telephone and thus ensure that your shares will be represented at the special meeting if you are unable to attend. If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of adoption of the merger agreement and in favor of adjournment of the special meeting, if necessary or appropriate, to permit solicitations of additional proxies. If you fail to return your proxy card and do not submit your proxy via the Internet or by telephone, your shares will effectively be counted as a vote against adoption of the merger agreement and will not be counted for purposes of determining whether a quorum is present at the special meeting or for purposes of the vote to adjourn the special meeting to a later date, if necessary or appropriate, to permit solicitations of additional proxies. If you do attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person. You may revoke your proxy in the manner described in the enclosed proxy statement at any time before it has been voted at the special meeting.

 

Our board of directors unanimously recommends that you vote “FOR” adoption of the merger agreement and “FOR” adjournment of the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes in favor of adopting the merger agreement at the time of the special meeting.

 

By Order of the Board of Directors,

 

 

Raymond H. Panza
Secretary

Chicago, Illinois

September 1, 2009

 

SPSS INC.
SPECIAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS

 

 

The following questions and answers are intended to address some commonly asked questions regarding the special meeting and the merger. These questions and answers may not address all questions that may be important to you as a SPSS stockholder. We urge you to read carefully the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents we refer to in this proxy statement in their entirety.

 

Except as otherwise specifically noted in this proxy statement, the “Company,” and “we” “our,” “us” and similar words in this proxy statement refer to SPSS Inc. Throughout this proxy statement we also refer to SPSS Inc. as “SPSS” and International Business Machines Corporation as “IBM.” In addition, throughout this proxy statement, we refer to Pipestone Acquisition Corp. as “Merger Sub.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Georgeson Inc.
199 Water Street — 26th Floor
New York, NY 10038
Banks and Brokers call (212) 440-9800
All others call toll free (866) 828-4314

 

or

 

Erin R. McQuade
Vice President, Associate General Counsel
SPSS Inc.
233 South Wacker Drive
Chicago, Illinois 60606
Telephone: (312) 651-3496

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this proxy statement. Any representation to the contrary is a criminal offense.

 

SUMMARY TERMSHEET

 

The Companies (page 13)

 

Merger Consideration (page 40)

 

Treatment of Stock Options and Other Equity-Based Awards (page 40)

	•	The total number of shares of Common Stock covered by such option, and
	•	The excess of $50.00 over the exercise price per share of each such option.

 

Treatment of Convertible Notes (page 36)

 

Market Prices and Dividend Data (page 10)

 

Material U.S. Federal Income Tax Consequences of the Merger (page 37)

 

Recommendation of SPSS’s Board of Directors and Reasons for the Merger (page 18)

 

Opinion of SPSS’s Financial Advisor (page 20)

 

The Special Meeting (page 11)

	•	consider and vote upon adoption of the merger agreement;
	•	consider and vote upon a proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes in favor of adopting the merger agreement at the time of the special meeting; and
	•	transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.

 

Interests of SPSS’s Directors and Executive Officers in the Merger (page 28)

	•	Our directors and executive officers will have their outstanding stock options, whether or not vested or exercisable, cancelled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, equal to the product of the excess of $50.00 over the exercise price per share of each such option and the total number of shares of our Common Stock covered by such option. As of August 31, 2009, our directors and executive officers held, in the aggregate in-the-money stock options to acquire 824,101 shares of our Common Stock, and the aggregate amount of such cash payments will be approximately $24,280,120.

	•	Our executive officers will have each of their outstanding restricted share unit awards, whether or not vested, cancelled and converted into the right to receive the merger consideration of $50.00 in cash per restricted share unit, without interest and less any applicable withholding taxes. As of August 31, 2009, our executive officers held, in the aggregate, 601,055 restricted share units, and the aggregate amount of such cash payments will be approximately $30,052,750.

	•	Our directors will have each of their outstanding deferred share unit awards, whether or not vested, cancelled and converted into the right to receive the merger consideration of $50.00 in cash per deferred share unit, without interest and less any applicable withholding taxes. As of August 31, 2009, our directors held, in the aggregate, 21,270 deferred share units, and the aggregate amount of such cash payments will be approximately $1,063,500.

	•	Our current executive officers have entered into agreements with us that provide certain severance payments and benefits and, in certain cases, “gross-up” payments related thereto in the event of their termination of employment under certain circumstances.
	•	The merger agreement provides for indemnification arrangements for each of our current and former directors and officers that will continue for six years following the effective time of the merger, as well as for insurance coverage covering his or her service to SPSS as a director or officer.

 

Conditions to the Closing of the Merger (page 51)

	•	adoption of the merger agreement by our stockholders at the special meeting;
	•	the absence of any legal restraint or prohibition that has the effect of preventing the consummation of the merger; and
	•	the waiting period under the HSR Act has expired or been terminated and all approvals required under any antitrust laws applicable to the merger in any foreign jurisdictions have been obtained or any waiting periods thereunder have terminated or expired.

	•	each of our representations and warranties is true and correct as of the effective time of the merger to the extent required under the merger agreement as described below under the heading “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 51;

	•	we have performed in all material respects our obligations required to be performed by us under the merger agreement at or prior to the effective time of the merger;
	•	the absence of any claim, suit, action or proceeding either brought by a third party with a reasonable likelihood of success or brought or threatened by a governmental entity, in each case as a result of or in connection with the merger:

	•	challenging or seeking to restrain or prohibit the consummation of the merger;
	•	seeking to obtain material damages from IBM or its subsidiaries;

	•	seeking to prohibit or limit in any respect, or place conditions on, the ownership or operation by us, IBM or our or its respective affiliates of all or any portion of the business or assets or any product, or requiring any such person to dispose of, license or hold separate all or any portion of the business or assets or any product, of us, IBM or any of our or its subsidiaries;

	•	seeking to impose limitations on the ability of IBM or any of its affiliates to acquire or hold, or exercise full rights of ownership of, our Common Stock or the common stock of the surviving corporation or any of IBM’s subsidiaries;
	•	seeking to prohibit IBM or any of its affiliates from effectively controlling any of the business or operations of us, IBM or IBM’s subsidiaries;
	•	seeking to prevent us or our subsidiaries from operating our respective businesses in all material respects in the same manner as operated by us and our subsidiaries prior to the date of the merger agreement; or

	•	seeking to prevent IBM or IBM’s subsidiaries (excluding us and our subsidiaries) from operating any of their respective businesses in substantially the same manner as operated by IBM and IBM’s subsidiaries prior to the date of the merger agreement;

	•	no legal restraint that could reasonably be expected to result, directly or indirectly, in any of the effects described in the immediately preceding condition shall be in effect; and
	•	a material adverse effect has not occurred with respect to us.

	•	each of the representations and warranties of IBM and Merger Sub is true and correct as of the effective time of the merger to the extent required under the merger agreement as described below under the heading “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 51; and

	•	each of IBM and Merger Sub has performed in all material respects their respective obligations required to be performed by them under the merger agreement at or prior to the effective time of the merger.

 

No Solicitation of Transactions by SPSS (page 47)

	•	solicit, initiate or knowingly encourage, or take any other action knowingly to facilitate, any takeover proposal (as defined in the merger agreement and described below under the heading “The Merger Agreement — Covenants” beginning on page 45) or any inquiries or the making of any proposal that could reasonably be expected to lead to a takeover proposal; or

	•	enter into or otherwise participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, any takeover proposal.

 

Termination of the Merger Agreement (page 52)

	•	by the mutual written agreement of us, IBM and Merger Sub;
	•	if the merger is not consummated by January 31, 2010;
	•	if there exists any legal restraint or prohibition having the effect of preventing the consummation of the merger and such legal restraint or prohibition has become final and nonappealable; or
	•	our stockholders do not adopt the merger agreement at the special meeting (or at any adjournment or postponement thereof).

	•	if IBM breaches a representation, warranty, covenant or other agreement so that the related closing conditions cannot be satisfied and such breach cannot be cured by IBM or Merger Sub within 30

		business days, or if such breach is curable, IBM or Merger Sub, as the case may be, does not commence to cure such breach within 10 business days after receipt of written notice from us and diligently pursue such cure thereafter.

	•	if (i) our board of directors withdraws or modifies, or proposes publicly to withdraw or modify, in a manner adverse to IBM or Merger Sub, its recommendation or declaration of advisability of the merger agreement or the merger, or recommends, or proposes publicly to recommend, the approval or adoption of any takeover proposal or (ii) our board of directors delivers a notice to IBM of its intention to undertake any action described in (i);
	•	if we breach a representation, warranty, covenant or other agreement so that the related closing conditions cannot be satisfied and such breach cannot be cured within 30 business days after such breach, or if such breach is curable, we do not commence to cure such breach within 10 business days after receipt of written notice from IBM and diligently pursue such cure thereafter; or

	•	if any legal restraint having the effect of restraining or prohibiting the consummation of the merger, limiting the ownership, control or operation by us, IBM, or our or its affiliates of our respective businesses or causing material damages to IBM or its subsidiaries, in each case as a result of or in connection with the merger, has become final and nonappealable.

 

Termination Fees and Expenses and Remedies (page 53)

	•	after the date of the merger agreement and prior to the vote of our stockholders on the adoption of the merger agreement, a takeover proposal has been made to us or our stockholders, or any person has announced an intention to make a takeover proposal (whether or not conditional and whether or not withdrawn) or a takeover proposal (whether or not conditional and whether or not withdrawn) otherwise becomes known to us or generally known to our stockholders and thereafter:

	•	(i) prior to the adoption of the merger agreement by our stockholders the merger agreement is terminated by either us or IBM because the merger has not been consummated by January 31, 2010 or (ii) the merger agreement is terminated by either us or IBM because our stockholders voted against adopting the merger agreement but only if a person has publicly announced an intention to make a takeover proposal (whether or not conditional and whether or not withdrawn) or a takeover proposal (whether or not conditional and whether or not withdrawn) otherwise becomes generally known to our stockholders; and
	•	within 12 months after such termination of the merger agreement, either we or one of our subsidiaries enters into an acquisition agreement with respect to any takeover proposal or any takeover proposal is consummated (solely for purposes of this provision, all references to 10% in the definition of “takeover proposal” are deemed to be references to 35%); or

	•	IBM terminates the merger agreement because (i) our board of directors withdraws or modifies, or proposes publicly to withdraw or modify, in a manner adverse to IBM or Merger Sub, its recommendation or declaration of advisability of the merger agreement or the merger, or recommends, or proposes publicly to recommend, the approval or adoption of any takeover proposal or (ii) our board of directors delivers a notice to IBM of its intention to undertake any action described in (i).

 

Regulatory Matters (page 38)

 

Appraisal Rights (page 32)

 

This proxy statement and the documents to which we refer you in this proxy statement contain statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Such statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates” or the negative thereof or other variations thereon or comparable terminology. Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors, including, without limitation:

 

 

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 identifies other factors that could cause such differences (see Item 1A. “Risk Factors” therein). No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

 

SPSS undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised, however, to consult any future disclosures SPSS makes on related subjects as may be detailed in SPSS’s other filings made from time to time with the SEC.

MARKET PRICES AND DIVIDEND DATA

 

Our Common Stock is listed on The NASDAQ Stock Market under the symbol “SPSS.” The following table shows, for the periods indicated, the range of high and low per share sales prices for our Common Stock.

 

 

The following table set forth the closing price per share of our Common Stock, as reported on The NASDAQ Stock Market on July 27, 2009, the last full trading day before the public announcement of the merger agreement, and on August 31, 2009, the latest practicable trading day before the printing of this proxy statement:

 

 

You are encouraged to obtain current market quotations for the Common Stock in connection with voting your shares of Common Stock. If the merger is consummated, there will be no further market for our Common Stock and our stock will be delisted from The NASDAQ Stock Market and deregistered under the Exchange Act.

 

We have never declared or paid a cash dividend on our Common Stock.

 

The enclosed proxy is solicited on behalf of the board of directors of SPSS for use at the special meeting of stockholders or at any adjournment or postponement thereof.

 

We will hold the special meeting on October 2, 2009, at 9:00 a.m., Central time, at the corporate headquarters of SPSS located at 233 South Wacker Drive, Chicago, Illinois 60606.

 

At the special meeting, we will ask our stockholders to adopt the merger agreement as it may be amended from time to time and, if there are not sufficient votes in favor of adoption of the merger agreement, to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies. At this time, we know of no other matters to be submitted to our stockholders at the special meeting. If any other matters properly come before the special meeting or any adjournment or postponement of the special meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares of Common Stock they represent in accordance with their discretion.

 

Only holders of record of our Common Stock at the close of business on August 31, 2009, the record date, are entitled to notice of, and to vote at, the special meeting. On the record date, 18,450,071 shares of our Common Stock were issued and outstanding and held by approximately 707 holders of record. Holders of record of our Common Stock on the record date are entitled to one vote per share at the special meeting on the proposal to adopt the merger agreement and the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies.

 

A quorum of stockholders is necessary to hold a valid special meeting. Under our by-laws, a quorum is present at the special meeting if holders of a majority of the shares of our Common Stock outstanding and entitled to vote are present in person or represented by proxy. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned to solicit additional proxies. For purposes of determining the presence or absence of a quorum, abstentions and “broker non-votes” (where a broker or nominee does not have discretionary authority to vote on a matter) will be counted as present.

 

Adoption of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of Common Stock. Adoption of the merger agreement by the requisite vote of our stockholders is a condition to the consummation of the merger.

 

Approval of any proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of the holders of a majority of the shares of our Common Stock, present in person or represented by proxy and entitled to vote at the special meeting.

 

If a SPSS stockholder abstains from voting, such abstention will have the same effect as a vote against adoption of the merger agreement and against the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies. Each “broker non-vote” will also have the same effect as a vote against adoption of the merger agreement but will have no effect on the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies.

 

At the close of business on the record date, our directors and executive officers and their affiliates owned and were entitled to vote shares of our Common Stock, which represented approximately 1.7% of the shares of our outstanding Common Stock on that date. Our directors and executive officers have informed us that they currently

intend to vote all of their shares of our Common Stock “FOR” adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies.

 

If your shares of Common Stock are registered in your name, you may cause your shares of Common Stock to be voted by returning a signed proxy card or may vote in person at the special meeting. Additionally, you may submit a proxy authorizing the voting of your shares of Common Stock over the Internet or telephonically. Proxies submitted over the Internet or by telephone must be received by 11:59 p.m., Eastern time, on October 1, 2009. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy over the Internet or telephone. Based on your Internet and telephone proxies, the proxy holders will vote your shares of Common Stock according to your directions.

 

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. If your shares of Common Stock are registered in your name, you are encouraged to vote by proxy even if you plan to attend the special meeting in person.

 

Voting instructions are included on your proxy card. All shares of Common Stock represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies, provided that no proxy that is specifically marked “AGAINST” the proposal to adopt the merger agreement will be voted in favor of the adjournment proposal unless it is specifically marked “FOR” the adjournment proposal.

 

If your shares of Common Stock are held in “street name” through a broker or bank, you may vote through your broker or bank by completing and returning the voting form provided by your broker or bank, or by the Internet or telephone through your broker or bank if such a service is provided. To vote via the Internet or telephone through your broker or bank, you should follow the instructions on the voting form provided by your broker or bank. If you do not return your bank’s or broker’s voting form, do not vote via the Internet or telephone through your broker or bank, if possible, and do not attend the special meeting and vote in person with a proxy from your broker or bank, it will have the same effect as if you voted “AGAINST” adoption of the merger agreement.

 

Any proxy you give pursuant to this solicitation may be revoked by you at any time before it is voted. Proxies may be revoked by one of three ways.

 

 

 

 

Any written notice of revocation or subsequent proxy should be delivered to Georgeson Inc. or hand-delivered to our Secretary at or before the taking of the vote at the special meeting.

 

If you have instructed a broker or bank to vote your shares of Common Stock, you must follow directions received from your broker or bank to change those instructions.

 

Our board of directors has approved and declared advisable the merger agreement and the merger and declared that it is in the best interests of the stockholders of SPSS that SPSS enter into the merger agreement and consummate the merger. Our board of directors unanimously recommends that stockholders vote “FOR” the proposal to adopt the merger agreement and also recommends that stockholders vote “FOR” the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes in favor of adopting the merger agreement at the time of the special meeting.

 

The expense of soliciting proxies in the enclosed form will be borne by SPSS. We have retained Georgeson Inc., a proxy solicitation firm, to assist in distributing the proxy materials and to solicit proxies by contacting record and beneficial owners of our Common Stock in connection with the special meeting, for a fee of approximately $10,000 plus specified expenses. In addition, we may reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of Common Stock for their reasonable expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by certain of our directors, officers and employees, personally or by telephone, facsimile or other means of communication. No additional compensation will be paid for such services.

 

A list of our stockholders entitled to vote at the special meeting will be available for examination by any SPSS stockholder at the special meeting. For ten days prior to the special meeting, this stockholder list will be available for inspection during ordinary business hours at our principal place of business located at 233 South Wacker Drive, Chicago, Illinois 60606.

 

SPSS Inc. is a leading global provider of Predictive Analytics software and solutions. The Company’s complete portfolio of Predictive Analytics Software (PASW) products — data collection, statistics, modeling and deployment — captures people’s attitudes and opinions, predicts outcomes of future customer interactions, and then acts on these insights by embedding analytics into business processes. SPSS solutions address interconnected business objectives across an entire organization by focusing on the convergence of analytics, IT architecture and business process. Commercial, government and academic customers worldwide rely on SPSS technology as a competitive advantage in attracting, retaining and growing customers, while reducing fraud and mitigating risk.

 

We are incorporated under the laws of the State of Delaware. Our principal executive offices are located at 233 South Wacker Drive, Chicago, Illinois 60606. Our telephone number is (312) 651-3000. Our corporate website is located at http://www.spss.com. Additional information regarding SPSS is contained in our filings with the SEC. See “Where You Can Find More Information” beginning on page 59.

 

IBM, a New York corporation, develops and manufactures advanced information technologies, including computer systems, software, networking systems and microelectronics. IBM translates these advanced technologies into value for its customers through its professional solutions and services worldwide.

 

IBM’s principal executive offices are located at New Orchard Road, Armonk, New York, 10504 and its telephone number is (914) 499-1900. Additional information regarding IBM is contained in IBM’s filings with the SEC. See “Where You Can Find More Information” beginning on page 59.

 

Pipestone Acquisition Corp., a Delaware corporation and wholly owned subsidiary of IBM, was formed solely for the purpose of entering into the merger agreement and completing the merger and the other transactions contemplated by the merger agreement. Merger Sub’s principal executive offices are located at New Orchard Road, Armonk, New York, 10504. Merger Sub’s telephone number is (914) 499-1900. Merger Sub has not conducted any business operations other than in connection with the transactions contemplated by the merger agreement.

 

Upon consummation of the merger, Merger Sub will cease to exist and SPSS will continue as the surviving corporation.

 

Our senior management and board of directors periodically review our business strategy and prospects with the goal of maximizing stockholder value. In this context, we have periodically considered various strategic alternatives for the company, including a possible sale of the company.

 

We have long had a commercial relationship with IBM. Through this commercial relationship, our firms have entered into various collaborations and projects and have developed a general knowledge of one another.

 

In the context of that existing commercial relationship, in June 2007, representatives of SPSS met with representatives of IBM to present information regarding SPSS for the purpose of possibly broadening the relationship between the two companies. Over the next several weeks, additional discussions between the parties took place but by the end of July 2007 these discussions had ceased.

 

In May 2008, we received an acquisition proposal from Company A. After this proposal was received, we engaged in preliminary discussions with Company A with respect to a possible business combination. The proposal was at a substantial premium to our then current market price. However, given the strength of our business at that time, our recent stock price history and the fact that the offeror would have needed to raise a substantial amount of cash in order to finance the proposed transaction, our board of directors did not find the proposal compelling. Nonetheless, in an effort to gather additional information about the offer and the offeror so that a fully informed final decision could be made, our board of directors, after discussions with management, Mayer Brown LLP, our legal advisor, and BofA Merrill Lynch, a financial advisor with whom we had an existing relationship, authorized management to execute a confidentiality agreement and enter into preliminary discussions with Company A.

 

In June 2008, we engaged in preliminary discussions with Company B with respect to a strategic business combination.

 

In July 2008, we executed a confidentiality agreement with respect to a possible transaction with Company B.

 

In August 2008, Company A sent us another letter reaffirming its previous offer. We engaged BofA Merrill Lynch as our financial advisor to assist us in reviewing and, if appropriate, responding to Company A’s offer. Although we proposed to enter into a confidentiality agreement and furnished to Company A a proposed confidentiality agreement, no confidentiality agreement was ever executed because Company A refused to enter into a customary standstill (i.e., an agreement restricting the offeror’s ability to make unsolicited offers to purchase the company or to make purchases of the company’s common stock). In August 2008, we also engaged BofA Merrill Lynch as our financial advisor in connection with a possible transaction with Company B.

 

In September 2008, after discussions with Company A did not progress further, the offer from Company A was formally withdrawn. By this time, all discussions with Company B had also ceased.

 

In December 2008, representatives of IBM contacted BofA Merrill Lynch to gauge our interest in a possible sale to IBM. Given that the per share acquisition price suggested by IBM in this discussion was in the mid $30s, further discussions did not continue at that time.

In January 2009, Archie Colburn, Managing Director of Corporate Development for IBM, contacted Jack Noonan, our Chairman of the Board, Chief Executive Officer and President, to arrange a meeting between representatives of SPSS and IBM. We agreed to this meeting for the purpose of discussing a possible expansion of the business relationship between the two companies.

 

On January 28, 2009, Mr. Noonan met with Mr. Colburn and Ambuj Goyal, IBM’s general manager of Information Management Software, to discuss a possible expansion of the business relationship between IBM and SPSS.

 

On January 30, 2009, SPSS and IBM entered into a supplement to a confidentiality agreement originally entered into by the parties in August 1998.

 

On February 3, 2009, Mr. Noonan and Mr. Colburn discussed the possibility of IBM conducting a general technical review of SPSS’s software in connection with a potential business alliance between SPSS and IBM.

 

On February 13, 2009, Mr. Noonan reviewed the recent discussions between IBM and SPSS with our board of directors. At this meeting, Mr. Noonan described these discussions and the possibility that these discussions could lead to an acquisition proposal from IBM. Although our board of directors determined that we were not for sale, our board of directors further determined that if IBM or any other party made an acquisition offer, the board of directors would consider such offer in a manner consistent with its fiduciary duties.

 

On February 18, 19 and 20, 2009, Mr. Noonan, Raymond H. Panza, our Executive Vice President, Corporate Operations, Chief Financial Officer and Secretary, and Douglas Dow, our Senior Vice President of Corporate Development, met with Mr. Colburn, Mr. Goyal and other representatives of IBM at IBM’s office in New York to discuss the possibility of broadening the relationship between the two companies.

 

On February 26, 2009, we entered into a strategic partnership agreement with IBM that provided IBM with certain license and distribution rights to certain of our products.

 

In early April 2009, Mr. Colburn informed Mr. Noonan orally that IBM had an interest in making an offer to purchase SPSS. Mr. Noonan responded to Mr. Colburn by saying that he would present any offer made by IBM to our board of directors for consideration, but he did not believe our board of directors would be interested in considering a transaction that did not have a value of at least $50.00 per share.

 

On April 14, 2009, Mr. Colburn informed Mr. Noonan that he was planning to send Mr. Noonan a written offer for IBM to purchase SPSS.

 

On April 15, 2009, Mr. Colburn sent Mr. Noonan a letter setting forth a non-binding offer by IBM to purchase SPSS. The offer contained a proposed range of consideration of between $43.00 to $44.00 per share. The offer letter stated that the offer would expire on May 1, 2009.

 

In response to the offer letter from IBM, our management began developing an alternative proposal for our board of directors to consider whereby IBM would make an equity investment in SPSS in connection with broadening the relationship between IBM and SPSS.

 

At a regularly scheduled meeting on April 30, 2009, our board of directors reviewed the offer letter from IBM. After careful consideration and consultation with Mayer Brown, our board of directors concluded that it was not interested in pursuing a transaction at the price contained in the offer letter. Our board of directors did authorize our management to explore with IBM whether IBM would consider making an equity investment in SPSS consistent with the alternative transaction developed by our management.

 

On May 1, 2009, IBM’s offer expired in accordance with its terms.

 

On May 5, 2009, Mr. Colburn contacted Mr. Noonan to inquire as to the reason why SPSS allowed the IBM offer to expire. Mr. Noonan conveyed to Mr. Colburn our board of directors’ conclusion that, in light of the terms of IBM’s offer, initiating discussions with IBM with respect to a possible sale transaction was not in the best interests of SPSS or our stockholders. At the same time, Mr. Noonan proposed to Mr. Colburn the alternative SPSS transaction involving an equity investment by IBM in SPSS.

In a subsequent call, on May 13, 2009, Mr. Colburn told Mr. Noonan that IBM was not interested in making an equity investment in SPSS but that IBM was prepared to make an offer to acquire SPSS that would meet the parameters that Mr. Noonan had previously described.

 

On May 14, 2009, Mr. Colburn sent Mr. Noonan a letter pursuant to which IBM offered to acquire SPSS for between $48.00 and $50.00 per share. The offer had an expiration date of May 22, 2009 and included a requirement that until July 20, 2009 SPSS would negotiate exclusively with IBM and not solicit or otherwise discuss a possible strategic transaction with any other party.

 

On May 15, 2009, Mr. Noonan and Mr. Panza reviewed and discussed the latest IBM offer letter with representatives of Mayer Brown and BofA Merrill Lynch, the financial advisor with which we continued to have an active engagement letter based on our consideration of the proposed transaction with Company A described above.

 

Over the next few days, Mr. Noonan communicated the terms of IBM’s offer to each member of our board of directors.

 

On May 18 and May 19, 2009, representatives of BofA Merrill Lynch contacted Mr. Colburn at our direction to discuss the terms of the IBM offer, including the request for an exclusivity period. Concurrently with these discussions, Mr. Colburn contacted Mr. Noonan to express a desire for IBM to commence a due diligence investigation of SPSS.

 

On May 21, 2009, our board of directors met telephonically to review the IBM offer and to consider other matters with management and representatives of Mayer Brown and BofA Merrill Lynch. At this meeting, Mayer Brown reviewed legal matters relevant to the board of directors’ deliberation and BofA Merrill Lynch reviewed information it had gathered (including information from conversations with other potential acquirors) and an analysis it had developed. After discussion, our board of directors authorized our management and BofA Merrill Lynch to enter into discussions with IBM with respect to certain preliminary topics that were critical to a determination as to whether to enter into full discussions with IBM with respect to a possible sale transaction. These topics included price and the proposed exclusivity period.

 

On May 22, 2009, BofA Merrill Lynch further discussed the terms of the IBM offer with Mr. Colburn. In accordance with our instructions, BofA Merrill Lynch told Mr. Colburn that we would be willing to enter into formal discussions with IBM if the price was $53.00 per share and there was no exclusivity period.

 

On May 23, 2009, BofA Merrill Lynch further discussed the terms of the IBM offer with Mr. Colburn. During this discussion, Mr. Colburn reiterated IBM’s offer of between $48.00 and $50.00 per share and reiterated the requirement of a period of exclusive negotiations.

 

After receiving direction from management (which had consulted with our directors), BofA Merrill Lynch had additional discussions with Mr. Colburn over the next few days. BofA Merrill Lynch told Mr. Colburn that we would be willing to proceed with further discussions at a price of $50.00 per share if there was a post-signing go-shop period (i.e., a period during which the company was permitted to actively seek alternative acquisition proposals) and a bifurcated break-up fee of 1.0% of the aggregate equity value during the go-shop period and 2.5% of the aggregate equity value thereafter. IBM, through Mr. Colburn, rejected our request to enter into a definitive agreement subject to a go-shop period. Mr. Colburn said that if we wanted to gauge other parties’ interest in a possible transaction, we should do so prior to entering into discussions with IBM, but that there would be no assurances that IBM would still be interested in a transaction on the terms that had been proposed after we had concluded our exploratory process. Mr. Colburn did say, however, that in response to our demands, in order to move forward IBM would be willing to agree to a break-up fee of approximately 2.0% of the aggregate equity value and an exclusivity period that could be terminated by us as soon as June 22, 2009, rather than July 20, 2009 as originally proposed, provided that certain other important terms and conditions acceptable to IBM would be included in the merger documentation. Mr. Colburn also affirmed during these discussions that the IBM offer was for a transaction involving a $50.00 per share price.

 

During this time period, representatives of BofA Merrill Lynch, at our direction, engaged in further preliminary discussions with a limited number of selected third parties regarding their strategic interest in the

industry in which we participate. In connection with these broader discussions, in certain instances BofA Merrill Lynch discussed such third parties’ interest (or lack of interest) in an acquisition of SPSS.

 

After discussions with our directors (with whom management had consulted) and with the assistance of our legal and financial advisors, between May 22, 2009 and May 26, 2009, SPSS’s management negotiated the terms of an exclusivity and standstill agreement and a confidentiality agreement with IBM. The exclusivity and standstill agreement, which was executed on May 24, 2009, provided that we were obligated to negotiate exclusively with IBM and not solicit any alternative offers for the company until the exclusivity period terminated.

 

Under the terms of the agreement, we could terminate the agreement on May 28, 2009, the date of a scheduled board meeting, if our board of directors elected not to move forward with the proposed transaction. If the agreement was not so terminated at that time, the agreement provided that either party could terminate the agreement from and after June 22, 2009 upon at least 48 hours’ prior notice. The exclusivity and standstill agreement also provided that, if the agreement was not terminated on May 28, 2009, then for a period of six months (subject to earlier termination in certain instances) IBM could not solicit our employees with whom IBM’s first significant contact occurred in connection with the proposed acquisition, or make an unsolicited takeover proposal or take certain other actions with respect to a possible transaction without our approval. On May 26, 2009, we also entered into a supplement to our existing confidentiality agreement with IBM in advance of IBM commencing due diligence with respect to the proposed transaction.

 

On May 28, 2009, our board of directors met to discuss the status of the discussions with IBM and how the company would proceed with respect thereto. At this meeting, the members of our board of directors, together with our management and our financial and legal advisors, had an extensive discussion with respect to a variety of topics associated with the proposed transaction with IBM. In particular, in addition to other topics discussed by the board of directors, management and its advisors, representatives of Mayer Brown, our primary legal advisor, discussed a number of legal matters associated with the proposed transaction and the expected process for moving forward. Representatives of Morris, Nichols, Arsht & Tunnell LLP, our Delaware counsel, also made a presentation to the board of directors with respect to the directors’ fiduciary duties under Delaware law in connection with the proposed transaction, which presentation addressed, among other things, certain specific terms of the proposed transaction including the proposed restrictions on discussions with other potential interested parties regarding an acquisition of the company and the proposed break-up fee. Furthermore, representatives of BofA Merrill Lynch reviewed with our board of directors various financial and strategic aspects of the proposed transaction and provided a report on its preliminary discussions with other potential buyers of the company. Following discussions with management and BofA Merrill Lynch, the board of directors concluded that IBM was the most likely party to have a serious interest in acquiring SPSS at the highest price. On account of these presentations and discussions and after careful deliberation with its financial and legal advisors, the board of directors elected not to exercise SPSS’s right to terminate the exclusivity agreement but rather to proceed with negotiation of a possible transaction with IBM.

 

On May 28, 2009, SPSS began furnishing IBM with due diligence materials requested by IBM, both in hard copy and by means of a virtual data room.

 

During the week of June 1, 2009, representatives of IBM conducted extensive due diligence of SPSS at Mayer Brown’s offices in Chicago, Illinois. In addition to on-site document review, this due diligence included in-person meetings between representatives of IBM and representatives of SPSS about various aspects of our business.

 

On June 6, 2009, Cravath, Swaine & Moore LLP, IBM’s legal counsel, sent to Mayer Brown an initial draft of a merger agreement to be entered into by the parties in connection with the proposed transaction.

 

For the next several weeks, IBM continued to conduct due diligence and the parties and their counsel negotiated the terms of the merger agreement.

 

On June 15, 2009, Mr. Colburn informed Mr. Noonan that, in light of the continuing litigation between SPSS and Dr. Norman Nie and the possible resolution of that litigation, SPSS would have to accept either a reduction in the price at which IBM would acquire SPSS or a delay in the timing of the transaction. If there was to be a delay in the transaction, IBM required that we agree to modify the exclusivity agreement so that it would remain in effect until at least July 20, 2009, rather than be terminable by us upon 48 hours notice in accordance with the then current terms of the agreement.

On June 16, 2009, our board of directors, together with management and our financial and primary legal advisors, met telephonically to discuss how to respond to IBM’s demand to reduce the price or delay the transaction. After careful deliberations with its financial and legal advisors, the board of directors elected not to accept a price reduction but rather to continue discussions at a slower pace while the litigation in question was addressed. Our board of directors further decided not to extend the exclusivity agreement as requested by IBM but rather maintain the then current terms of the agreement which provided that we would be able to terminate the agreement upon 48 hours notice starting on June 22, 2009.

 

For the next several weeks, IBM continued due diligence and the parties continued to negotiate the merger agreement and the other terms of the proposed transaction, though at a slower pace than the previous discussions.

 

On July 23, 2009, Mr. Colburn informed Mr. Noonan that IBM was prepared to proceed with the proposed transaction on the terms the parties had discussed. The parties and their respective legal advisors therefore proceeded to finalize the terms of the merger agreement and the other aspects of the transaction.

 

On the morning of July 27, 2009, our board of directors, together with management and our primary legal advisors, met telephonically to discuss the proposed transaction, including the merger agreement and other agreements and documents associated with the proposed transaction, copies of which had previously been sent to each board member. At this meeting, the members of our board of directors, together with our management and legal advisors, had an extensive discussion with respect to a variety of topics associated with the proposed transaction with IBM. In particular, in addition to other topics discussed by the board of directors, management and its legal advisors, representatives of Mayer Brown, our primary legal advisor, discussed a number of legal matters associated with the proposed transaction and provided our board of directors with a summary of the key terms of the merger agreement.

 

Our board of directors, together with management and our financial and primary legal advisors, then reconvened telephonically in the evening of July 27, 2009. Also at this meeting, BofA Merrill Lynch reviewed with our board of directors its financial analysis of the merger consideration and delivered to our board of directors an oral opinion, which was confirmed by delivery of a written opinion dated July 27, 2009, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the merger consideration to be received by holders of SPSS Common Stock was fair, from a financial point of view, to such holders.

 

Our board of directors then engaged in a discussion with respect to the merits of the proposed transaction. After extensive discussions and careful deliberations, our board of directors unanimously approved and declared advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement, and declared that it was in the best interests of our stockholders that we enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement on the terms and subject to the conditions set forth in the merger agreement

 

Upon completion of our board meeting, during the late evening on July 27, 2009, the parties executed the merger agreement.

 

In the early morning of July 28, 2009, a joint press release publicly announcing the proposed transaction was issued.

 

 

Recommendation of Our Board of Directors

 

Our board of directors, by the unanimous vote of all directors:

 

 

Accordingly, our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement.

 

Reasons for the Merger

 

In reaching its determination to approve and declare advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement and to recommend that you vote in favor of the proposal to adopt the merger agreement, our board of directors consulted with our management, as well as our legal and financial advisors. These consultations included discussions regarding our strategic business plan, the historical and expected future price for our Common Stock, our past and current business operations and financial condition and performance, our future prospects, other potential strategic transactions including strategic acquisitions, the possible sale of the company to companies other than IBM and the potential transaction with IBM.

 

Our board of directors considered a number of positive factors in its deliberations:

 

 

 

 

 

 

 

Our board of directors also considered potential drawbacks or risks relating to the merger, including the following:

 

 

Our board of directors also considered that certain of our directors and officers may have conflicts of interest in connection with the merger, as they may receive certain benefits that are different from, and in addition to, those of our other stockholders. See “— Interests of SPSS’s Directors and Executive Officers in the Merger” beginning on page 28.

 

After taking into account all of the factors set forth above, as well as others, our board of directors unanimously agreed that the benefits of the merger outweigh the risks and that the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of our stockholders. Our board of directors has unanimously approved the merger agreement and the merger and recommends that our stockholders vote to adopt the merger agreement at the special meeting.

 

The foregoing discussion is not intended to be exhaustive, but we believe it addresses the material information and principal factors considered by our board of directors in its consideration of the merger. In view of the number and variety of factors and the amount of information considered, our board of directors did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, our board of directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of our board of directors may have given different weights to different factors. Our board of directors made its recommendation based on the totality of information presented to, and the investigation conducted by, the board of directors.

 

In August 2008, SPSS retained BofA Merrill Lynch to act as SPSS’s financial advisor in connection with a proposal that would have resulted in a sale of SPSS and other possible sale transactions. BofA Merrill Lynch is an

internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. SPSS selected BofA Merrill Lynch to act as SPSS’s financial advisor in connection with a possible sale transaction on the basis of BofA Merrill Lynch’s experience in transactions similar to the possible sale transaction, its reputation in the investment community and its familiarity with SPSS and its business. BofA Merrill Lynch therefore acted as SPSS’s financial advisor in connection with the merger.

 

On July 27, 2009, at a meeting of SPSS’s board of directors held to evaluate the merger, BofA Merrill Lynch delivered to SPSS’s board of directors an oral opinion, which was confirmed by delivery, prior to the execution of the merger agreement, of a written opinion dated July 27, 2009, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in its opinion, the merger consideration to be received by holders of SPSS Common Stock was fair, from a financial point of view, to such holders.

 

The full text of BofA Merrill Lynch’s written opinion to SPSS’s board of directors, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. The following summary of BofA Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion to SPSS’s board of directors for the benefit and use of SPSS’s board of directors in connection with and for purposes of its evaluation of the merger consideration from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger.

 

In connection with rendering its opinion, BofA Merrill Lynch:

 

 

In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the management of SPSS that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the SPSS Forecasts, BofA Merrill Lynch was advised by SPSS, and assumed, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of SPSS as to the future financial performance of SPSS. BofA Merrill Lynch did not make or was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of SPSS, nor did it make any physical inspection of the properties or assets of SPSS. BofA Merrill Lynch

did not evaluate the solvency of SPSS under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. BofA Merrill Lynch assumed, at the direction of SPSS, that the merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on SPSS or the contemplated benefits of the merger.

 

BofA Merrill Lynch expressed no view or opinion as to any terms or other aspects of the merger (other than the merger consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the merger. BofA Merrill Lynch held preliminary discussions, at the direction of SPSS, with a limited number of third parties regarding their strategic interest in the industry in which SPSS participates. In connection with these broader discussions, in certain instances BofA Merrill Lynch discussed such third parties’ interest (or lack of interest) in an acquisition of SPSS. In accordance with the instructions of SPSS, except as set forth in the previous two sentences, BofA Merrill Lynch did not solicit indications of interest or proposals from third parties regarding a possible acquisition of all or any part of SPSS or any alternative transaction. BofA Merrill Lynch’s opinion was limited to the fairness, from a financial point of view, of the merger consideration to be paid to the holders of SPSS Common Stock and no opinion or view was expressed with respect to any consideration received in connection with the merger by the holders of any other class of securities, creditors or other constituencies of SPSS. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation payable to any of the officers, directors or employees of any party to the merger, or class of such persons, relative to the merger consideration. Furthermore, no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to SPSS or in which SPSS might engage or as to the underlying business decision of SPSS to proceed with or effect the merger. BofA Merrill Lynch did not express any opinion as to the prices at which SPSS Common Stock would trade at any time. In addition, BofA Merrill Lynch expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the merger. Except as described above, SPSS imposed no other limitations on the investigations made or procedures followed by BofA Merrill Lynch in rendering its opinion.

 

BofA Merrill Lynch’s opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. It should be understood that subsequent developments may affect its opinion, and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynch’s opinion was approved by BofA Merrill Lynch’s U.S. Fairness Opinion (and Valuation Letter) Committee.

 

The following represents a brief summary of the material financial analyses presented by BofA Merrill Lynch to SPSS’s board of directors in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Merrill Lynch. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Merrill Lynch.

 

SPSS Financial Analyses

 

Unaffected Research Analyst Stock Price Targets.   BofA Merrill Lynch reviewed eight research analyst reports, four of which had price targets for SPSS that were publicly available on July 24, 2009, and observed that the range of the research analyst 12-month share price targets was $33.00 to $36.00. BofA Merrill Lynch then applied a discount rate of 9.5% to calculate the implied per share equity value of the price targets. This analysis indicated the following implied per share equity value reference range for SPSS, as compared to the merger consideration:

 

Selected Publicly Traded Companies Analysis.   BofA Merrill Lynch reviewed publicly available financial and stock market information for SPSS and the following seven publicly traded companies in the enterprise software industry that BofA Merrill Lynch deemed to be relevant:

 

 

BofA Merrill Lynch reviewed, among other things, per share equity values, based on closing stock prices on July 24, 2009, of the selected publicly traded companies as a multiple of calendar years 2009 and 2010 estimated cash earnings per share, commonly referred to as cash EPS. BofA Merrill Lynch calculated the estimated cash EPS as estimated EPS under generally accepted accounting principles excluding one-time charges, amortization of intangible property, stock-based compensation and the impact of Financial Accounting Standards Board Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) . BofA Merrill Lynch also reviewed per share equity values, based on closing stock prices on July 24, 2009, of the selected publicly traded companies as a multiple of calendar year 2010 estimated cash earnings per share divided by the long-term growth rate, commonly referred to as PEG. BofA Merrill Lynch also reviewed enterprise values of the selected publicly traded companies, calculated as equity values based on closing stock prices on July 24, 2009, plus total debt, minority interests and preferred stock, less cash and cash equivalents, as a multiple of calendar year 2010 estimated earnings before interest, taxes, depreciation and amortization, or EBITDA, which includes the impact of amortization of capitalized software. BofA Merrill Lynch then applied a range of selected multiples of calendar years 2009, 2010 estimated EPS, 2010 PEG, and 2010 EBITDA derived from the selected publicly traded companies to corresponding data of SPSS. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates. Estimated financial data of SPSS were based on consensus estimates reported by First Call, an online aggregator of independent research analyst estimates managed by Thomson Financial. This analysis indicated the following implied per share equity value reference ranges for SPSS, as compared to the merger consideration:

 

 

No company used in this analysis is identical or directly comparable to SPSS. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which SPSS was compared.

 

Premiums Paid Analysis.   BofA Merrill Lynch reviewed premiums to stock price paid in recent technology transactions that it deemed to be relevant, including certain of the transactions identified below. BofA Merrill Lynch reviewed the premiums paid in these transactions over the price of the target stock as reported at various dates (or for various periods) before the approximate date on which the public became aware of the possibility of such transactions.

 

 

(1) For Wind River Systems, Inc., BofA Merrill Lynch used the unaffected stock price and estimates for operating performance as of June 3, 2009, one day prior to announcement of its acquisition by Intel Corporation.

BofA Merrill Lynch then applied a range of selected premiums derived from the selected transactions to the closing stock price of SPSS Common Stock on July 24, 2009. This analysis indicated the following implied per share equity value reference range for SPSS, as compared to the merger consideration:

 

 

No company, business or transaction used in this analysis is identical or directly comparable to SPSS or the merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which SPSS and the merger were compared.

 

Selected Precedent Transactions Analysis.   BofA Merrill Lynch reviewed, to the extent publicly available, financial information relating to the following forty-four selected transactions involving companies in the enterprise software industry that BofA Merrill Lynch deemed to be relevant:

 

 

BofA Merrill Lynch reviewed transaction values, calculated as the enterprise value implied for the target company based on the consideration payable in the selected transaction, as a multiple of the target company’s revenue and EBITDA for the next 12 months immediately following the period in which the relevant transaction was announced. BofA Merrill Lynch also reviewed the equity value per share based on the consideration payable in the selected transaction, as a multiple of the target company’s cash earnings per share for the next 12 months immediately following the period in which the relevant transaction was announced. BofA Merrill Lynch then applied a range of selected multiples of estimated revenue, EBITDA, and cash earnings per share derived from the selected transactions to SPSS’s estimated revenue, EBITDA, and cash earnings per share for the next 12 months. Estimated financial data of the selected transactions were based on publicly available information. Estimated financial data of SPSS were based on SPSS Forecasts. This analysis indicated the following implied per share equity value reference ranges for SPSS, as compared to the merger consideration:

 

 

No company, business or transaction used in this analysis is identical or directly comparable to SPSS or the merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which SPSS and the merger were compared.

 

Discounted Cash Flow Analysis.   BofA Merrill Lynch performed a discounted cash flow analysis of SPSS to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that SPSS could generate during SPSS’s fiscal years 2009 (second half) through 2013 based on the SPSS Forecasts. BofA Merrill Lynch calculated terminal values for SPSS by applying terminal forward multiples of 6.0x to 8.0x to SPSS’s fiscal year 2014 estimated EBITDA. The cash flows and terminal values were then discounted to present value as of June 30, 2009 using discount rates ranging from 9.5% to 11.5%. This analysis indicated the following implied per share equity value reference ranges for SPSS as compared to the merger consideration:

 

Other Factors

 

In rendering its opinion, BofA Merrill Lynch also reviewed and considered other factors, including:

 

 

Miscellaneous

 

As noted above, the discussion set forth above is a summary of the material financial analyses presented by BofA Merrill Lynch to SPSS’s board of directors in connection with its opinion and is not a comprehensive description of all analyses undertaken by BofA Merrill Lynch in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. BofA Merrill Lynch believes that its analyses summarized above must be considered as a whole. BofA Merrill Lynch further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Merrill Lynch’s analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.

 

In performing its analyses, BofA Merrill Lynch considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of SPSS and IBM. The estimates of the future performance of SPSS and IBM in or underlying BofA Merrill Lynch’s analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynch’s analyses. These analyses were prepared solely as part of BofA Merrill Lynch’s analysis of the fairness, from a financial point of view, of the merger consideration to be received by holders of SPSS Common Stock and were provided to SPSS’s board of directors in connection with the delivery of BofA Merrill Lynch’s opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynch’s view of the actual value of SPSS.

 

The type and amount of consideration payable in the merger was determined through negotiations between SPSS and IBM, rather than by any financial advisor, and was approved by SPSS’s board of directors. The decision to enter into the merger agreement was solely that of SPSS’s board of directors. As described above, BofA Merrill Lynch’s opinion and analyses were only one of many factors considered by SPSS’s board of directors in its evaluation of the proposed merger and should not be viewed as determinative of the views of SPSS’s board of directors or management with respect to the merger or the merger consideration.

 

SPSS has agreed to pay BofA Merrill Lynch for its services in connection with the merger a customary fee of approximately $9.4 million, a significant portion of which is payable upon completion of the merger. SPSS also has agreed to reimburse BofA Merrill Lynch for its expenses incurred in connection with BofA Merrill Lynch’s engagement and to indemnify BofA Merrill Lynch, any controlling person of BofA Merrill Lynch and each of their

respective directors, officers, employees, agents and affiliates against specified liabilities, including liabilities under federal securities laws.

 

BofA Merrill Lynch and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Merrill Lynch and its affiliates invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in the equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of SPSS, IBM and certain of their respective affiliates.

 

BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide investment banking, commercial banking and other financial services to SPSS and have received or in the future may receive compensation for the rendering of these services, including (i) having acted as manager for a convertible notes offering for SPSS and (ii) having provided or providing certain trading and treasury management services to SPSS.

 

In addition, BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide investment banking, commercial banking and other financial services to IBM and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as manager and/or bookrunner on various debt offerings for IBM, (ii) having acted or acting as lender under various credit facilities for IBM and certain of its affiliates and (iii) having provided or providing certain commodity and derivatives trading, foreign exchange and treasury management services to IBM and certain of its affiliates.

 

SPSS does not, as a matter of course, publicly disclose forecasts or internal projections of future revenues, earnings or other results. However, we provided BofA Merrill Lynch with certain non-public business and financial information about SPSS in connection with the preparation of its fairness opinion and related financial analyses. The information provided to BofA Merrill Lynch included forecasts for the periods from the second half of fiscal year 2009 through fiscal year 2013. The forecasts included revenue and earnings estimates for the second half of fiscal year 2009 and estimates of revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for subsequent years. The forecasts were not prepared with a view to public disclosure or compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. SPSS’s internal financial forecasts, upon which these forecasts were based in part, are, in general, prepared solely for internal use and are subjective in many respects. The forecasts included in this proxy statement have been prepared by, and are the responsibility of, SPSS’s management. The inclusion of the forecasts in this proxy statement should not be regarded as an indication that such forecasts will be predictive of actual future results, and the forecasts should not be relied upon as such. No representation is made by SPSS or any other person to any security holder of SPSS regarding the ultimate performance of SPSS compared to these forecasts. SPSS does not intend to update or otherwise revise these forecasts to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying these forecasts are shown to be in error. These forecasts do not give effect to the proposed merger.

 

The forecasts are summarized below:

 

 

 

 

No assurances can be given that these assumptions will accurately reflect future conditions. Although presented with numerical specificity, these forecasts reflect numerous assumptions and estimates as to future events made by SPSS’s management that SPSS’s management believed were reasonable at the time these forecasts were prepared and other factors such as industry performance and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of SPSS’s management. Accordingly, there can be no assurance that these forecasts will be realized, and actual results may be materially greater or less than those reflected in these forecasts. You should review our most recent SEC filings for a description of risk factors with respect to our business. See “Where You Can Find More Information” beginning on page 59.

 

When considering the recommendation of SPSS’s board of directors, you should be aware that the members of our board of directors and our executive officers have interests in the merger in addition to the interests of SPSS stockholders generally, pursuant to certain agreements between such directors and executive officers and us and certain company benefit plans. Such interests may be different from, or in conflict with, your interests as a SPSS stockholder. The members of our board of directors were aware of these additional interests, and considered them, when they approved the merger agreement.

 

Effect of Awards Outstanding Under SPSS’s Stock Plans

 

Stock Options

 

At the effective time of the merger, each outstanding option, whether or not vested or exercisable, to acquire our Common Stock will be cancelled and will be converted into the right of the holder to receive an amount in cash, without interest and less any applicable withholding taxes, payable at or as soon as practicable (but in no event more than 45 days) following the effective time of the merger, equal to the product of:

 

 

The following table summarizes the outstanding vested and unvested options held by our executive officers and directors as of August 31, 2009 and the consideration that each of them will receive pursuant to the merger agreement in connection with the cancellation of their options, assuming continued employment through the effective time of the merger.

 

 

Restricted Share Unit Awards

 

At the effective time of the merger, each outstanding restricted share unit award, whether or not vested, will be cancelled and will be converted into the right to receive $50.00 in cash per restricted share unit, without interest and less any applicable withholding taxes, payable at or as soon as practicable (but in no event more than 45 days) following the effective time of the merger.

 

The following table summarizes the number of outstanding restricted share unit awards held by our executive officers as of August 31, 2009, and the consideration that each of them will receive pursuant to the merger agreement in connection with the cancellation of the awards, assuming continued employment through the effective time of the merger.

 

 

Deferred Share Unit Awards

 

At the effective time of the merger, each outstanding deferred share unit award, whether or not vested, will be cancelled and will be converted into the right to receive $50.00 in cash per deferred share unit, without interest and less any applicable withholding taxes, payable at or as soon as practicable (but in no event more than 45 days) following the effective time of the merger.

 

 

The following table summarizes the number of outstanding deferred share unit awards held by our directors as of August 31, 2009, and the consideration that each of them will receive pursuant to the merger agreement in connection with the cancellation of the awards, assuming continued service through the effective time of the merger.

 

 

Employment Agreements

 

The Company has an employment agreement with each of Mr. Noonan and Mr. Panza (each, an “Employment Agreement”). The Employment Agreements provide that if a change of control of SPSS occurs and, within two years thereafter, SPSS terminates either executive officer’s employment without good cause, or either executive officer terminates his employment for good reason, or for any reason (or no reason) effective within the 30 day period beginning on the first anniversary of the change of control (the “Special Termination Provision”) then the executive officer will receive (i) full salary and benefits during any required notice period (generally no more than 60 days), (ii) any earned but unpaid base salary, any other earned but unpaid compensation and any earned but unpaid incentive cash award (an “earned” incentive cash award means the incentive cash award that would have been awarded to the executive officer for the full applicable fiscal period ending immediately prior to the termination date had the termination date not occurred prior to the date on which incentive cash awards were awarded to other executive officers for that applicable fiscal period), (iii) any accrued vacation pay, (iv) reimbursement of business expenses, (v) a lump sum cash payment calculated as described in the following paragraph, (vi) continued health benefits for a period of 48 months following the termination date (with the first 24 months being at the Company’s cost on a non-taxable basis and the second 24 months at the executive officer’s full cost determined by applicable COBRA premiums) (or the functional equivalent of such benefits if the Company is unable to provide the benefits), (vii) immediate accelerated vesting and, to the extent applicable, deemed exercise by means of a cashless exercise, of all outstanding equity awards and with respect thereto, exchange of the awards for a proportionate share of the consideration paid to stockholders generally in the transaction, (viii) executive level professional outplacement services for up to 12 months, (ix) continuation of professional dues and subscriptions for 18 months (to the extent paid by SPSS prior to termination), (x) continued use of a company mobile telephone, company telephone number and voice mail, company e-mail and personal company electronic equipment for 90 days, and (xi) acceptable employment references from SPSS. In addition, the Employment Agreements provide for immediate accelerated vesting and, to the extent applicable, deemed exercise by means of a cashless exercise, of all outstanding equity awards and, with respect thereto, exchange of the awards for a proportionate share of the consideration paid to stockholders generally in the transaction, regardless of whether the executive officer’s employment is terminated.

 

The lump sum cash payments to which Mr. Noonan and Mr. Panza would be entitled under their respective Employment Agreements if, within two years of the closing of the merger, either executive officer’s employment were terminated by SPSS without good cause or by either of them for good reason or pursuant to the Special Termination Provision are as follows:

 

 

 

For purposes of the Employment Agreements, “good cause” means the executive officer’s (i) willful and continued failure to substantially perform his duties for the Company which is not cured within a reasonable period of no more than 30 days following notice from the Company to the executive officer, (ii) willful engagement in conduct which is demonstrably and materially injurious to the Company or its reputation, monetarily or otherwise, (iii) engagement in fraud, theft or embezzlement, (iv) conviction of, or entry of a plea of nolo contendre to, a felony, or (v) illegal use of a controlled substance. For purposes of these Employment Agreements, “good reason” means (a) a material diminution of the executive officer’s job assignment, duties, responsibilities or reporting relationships which is inconsistent with his position for the Company as of the effective date of the Employment Agreement or any later agreed-upon amendment of his position, (b) a material reduction in the executive officer’s base compensation or annual incentive cash target, (c) a material breach of the terms of the Employment Agreement by SPSS, and (d) a change in the executive officer’s principal assigned employment location by more than 50 miles.

 

The Employment Agreements provide that, if any payment or benefit to which the executive officer is entitled to receive from SPSS or its affiliates constitutes a “parachute payment” under the Internal Revenue Code rules and if, as a result thereof, the executive officer is subject to an excise tax under Section 4999 of the Internal Revenue Code, the executive officer will receive a tax gross-up from SPSS for the excise tax under Section 4999 and any additional income, excise or other taxes relating to the tax gross-up payment.

 

In connection with the signing of the merger agreement, SPSS and each of the executive officers entered into amendments to the Employment Agreements which provide that the executive officers will continue to be subject to the noncompetition provisions of the Employment Agreements if their employment is terminated for any reason following the effective time of the merger. Prior to the amendments, the noncompetition provisions would not have applied to an executive officer if his employment was terminated for any reason within 12 months following the effective time of the merger and under certain other circumstances. The amendments also provide that, in order to receive the cash severance benefits provided under the Employment Agreements, the executive officers will be required to sign a release of claims in favor of the Company and its affiliates.

 

Change of Control Agreements

 

The Company has entered into Change of Control Agreements with each of Alex Kormushoff, Richard M. Holada, Douglas P. Dow and Marc D. Nelson. Under these Change of Control Agreements if, within 24 months following the merger, SPSS terminates the employment of any of these executive officers without good cause or a constructive termination of the executive officer occurs, the applicable executive officer will be entitled to receive a lump sum cash payment equal to (i) the greater of (a) the executive officer’s base salary for the full fiscal year immediately preceding the year in which the merger occurred or (b) the executive officer’s base salary for the then-current fiscal year and (ii) the executive officer’s average annual incentive cash payment (with the average annual incentive cash payment being equal to the aggregate incentive cash payments received by the executive officer for the two fiscal years of SPSS ending immediately prior to the termination date divided by two). In addition, the Change of Control Agreements provide for immediate accelerated vesting and, to the extent applicable, deemed exercise by means of a cashless exercise, of all outstanding equity awards and, with respect thereto, exchange of the awards for a proportionate share of the consideration paid to stockholders generally in the transaction. The applicable executive officer will also be entitled to receive, for a period of 18 months, at SPSS’s cost, the same health and welfare benefits that he was receiving at the time of his termination and executive level professional outplacement services for up to 12 months.

 

The Change of Control Agreements define “change of control” and “good cause” in the same manner as the Employment Agreements described above. However, the Change of Control Agreements use the term “constructive

termination” in lieu of the term “good reason” used in the Employment Agreements. The term “constructive termination” means with respect to the executive officer (i) a material reduction in the executive officer’s base compensation or annual incentive cash target within the two years following a change of control, (ii) any action by SPSS that results in a material diminution of the executive officer’s job assignment, duties, responsibilities or reporting relationships which is inconsistent with his position in the Company as of immediately prior to the merger, and (iii) a change in the executive officer’s principal assigned employment location by more than 50 miles.

 

The following table shows the estimated amount of potential cash severance payable to our current executive officers based on an assumed termination date of October 2, 2009. The table also shows the potential estimated “gross-up payment” to which Messrs. Noonan and Panza are entitled in the event that any benefit gives rise to an excise tax calculated assuming that the merger is effective as of October 2, 2009. Such “gross-up” payment is intended to place the executive officer in the same after-tax position that he would have been if no excise tax had applied. The table does not include the consideration resulting from the options or restricted share unit awards described in the preceding tables, although these amounts have been taken into account to the extent they constitute parachute payments under Section 280G of the Internal Revenue Code of 1986 when estimating the potential gross-up payments set forth in the table.

 

 

 

 

Indemnification and Insurance

 

IBM will cause the surviving corporation to assume all rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the merger now existing in favor of our and our subsidiaries’ current or former directors or officers as provided in our and their respective certificates of incorporation or bylaws (or comparable organizational documents) and any indemnification or other agreements as in effect on the date of the merger agreement.

 

In the event the surviving corporation consolidates with or merges into another entity and is not the continuing or surviving corporation of such consolidation or merger or transfers all or substantially all of its assets to another person, or if IBM dissolves the surviving corporation, IBM shall cause the successors and assigns of the surviving corporation to comply with and honor the indemnification obligations set forth above.

 

IBM will obtain, as of the effective time of the merger, a “tail” insurance policy with a claims period of six years from the effective time of the merger with respect to directors’ and officers’ liability insurance for acts or omissions occurring at or prior to the effective time of the merger covering those persons who were, as of the date of the merger agreement, covered by our directors’ and officers’ liability insurance policies, on terms that are no less favorable than our policies in effect on the date of the merger agreement.

 

Holders of SPSS Common Stock who do not vote in favor of adoption of the merger agreement are entitled to certain appraisal rights under Delaware law in connection with the merger, as described below and in Annex C

hereto. Such holders who perfect their appraisal rights and strictly follow certain procedures in the manner prescribed by Section 262 of the General Corporation Law of the State of Delaware, as in effect on the date the parties entered into the merger agreement, referred to herein as Section 262 of the DGCL, will be entitled to receive payment of the fair value of their shares of Common Stock in cash from SPSS, as the surviving corporation in the merger.

 

ANY SPSS STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS, HER OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX C CAREFULLY AND SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISOR, SINCE FAILURE TO TIMELY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

 

The record holders of the shares of SPSS Common Stock that elect to exercise their appraisal rights with respect to the merger are referred to herein as “Dissenting Stockholders,” and the shares of SPSS Common Stock with respect to which they exercise appraisal rights are referred to herein as “Dissenting Shares.” If a SPSS stockholder has a beneficial interest in shares of SPSS Common Stock that are held of record in the name of another person, such as a broker or nominee, and such SPSS stockholder desires to perfect whatever appraisal rights such beneficial SPSS stockholder may have, such beneficial SPSS stockholder must act promptly to cause the holder of record timely and properly to follow the steps summarized below.

 

A VOTE IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT BY A SPSS STOCKHOLDER WILL RESULT IN A WAIVER OF SUCH HOLDER’S RIGHT TO APPRAISAL RIGHTS.

 

When the merger becomes effective, SPSS stockholders who strictly comply with the procedures prescribed in Section 262 of the DGCL will be entitled to a judicial appraisal of the fair value of their shares of Common Stock, exclusive of any element of value arising from the accomplishment or expectation of the merger, and to receive payment of the fair value of their shares of Common Stock in cash from SPSS, as the surviving corporation in the merger in lieu of the merger consideration. The following is a brief summary of the material provisions of Delaware law and statutory procedures that must be followed by a holder of Common Stock in order to perfect appraisal rights under the DGCL. This summary is qualified in its entirety by reference to Section 262 of the DGCL, the text of which is included as Annex C to this proxy statement. This summary does not constitute legal or other advice nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262 of the DGCL. We recommend that any SPSS stockholder considering demanding appraisal consult legal counsel.

 

In order to exercise appraisal rights under Delaware law, a stockholder must be the stockholder of record of the shares of SPSS Common Stock as to which appraisal rights are to be exercised on the date that the written demand for appraisal described below is made, and the stockholder must continuously hold such shares of record through the effective date of the merger.

 

While SPSS stockholders electing to exercise their appraisal rights under Section 262 of the DGCL are not required to vote against the adoption of the merger agreement, a vote in favor of adoption of the merger agreement will result in a waiver of the holder’s right to appraisal rights. SPSS stockholders electing to demand the appraisal of such stockholder’s shares of Common Stock must deliver to SPSS, before the taking of the vote on the adoption of the merger agreement, a written demand for appraisal of such stockholder’s shares of Common Stock. Such demand will be sufficient if it reasonably informs SPSS of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares of Common Stock. A proxy or vote against adoption of the merger agreement will not constitute such a demand. Please see the discussion below under the heading “— Written Demands” for additional information regarding written demand requirements.

 

Within ten (10) days after the effective time of the merger, SPSS, as the surviving corporation, must provide notice of the date of effectiveness of the merger to all SPSS stockholders who have not voted for adoption of the merger agreement and who have otherwise complied with the requirements of Section 262 of the DGCL.

A SPSS stockholder who elects to exercise appraisal rights must mail or deliver the written demand for appraisal to:

 

SPSS Inc.
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
Telephone: (312) 651-3000

 

Within 120 days after the effective date of the merger, any Dissenting Stockholder that has strictly complied with the procedures prescribed in Section 262 of the DGCL will be entitled, upon written request, to receive from SPSS, as the surviving corporation, a statement of the aggregate number of shares of Common Stock not voted in favor of adoption of the merger agreement and with respect to which demands for appraisal have been received by SPSS, and the aggregate number of holders of those shares of Common Stock. This statement must be mailed to the Dissenting Stockholder within ten (10) days after such Dissenting Stockholder’s written request has been received by SPSS, as the surviving corporation, or within ten (10) days after expiration of the period for delivery of demands for appraisal, whichever is later.

 

Within 120 days after the effective date of the merger, either SPSS, as the surviving corporation, or any Dissenting Stockholder that has strictly complied with the procedures prescribed in Section 262 of the DGCL, may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery, with a copy served on the surviving corporation in the case of a petition filed by a Dissenting Stockholder, demanding a determination of the fair value of each share of SPSS Common Stock held by all Dissenting Stockholders. If a petition for an appraisal is timely filed by a Dissenting Stockholder and a copy of the petition is delivered to SPSS as the surviving corporation, SPSS will then be obligated, within twenty (20) days after receiving service, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of any Dissenting Stockholders with whom agreements as to the value of their SPSS Common Stock have not been reached.

 

A person who is a beneficial owner of shares of Common Stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition to commence an appraisal proceeding and may request the statement described in the second preceding paragraph.

 

After giving notice to the Dissenting Stockholders, the Delaware Court of Chancery will conduct a hearing upon the petition, and determine those stockholders that have complied with Section 262 of the DGCL and that have become entitled to appraisal rights. The Delaware Court of Chancery may require the Dissenting Stockholders to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; if any Dissenting Stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

 

After determining the stockholders entitled to appraisal rights, the Delaware Court of Chancery will determine the fair value of the shares of SPSS Common Stock owned by those stockholders by determining the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger, together with the interest, if any, to be paid on the amount determined to be the fair value. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. When fair value is determined, the Delaware Court of Chancery will direct the payment of such value, with interest, if any, by the surviving corporation to the stockholders entitled to appraisal rights, upon surrender to the surviving corporation of the certificates representing those shares of Common Stock.

 

If no petition for appraisal is filed with the Delaware Court of Chancery by SPSS, as the surviving corporation, or any Dissenting Stockholder within 120 days after the effective time of the merger, then the Dissenting Stockholders’ rights to appraisal will cease and they will be entitled only to receive the merger consideration payable in the merger on the same basis as other SPSS stockholders. Inasmuch as SPSS, as the surviving corporation, has no obligation to file a petition, any SPSS stockholder who desires a petition to be filed is advised to

file it on a timely basis. No petition timely filed in the Delaware Court of Chancery demanding appraisal shall be dismissed as to any SPSS stockholder, however, without the approval of the Delaware Court of Chancery, which may be conditioned on any terms the Delaware Court of Chancery deems just.

 

The cost of the appraisal proceeding may be determined by the Delaware Court of Chancery and allocated between the parties as the Court deems equitable in the circumstances. Upon application of a Dissenting Stockholder that has strictly complied with the procedures prescribed in Section 262 of the DGCL, the Court may order that all or a portion of the expenses incurred by any Dissenting Stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees, and the fees and expenses of experts, be charged pro rata against the value of all shares of Common Stock entitled to appraisal. In the absence of this determination or assessment, each party bears its own expenses. A Dissenting Stockholder that has timely demanded appraisal in compliance with Section 262 of the DGCL will not, after the effective time of the merger, be entitled to vote the SPSS Common Stock subject to such demand for any purpose or to receive payment of dividends or other distributions on the SPSS Common Stock, except for dividends or other distributions payable to stockholders of record at a date prior to the effective time of the merger.

 

At any time within sixty (60) days after the effective time of the merger, any Dissenting Stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will have the right to submit a written withdrawal of the stockholder’s demand for appraisal and to accept the right to receive the merger consideration payable in the merger on the same basis as other SPSS stockholders. After this sixty (60) day period, a Dissenting Stockholder may withdraw the stockholder’s demand for appraisal only with the written consent of SPSS or IBM and, if an appraisal proceeding has been commenced, the approval of the Delaware Court of Chancery.

 

Written Demands

 

When submitting a written demand for appraisal under Delaware law, the written demand for appraisal must reasonably inform SPSS of the identity of the stockholder of record making the demand and indicate that the stockholder intends to demand appraisal of the stockholder’s shares of Common Stock. A demand for appraisal should be executed by or for the SPSS stockholder of record, fully and correctly, as that stockholder’s name appears on the stockholder’s stock certificate. If SPSS Common Stock is owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, the demand should be executed by the fiduciary. If SPSS Common Stock is owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, should execute the demand for appraisal for a stockholder of record; however, the agent must identify the stockholder of record and expressly disclose the fact that, in exercising the demand, he, she or it is acting as agent for the stockholder of record.

 

A stockholder of record who holds SPSS Common Stock as a nominee for other beneficial owners of the shares may exercise appraisal rights with respect to the SPSS Common Stock held for all or less than all beneficial owners of the SPSS stock for which the holder is the stockholder of record. In that case, the written demand must state the number of shares of SPSS Common Stock covered by the demand. Where the number of shares of SPSS Common Stock is not expressly stated, the demand will be presumed to cover all shares of SPSS Common Stock outstanding in the name of that stockholder of record. Beneficial owners who are not stockholders of record and who intend to exercise appraisal rights should instruct the stockholder of record to comply strictly with the statutory requirements with respect to the delivery of written demand prior to the taking of the vote on the merger.

 

SPSS stockholders considering whether to seek appraisal should bear in mind that the fair value of their SPSS Common Stock determined under Section 262 of the DGCL could be more than, the same as or less than the value of the right to receive the merger consideration in the merger. Also, SPSS and IBM reserve the right to assert in any appraisal proceeding that, for purposes thereof, the “fair value” of the SPSS Common Stock is less than the value of the merger consideration payable in the merger.

 

Any stockholder who fails to strictly comply with the requirements of Section 262 of the DGCL, attached as Annex C to this proxy statement, will forfeit his, her or its rights to dissent from the merger and to exercise appraisal rights and will be entitled to receive the merger consideration on the same basis as all other stockholders.

THE PROCESS OF DEMANDING AND EXERCISING APPRAISAL RIGHTS REQUIRES STRICT COMPLIANCE WITH TECHNICAL PREREQUISITES. THOSE INDIVIDUALS OR ENTITIES WISHING TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD CONSULT WITH THEIR OWN LEGAL COUNSEL IN CONNECTION WITH COMPLIANCE UNDER SECTION 262 OF THE DGCL. TO THE EXTENT THERE ARE ANY INCONSISTENCIES BETWEEN THE FOREGOING SUMMARY AND SECTION 262 OF THE DGCL, THE DGCL SHALL GOVERN.

 

The effective time of the merger will occur at the time that we file a certificate of merger with the Secretary of State of the State of Delaware on the closing date of the merger (or such later time as provided in the certificate of merger). The closing date will occur as soon as practicable, but in no event later than the second business day after all of the conditions to the merger set forth in the merger agreement have been satisfied or waived (or such other date as IBM and SPSS may agree).

 

If the merger is completed, our Common Stock will be delisted from and will no longer be traded on The NASDAQ Stock Market and will be deregistered under the Exchange Act. Following the completion of the merger, SPSS will no longer be an independent public company.

 

Upon the closing of the merger, the Company’s outstanding 2.5% Convertible Subordinated Notes due 2012 (the “Convertible Notes”) will become convertible pursuant to their terms, at the option of the holder, into the right to receive an amount of cash equal to $50.00 multiplied by the applicable conversion rate (currently 21.3105 shares per $1,000 principal amount). As a result of the merger, the conversion rate will be temporarily increased by a “make-whole premium”, calculated in accordance with the indenture governing the Convertible Notes, for those holders who elect to convert their Convertible Notes during the period specified in the indenture. Based on a projected closing date of the merger of October 2, 2009, the “make-whole premium” would be an additional 2.9738 shares per $1,000 principal amount. SPSS will also be required, following the merger, to offer to purchase the notes at 100% of their principal amount, plus accrued interest to the purchase date.

 

At the effective time of the merger, each outstanding restricted share unit award (whether or not vested) that was granted prior to the signing of the merger agreement will be cancelled and will be converted into the right to receive the merger consideration of $50.00, in cash, per restricted share unit, without interest and less any applicable withholding taxes, payable at or as soon as practicable (but in no event more than 45 days) following the effective time of the merger.

 

Any outstanding restricted share units granted after the signing of the merger agreement will be forfeited and cancelled immediately prior to the effective date of the merger (or other change in control), provided that the merger (or other change in control) occurs prior to February 1, 2010. If these restricted share units are forfeited and cancelled immediately prior to the effective date of the merger, and if the holder remains employed through January 31, 2010 (subject to special rules for death, disability and involuntary terminations after the forfeiture and cancellation and prior to February 1, 2010), the holder will receive a cash payment equal to one-eighth of the product of (a) the total number of restricted share units granted under the award that were forfeited and cancelled as described above, multiplied by (b) $35.09, without interest and less any applicable withholding taxes, payable as soon as practicable following January 31, 2010 but in no event later than April 15, 2010 (or, if earlier and if applicable, as soon as practicable following termination but in no event later than March 15, 2010). No directors or executive officers have been granted restricted share units since the signing of the merger agreement.

 

The following is a general discussion of certain material U.S. federal income tax consequences of the merger to U.S. Holders (as defined below) of SPSS Common Stock whose shares of SPSS Common Stock are exchanged for cash in the merger (or pursuant to the exercise of appraisal rights). This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable current and proposed U.S. Treasury Regulations, judicial authority, and administrative rulings and practice, all of which are subject to change, possibly on a retroactive basis.

 

This discussion is limited to U.S. Holders (as defined below) that hold their shares of SPSS Common Stock as capital assets for U.S. federal income tax purposes (generally, assets held for investment). This discussion does not address all aspects of U.S. federal income tax law that may be relevant to a stockholder in light of its particular circumstances, or that may apply to a stockholder that is subject to special treatment under the U.S. federal income tax laws, including, without limitation:

 

 

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds SPSS Common Stock, the tax treatment of a partner generally depends upon the status of the partner and the activities of the partnership. Partners of a partnership holding SPSS Common Stock should consult their own tax advisors. In addition, this discussion does not address any tax considerations under U.S. federal estate and gift or alternative minimum tax consequences, nor any state, local or foreign tax laws, or U.S. federal laws other than those pertaining to the U.S. federal income tax that may apply to stockholders.

 

For purposes of this discussion, the term “U.S. Holder” means a holder of SPSS Common Stock that is:

 

 

Tax Consequences of the Merger to U.S. Holders.   The receipt of the merger consideration in the merger (or pursuant to the exercise of appraisal rights) by U.S. Holders of SPSS Common Stock will be a taxable transaction for U.S. federal income tax purposes. In general, for U.S. federal income tax purposes, a U.S. Holder of SPSS

Common Stock will recognize capital gain or loss equal to the difference between the amount of cash received in exchange for SPSS Common Stock and the U.S. Holder’s adjusted tax basis in such Common Stock.

 

If the holding period of the SPSS Common Stock surrendered in the merger (or pursuant to the exercise of appraisal rights) is greater than one year as of the date of the merger, the gain or loss will be long-term capital gain or loss. Long-term capital gains of noncorporate taxpayers generally are taxable at a maximum U.S. federal income tax rate of 15%. Capital gains of corporate taxpayers generally are taxable at the regular income tax rates applicable to corporations. The deductibility of a capital loss recognized on the exchange is subject to limitations under the Code. If a U.S. Holder acquired different blocks of SPSS Common Stock at different times and different prices, such holder must determine its adjusted tax basis and holding period separately with respect to each block of SPSS Common Stock.

 

Information Reporting and Backup Withholding.   Payments made to a U.S. Holder whose shares of SPSS Common Stock are exchanged for cash pursuant to the merger (or pursuant to the exercise of appraisal rights) are subject to information reporting and to backup withholding unless: (i) the U.S. Holder is a corporation or other exempt recipient; or (ii) in the case of backup withholding, the stockholder provides a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. Each non-corporate U.S. Holder should complete and sign Internal Revenue Service Form W-9 in order to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is otherwise proved in a manner satisfactory to the paying agent. The amount of any backup withholding from a payment to a stockholder will be allowed as a credit against the stockholder’s U.S. federal income tax liability and may entitle the stockholder to a refund, provided that the required information is furnished to the IRS.

 

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND IS BASED ON THE LAW IN EFFECT ON THE DATE HEREOF. STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE MERGER.

 

HSR Act

 

The completion of the merger is subject to expiration or termination of the applicable waiting periods under the HSR Act and the rules and regulations promulgated thereunder. Under the HSR Act, the merger may not be completed unless certain information has been furnished to the Antitrust Division of the U.S. Department of Justice and to the Federal Trade Commission and applicable waiting periods expire or are terminated. The HSR Act requires the parties to observe a 30-day waiting period (the “initial 30-day waiting period”), during which time the merger may not be consummated, unless that initial 30-day waiting period is terminated early. If, before the expiration of the initial 30-day waiting period, the Antitrust Division of the U.S. Department of Justice or the Federal Trade Commission issues a request for additional information, the parties may not consummate the transaction until 30 days after SPSS and IBM have each substantially complied with such request for additional information (unless this period is shortened pursuant to a grant of earlier termination). SPSS and IBM filed their respective notification and report forms pursuant to the HSR Act with the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission on August 7, 2009.

 

At any time before the effective time of the merger, the Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice, state attorneys general, or private parties can file suit under the antitrust laws to enjoin consummation of the merger or to impose conditions on the merger, including the divestiture of assets of SPSS or IBM or restrictions on the post-closing operations of the combined company. There can be no assurance that the merger will not be challenged on antitrust grounds or, if such a challenge is made, that the challenge will not be successful.

Other Jurisdictions

 

The completion of the merger is also subject to comparable notifications and review under the antitrust laws of various foreign jurisdictions, including Austria, Brazil, Germany, Ireland, Italy and Slovakia. SPSS and IBM have filed or intend to file notifications with the appropriate governmental entities in each of those jurisdictions. Some of these jurisdictions do not require regulatory approval, consent or agreement prior to completing the merger. With respect to jurisdictions that do require regulatory approval, consent or agreement prior to completing the merger, SPSS and IBM expect to observe the applicable waiting periods prior to completing the merger. It is possible that any of the governmental entities with which notifications are filed may seek, as conditions for granting approval of the merger, various regulatory concessions. There can be no assurance that SPSS and IBM will be able or willing to satisfy or comply with these conditions.

 

The following description summarizes the material provisions of the merger agreement. Stockholders should read carefully the merger agreement, which is attached as Annex A to this proxy statement.

 

The merger agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about us. Such information can be found elsewhere in this proxy statement and in the other public filings we make with the Securities and Exchange Commission (the “SEC”), which are available without charge at www.sec.gov.

 

The representations and warranties described below and included in the merger agreement were made by SPSS and IBM to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed to by SPSS and IBM in connection with negotiating the terms of that agreement. Moreover, the representations and warranties may be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, or may have been made for the purpose of allocating risk between SPSS and IBM rather than establishing matters as facts. The merger agreement is described in this proxy statement and included as Annex A only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding SPSS and IBM or their respective businesses. SPSS will provide additional disclosure in its public reports filed with the SEC to the extent that it is aware of the existence of any material facts that are required to be disclosed under U.S. federal securities laws and that might otherwise contradict the representations and warranties in the merger agreement and will update such disclosure as required by U.S. federal securities laws.

 

The merger agreement provides that Merger Sub, a Delaware corporation and wholly owned subsidiary of IBM, will merge with and into us. We will survive the merger and continue to exist after the merger as a wholly owned subsidiary of IBM.

 

The closing date for the merger is expected to be not later than the second business day after the satisfaction or waiver of all conditions to closing in the merger agreement. We anticipate that the merger will be consummated in the early fourth quarter of calendar year 2009. However, we cannot assure you when, or if, all of the conditions to the closing of the merger will be satisfied. See “— Conditions to the Closing of the Merger” beginning on page 51.

 

The merger will be effective when we file a certificate of merger with the Secretary of State of the State of Delaware, or at such later time as we and IBM specify in the certificate of merger. We expect to make this filing at the time of the closing under the merger agreement.

 

 

The merger agreement provides that each share of our Common Stock outstanding immediately prior to the effective time of the merger (other than shares held by us, IBM, Merger Sub or by holders properly exercising appraisal rights under Delaware law) will be converted at the effective time of the merger into the right to receive $50.00 in cash, without interest and less any applicable withholding taxes.

 

If any of our stockholders perfect appraisal rights with respect to any of our shares of Common Stock, then we will treat those shares as described under “The Merger — Appraisal Rights” beginning on page 32.

 

Stock Option Awards

 

At the effective time of the merger, each outstanding stock option, whether or not vested or exercisable, to acquire our Common Stock will be cancelled and will be converted into the right of the holder thereof to receive an

amount, in cash, without interest and less any applicable withholding taxes, payable at or as soon as practicable (but in no event more than 45 days) following the effective time of the merger, equal to the product of:

 

 

Restricted Share Unit Awards

 

At the effective time of the merger, each outstanding restricted share unit award (whether or not vested) that was granted prior to the signing of the merger agreement will be cancelled and will be converted into the right to receive the merger consideration of $50.00, in cash, per restricted share unit, without interest and less any applicable withholding taxes, payable at or as soon as practicable (but in no event more than 45 days) following the effective time of the merger.

 

Deferred Share Unit Awards

 

At the effective time of the merger, each outstanding deferred share unit award, whether or not vested, will be cancelled and will be converted into the right to receive the merger consideration of $50.00, in cash, per deferred share unit, without interest and less any applicable withholding taxes, payable at or as soon as practicable (but in no event more than 45 days) following the effective time of the merger.

 

Employee Stock Purchase Plan

 

If the merger occurs after December 31, 2009 (the last day of the current contribution period under the ESPP), all purchase rights under the ESPP will be exercised in accordance with the ESPP on December 31, 2009 and the ESPP will be suspended for future periods as of December 31, 2009.

 

If the merger occurs on or prior to December 31, 2009, each outstanding purchase right under the ESPP will be terminated in exchange for a payment, in cash, equal to $21.07 (the difference between the merger consideration of $50.00 and 85% of the closing price of a share of our Common Stock on July 1, 2009, the first day of the current contribution period), without interest and less any applicable withholding taxes, payable as soon as practicable following the effective time of the merger.

 

 

Prior to the consummation of the merger, IBM will designate a paying agent and, after the effective time of the merger, IBM will deposit funds with the paying agent in amounts as necessary for the payment of the merger consideration.

 

As soon as reasonably practical after the effective time of the merger, the paying agent will mail to each person who was a holder of record of our Common Stock immediately prior to the effective time of the merger a letter of transmittal containing instructions for exchanging certificates representing shares of our Common Stock. Such letter of transmittal will be accompanied by a substitute IRS Form W-9 or the applicable IRS Form W-8. After the effective time of the merger, each holder of a certificate previously representing shares of our issued and outstanding Common Stock will, upon surrender to the paying agent of a certificate, together with a properly completed letter of transmittal, be entitled to receive the merger consideration of $50.00 in cash, less any withholding taxes, for each share of our Common Stock represented by such certificate.

 

No interest will be paid or shall accrue on the cash payable upon surrender of any certificate. The cash paid upon conversion of our Common Stock will be deemed to have been paid in full satisfaction of all rights pertaining to the shares of our Common Stock.

 

If any certificate representing our Common Stock has been lost, stolen, defaced or destroyed, the paying agent, IBM or the surviving corporation, as the case may be, will pay the merger consideration with respect to each share of our Common Stock formerly represented by such certificate upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen, defaced or destroyed and, if required by the surviving corporation, the posting by such person of a bond in an amount as the surviving corporation may direct as indemnity against any claim that may be made against the surviving corporation with respect to such certificate.

 

The merger agreement provides that Merger Sub’s directors and our officers immediately before the effective time of the merger will be the directors and officers, respectively, of the surviving corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

 

We have made a number of representations and warranties to IBM and Merger Sub in the merger agreement regarding aspects of our business and other matters pertinent to the merger. The topics covered by these representations and warranties include the following:

 

 

 

 

 

 

 

 

 

 

 

Some of our representations and warranties are qualified by a material adverse effect standard. Subject to certain exclusions, a material adverse effect means any state of facts, change, development, event, effect, condition, occurrence, action or omission:

 

 

provided, however, that none of the following shall be deemed either alone or in combination to constitute, and none of the following shall be considered when determining whether there has been or would be, a material adverse effect:

 

 

IBM and Merger Sub have made a number of representations to us regarding various matters pertinent to the merger. The topics covered by these representations and warranties include the following:

 

 

The representations and warranties of each of the parties to the merger agreement will expire upon the consummation of the merger.

 

Conduct of Our Business Prior to the Merger

 

In the merger agreement, we have agreed that before the effective time of the merger, subject to certain exceptions, we will carry on our, and we will cause each of our subsidiaries to carry on their, business in the ordinary course consistent with past practice and use commercially reasonable efforts to comply with all applicable laws and to the extent consistent therewith, use commercially reasonable efforts to keep available the services of present officers, software developers and other employees, to preserve assets and technology and relationships with customers, suppliers, licensors, licensees, distributors and others having material business dealings with us and our subsidiaries and to maintain franchises, rights and permits.

 

In addition, we have agreed, with specified exceptions, to various restrictions, including restrictions on our and our subsidiaries’ ability to:

 

 

 

 

 

 

 

 

 

If we ask IBM’s consent to take one of the foregoing actions, IBM shall consider our request in good faith and must not unreasonably delay in providing its response to our request.

 

We have also agreed, from the date of the merger agreement until the closing of the merger, to ensure that all contracts that we or our subsidiaries enter into with third parties freely permit the assignment of our or our subsidiaries’ contractual rights, interests or obligations thereunder to IBM or any of its subsidiaries following the consummation of the merger.

 

No Solicitation of Acquisition Proposals

 

We have agreed that we will not, and will not authorize or permit any of our subsidiaries to, nor will we authorize or permit any of our or our subsidiaries’ directors, officers or employees or any of our or their investment bankers, attorneys, accountants or other advisors or representatives to, directly or indirectly:

 

 

Despite these general prohibitions, at any time prior to the adoption of the merger agreement by our stockholders and subject to the conditions described below, we may, and may permit and authorize our subsidiaries and our and our subsidiaries’ directors, officers, employees, investment bankers, attorneys, accountants and other advisors and representatives to:

 

 

We may only take these actions if:

 

 

 

 

 

 

Board Recommendation

 

The merger agreement provides that neither our board of directors nor any committee of our board will, or will agree or resolve to:

 

 

 

Notwithstanding the foregoing, subject to the conditions described below, our board of directors may, at any time prior to the adoption of the merger agreement by our stockholders, in response to a superior proposal or an intervening event, make an adverse recommendation change. Our board of directors may only make an adverse recommendation change if:

 

 

 

The covenant in the merger agreement generally prohibiting us from soliciting acquisition proposals does not prevent us from complying with Rule 14d-9 and 14e-2(a) promulgated under the Exchange Act with regard to an acquisition proposal or from making any disclosure to our stockholders if our board of directors determines in good faith that failure to so disclose would be inconsistent with applicable law; provided, however, that in no event will we or our board of directors take, agree or resolve to take any action with respect to an adverse recommendation change that is prohibited by the merger agreement.

 

A “takeover proposal” means any inquiry, proposal or offer from any person (other than IBM or Merger Sub) relating to, or that could reasonably be expected to lead to, in one or a series of transactions, any merger, consolidation, business combination, recapitalization, liquidation or dissolution involving us or any direct or indirect acquisition, including by way of merger, consolidation, tender offer, exchange offer, stock acquisition, asset acquisition or similar transaction, of:

 

 

A “superior proposal” means any binding bona fide written offer of any person (other than IBM or Merger Sub) which did not result from a breach of the non-solicitation covenants contained in the merger agreement and that, if consummated, would result in such person or its stockholders acquiring:

 

 

which offer, in the good faith judgment of our board of directors, after consulting with a financial advisor of national reputation and outside legal counsel, (i) provides consideration which is more favorable to our stockholders than the consideration provided in the merger (taking into account all of the terms and conditions of such offer and the merger agreement, including any changes to the merger agreement proposed by IBM) and (ii) is reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal.

 

The merger agreement provides that an “intervening event” means an event, circumstance, fact or other information, unknown to our board of directors as of the date of the merger agreement, which becomes known before our stockholders adopt the merger agreement and which causes our board of directors to conclude in good faith, after consultation with its outside legal counsel and a financial advisor of national reputation, that its failure to effect an adverse recommendation change is reasonably likely to result in a breach of its fiduciary duties to our stockholders under applicable law or that such adverse recommendation change is otherwise required under applicable law. The term “intervening event” does not include the receipt, existence or terms of a takeover proposal or any matter relating to a takeover proposal or any consequence of a takeover proposal.

 

Under the merger agreement, we have agreed, subject to any applicable legal restraints, to convene and hold a stockholders’ meeting, for the purpose of the adoption of the merger agreement by our stockholders, on the

30th calendar day following the mailing of the definitive proxy statement to our stockholders. Notwithstanding the foregoing, we may delay the stockholders meeting:

 

 

 

We, IBM and Merger Sub have each agreed to use our reasonable best efforts to take, or cause to be taken, all actions that are necessary, proper or advisable to consummate the merger, including using our reasonable best efforts to accomplish the following:

 

 

 

Under the terms of the merger agreement, (i) IBM is not required to agree to, or offer to, divest or hold separate, or enter into any licensing, business restriction or similar arrangement with respect to, any asset or any portion of its or its subsidiaries’ businesses and (ii) we have also agreed not to agree to, or offer to, take any such action or enter into any such arrangement with respect to our or our subsidiaries’ assets or businesses without the prior written consent of IBM, in each case in response to a request by or discussion with a governmental entity in order to address any regulatory issues associated with or arising from the merger. Furthermore, IBM and its subsidiaries are not obligated to litigate or participate in the litigation of any suit, claim, action, investigation or proceeding brought by any governmental entity relating to this merger which seeks to: