<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM F-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ILOG S.A.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FRANCE 7372 NOT APPLICABLE
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
ILOG S.A.
9, RUE DE VERDUN, 94253 GENTILLY,
FRANCE
(011 33) 1 49 08 35 00
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
MR. STUART BAGSHAW
C/O ILOG, INC.
1901 LANDINGS AVENUE
MOUNTAIN VIEW, CA 94043
(650) 390-9000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES OF ALL COMMUNICATIONS SHOULD BE SENT TO:
FRANCIS S. CURRIE, ESQ.
ANTON COMMISSARIS, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE* OFFERING PRICE* REGISTRATION FEE
<S> <C> <C> <C> <C>
Ordinary Shares............................ 26,779 $8.31 $222,533.49 $66.00
</TABLE>
* Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, based on the
average of the high and low prices per ADS reported on the Nasdaq National
Market System on October 13, 1998.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1998
26,779 SHARES
ILOG S.A.
IN THE FORM OF AMERICAN DEPOSITORY SHARES
------------------
All of the shares offered hereby in the form of American depository shares
("ADSs") are being sold by certain shareholders of the Company (the "Selling
Shareholders") who received unregistered shares of the Company in the form of
ADSs as consideration for their stock in Compass Modeling Solutions, Inc.,
("Compass") which was merged into the Company's U.S. subsidiary ILOG, Inc., on
August 31, 1998. The ADSs offered hereby represent approximately 0.2 percent of
the Company's outstanding shares as of September 30, 1998. Such ADSs are being
offered on a continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended. No underwriting discounts, commissions or expenses are payable
or applicable in connection with the sale of such ADSs.
The ADSs of ILOG S.A. (the "Company" or "ILOG") are quoted on the National
Association of Securities Dealers' Automated Quotation System ("Nasdaq")
National Market System ("NMS") under the symbol "ILOGY." The ADSs offered hereby
will be sold from time to time at then prevailing market prices, at prices
relating to prevailing market prices or at negotiated prices. On October 13,
1998, the closing price of the ADSs on the Nasdaq NMS was $7.875.
SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
The Selling Shareholders will bear all discounts and commissions paid to
broker-dealers in connection with the sale of the ADSs. The Company will bear
the fees and expenses of a single counsel that the Selling Shareholders may
employ to represent them in this offering.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 15, 1998
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE SELLING SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, NOT SHALL THERE BE ANY SALE OF THESE
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
ENFORCEABILITY OF CIVIL LIABILITIES
ILOG is a French SOCIETE ANONYME (a form of limited liability company),
organized under the laws of The Republic of France. The majority of ILOG's
directors and officers and certain of the experts named herein are non-residents
of the U.S., and a substantial portion of the assets of ILOG and such persons
are located outside the U.S. As a result, it may not be possible for investors
to effect service of process within the U.S. upon such persons or to enforce
against them or against ILOG judgments of courts of the U.S. predicated upon the
civil liability provisions of the federal securities laws of the U.S. ILOG has
been advised by Stibbe Simont Monahan Duhot & Giroux, its French counsel, that
if an original action is brought in the Republic of France, predicated solely
upon the U.S. federal securities laws, French courts may not have the requisite
jurisdiction to grant the remedies sought and that actions for enforcement of
judgments of U.S. courts, rendered against the French persons referred to above,
would require such French persons to waive their right under Article 15 of the
French Civil Code to be sued in the Republic of France only. ILOG believes that
no such French persons have waived such right. In addition, actions in the U.S.
under the U.S. federal securities laws or otherwise could be affected under
certain circumstances by the French Law of July 16, 1980, which may preclude or
restrict the obtaining of evidence in the Republic of France or from French
persons in connection with such actions.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form F-3 (together with all
amendments, and exhibits, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares set forth
in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the shares offered hereby, reference
is made to the Registration Statement.
ILOG is subject to reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), applicable to foreign private issuers,
and in accordance therewith files reports, including annual reports on Form
20-F, and other information with the Commission. As a foreign private issuer,
ILOG is exempt from the rules under the Exchange Act prescribing the furnishing
and the content of proxy statements. Such reports and other information may also
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington D.C. 20549 and at the Commission's regional offices at Seven
World Trade Center, 13th Floor, New York, New York 10048; and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission also maintains a web site that contains reports, proxy and
information statements, and other information regarding registrants that file
electronically with the Commission at the address HTTP://WWW.SEC.GOV.
ILOG will furnish the Depositary referred to under "American Depositary
Shares" with annual reports in English, which will include a review of
operations and annual audited consolidated financial statements prepared in
accordance with generally accepted accounting principles in the U.S. ("U.S.
GAAP"). ILOG will also furnish the Depositary with quarterly reports in English,
which will include unaudited quarterly consolidated financial information
prepared in accordance with U.S. GAAP. The
2
<PAGE>
Depositary has agreed with the Company that, upon receipt of such reports, it
will promptly mail such reports to all record holders of ADSs. ILOG will also
furnish to the Depositary summaries in English or an English version of all
notices of shareholders' meetings and other reports and communications that are
made generally available to shareholders. The Depositary will arrange for the
mailing of such documents to record holders of ADSs.
AMERICAN DEPOSITARY SHARES
Pursuant to a program sponsored by the Company, Ordinary Shares of the
Company (the "Shares") are traded in the United States in the form of American
Depositary Shares ("ADSs"), each ADS representing one Share placed on deposit
with Morgan Guaranty Trust Company of New York, as depositary (the "Depositary")
and issued and delivered by the Depositary through its principal office in New
York City at 60 Wall Street, (36(th) Floor), New York, New York 10260. Under the
terms of the Deposit Agreement, dated as of February 13, 1997 and amended on
August 13, 1998, among the Company, the Depositary and the holders from time to
time of ADSs (the "Deposit Agreement"), Shares may be deposited with the Paris
office of Banque Paribas, as custodian (the "Custodian"), or any successor or
successors to such Custodian. The Depositary provides a variety of services to
registered holders of American Depositary Receipts, as more fully set forth in
the form of the Deposit Agreement which was filed as an exhibit to the Company's
Registration Statement on Form F-6 effective with the Securities and Exchange
Commission on January 30, 1997 and amended on August 13, 1998.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
<TABLE>
<CAPTION>
DOCUMENT DATE FILED WITH SEC
- ------------------------------------------------------------------------- -------------------
<S> <C>
Registration Statement on Form F-1 1-22-97
Registration Statement on Form F-6 1-30-97
Registration Statement on Form 8-A 2-3-97
Final Prospectus 2-14-97
Post-Effective Amendment No. 1 to Form F-1 2-19-97
Form S-8 3-25-97*
Form 6-K for quarter ended March 31, 1997 5-2-97
Form 20-F for year ended June 30, 1997 10-3-97*
Form 20-F/A (Amendment) 10-27-97*
Form 6-K for quarter ended September 30, 1997 11-20-97*
Form 6-K for quarter ended December 30, 1997 2-17-97*
Form 6-K for quarter ended March 31, 1998 5-15-98*
Amended F-6 8-13-98
Form 20-F for year ended June 30, 1998 10-1-98*
</TABLE>
- ------------------------
* indicates filed via EDGAR and available on the Commission's web site.
All documents filed by the Company pursuant to Section 13 (a), 13 (c) or 15
(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the ADSs shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
of the foregoing documents incorporated herein by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference into such documents). Requests for such documents should be directed
to the Company's headquarters in France at 9, rue de Verdun, 94253 Gentilly,
France, Attention: Chief Financial Officer or to the Company's headquarters in
the U.S. at 1901 Landings Avenue, Mountain View, CA 94043, Attention: Chief
Financial Officer.
4
<PAGE>
THE COMPANY
ILOG develops, markets and supports advanced software class components for
user interface, resource optimization and data services functions that are
fundamental to the development of strategic business applications. By creating
pre-built and pre-tested features to address these common software functions,
the Company's object oriented components reduce the time, cost and risk in the
development process, and allow users to focus their own efforts on value-added,
business specific programming tasks. The Company's components provide high
performance and scalability, run on the most popular Windows and Unix platforms
and can be used to facilitate client-side, server-side or web development
efforts. The Company also offers a range of consulting, customer training and
maintenance services to supplement its components.
Increasing global competition and rapid changes in technology are
accelerating the demand for company specific strategic business applications to
achieve competitive advantage. However, organizations face significant
challenges in developing strategic business applications that can keep pace with
this changing environment. These challenges include meeting the demand for new
applications, adapting these applications as business needs evolve and taking
advantage of new technologies such as distributed client server computing and
the internet/intranet. The resulting large and increasing backlog of strategic
business applications has driven the need for a software development approach
that combines the advantages of pre-built and pre-tested packaged applications
with the flexibility of internal software development. The emergence of object
oriented technology allows for the creation of pre-built software class
components that address common programming tasks, thus allowing programmers to
shorten development time by combining these components with their own
programming.
ILOG's C, C++, and Java software class components address common strategic
business software development needs. These needs include user interface,
resource optimization and data services functions, such as information
coordination among applications and databases. The Company believes that these
common functions typically represent between 15% and 40% of the number of lines
of code for strategic business applications. The Company's components can be
purchased for integration into new or existing applications individually or in
combination with other components.
The Company's components are sold to end-user enterprises, independent
software vendors ("ISVs") and original equipment manufacturers ("OEMs") that
integrate the Company's components into a specific strategic business
application or into their own products. The Company's components are also sold
through distributors, systems integrators and value added resellers ("VARs").
Sales are focused in the telecommunications, aerospace and enterprise resource
planning, defense, transportation and manufacturing markets. While the Company's
sales have traditionally been concentrated in Europe, especially France, the
Company is expanding its sales and marketing efforts to the U.S. and Asia
through the addition of direct sales personnel and distributors. As of August
31, 1998, the Company's components had been licensed to over 1,500 customers for
development and/or deployment in a wide range of applications.
The Company was incorporated in Paris, France in April 1987. The Company's
principal
executive offices are located at 9, rue de Verdun, 94253 Gentilly, France. Its
telephone number is (011 33) 1 49 08 35 00. The Company maintains a web site on
the World Wide Web. The Company's name together with its logo is registered as a
trademark in France, the U.S. and a number of other countries. This Prospectus
also contains tradenames or trademarks of companies other than ILOG.
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. IN ADDITION
TO THE OTHER INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING
THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OFFERED HEREBY.
HISTORY OF LOSSES; ACCUMULATED DEFICIT; FUTURE OPERATING RESULTS UNCERTAIN
The Company has incurred net losses in all but one of the last five fiscal
years. As of June 30, 1998, the Company had an accumulated deficit of
approximately $39.4 million. There can be no assurance that the Company will be
profitable on a quarterly or annual basis in the future. The Company's limited
operating history and the relative immaturity of its market, together with the
factors described under "--Fluctuations in Operating Results" and "--Seasonality
of Operating Results," make the prediction of future operating results
impossible. The Company's past financial performance should not be considered
indicative of future results. Although the Company has experienced revenue
growth in recent periods, there can be no assurance that the Company's revenues
will continue to increase or will not decrease. Future operating results will
depend on many factors, including the growth of the market for the Company's
object oriented components, demand for the Company's products and services, the
level of competition, the Company's success in expanding its direct sales force
and indirect distribution channels and the ability of the Company to develop and
market new products and product enhancements and to control costs, as well as
general economic conditions. See "--Fluctuations in Operating Results," "--Risk
of Loss of Government Research and Development Funding," and "--Seasonality of
Operating Results."
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have varied significantly in the past and
may vary significantly in the future, on a quarterly and an annual basis, as a
result of a number of factors, many of which are outside the Company's control.
These factors include demand for the Company's products and services, the size,
timing and structure of significant licenses by customers, cost overruns on the
Company's fixed price consulting contracts, changes in the mix of products and
services licensed or sold by the Company, product life cycles, the publication
of opinions about the Company, its products and object oriented technology by
industry analysts, changes in pricing policies by the Company or its
competitors, changes in the method of product distribution (including the mix of
direct and indirect channels), customer order deferrals in anticipation of
product enhancements or new product offerings by the Company or its competitors,
customer cancellation of major planned software development programs, the grant
of research and development expense reimbursements by government agencies and
the timing of such research and development reimbursements. Moreover, declines
in general economic conditions could precipitate significant reductions in
corporate spending for information technology, which could result in delays or
cancellations of orders for the Company's products. The Company's expense levels
are relatively fixed and are based, in significant part, on expectations of
future revenues. Consequently, if revenue levels are below expectations, expense
levels could be disproportionately high as a percentage of total revenues, and
operating results would be immediately and adversely affected. The Company has
historically operated with little backlog because its products are generally
shipped as orders are received. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that quarter
and on sales by the Company's distributors and other resellers. Sales derived
through indirect channels are harder to predict and may have lower margins than
direct sales. The Company also believes that the purchase of its products is
relatively discretionary and generally involves a significant commitment of a
customer's capital resources. Therefore, any downturn in any potential
customer's business would have a significant impact on the Company's revenues
and quarterly results. In addition, the Company has
6
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historically recognized a substantial portion of its revenues from sales booked
and shipped in the last month of a quarter such that the magnitude of quarterly
fluctuations may not become evident until late in, or at the end of, a
particular quarter. Because a number of the Company's individual orders are for
significant revenue, the Company's operating expenses are based on anticipated
revenue levels and a high percentage of the Company's expenses are relatively
fixed, the failure to ship a significant order in a particular quarter could
substantially adversely affect revenues and operating results for such quarter.
To the extent that significant sales occur earlier than expected, operating
results for subsequent quarters may be adversely affected. Revenues are
difficult to forecast because the market for the Company's products is rapidly
evolving. The Company may choose to reduce prices or increase spending in
response to competition or to pursue new market opportunities. If new
competitors, technological advances by existing competitors or other competitive
factors require the Company to invest significantly greater resources in
research and development efforts, the Company's future operating results may be
adversely affected. Due to these and other factors, the Company's quarterly
revenues, expenses and operating results could vary significantly in the future,
and period-to-period comparisons should not be relied upon as indications of
future performance. There can be no assurance that the Company will be able to
grow in future periods or that it will be able to sustain its level of revenues
or its rate of revenue growth on a quarterly or annual basis. See "--Risks
Associated with Sales Cycle" and "--Risk of Loss of Government Research and
Development Funding."
MARKET ACCEPTANCE OF OBJECT ORIENTED TECHNOLOGY
The Company's products are designed for use in object oriented software
application development. Object oriented applications are characterized by
technology, development style and programming languages that differ from those
used in traditional software applications. Object oriented technology offers
greater flexibility and re-usability of code than traditional technologies.
Object oriented languages offer significant capabilities not available from
traditional programming languages, but require greater discipline and attention
to detail from developers. In addition, object oriented modeling and analysis
techniques are more sophisticated than traditional techniques. To transform a
software application written in a traditional programming language into an
object oriented application would involve significant re-design and re-
architecture. In many cases, every line of code would have to be re-written. The
Company's growth depends upon continued growth of the market for, and broader
acceptance of, object oriented technology. There can be no assurance that the
market for the Company's products or services will grow or be sustained or that,
if it does, the Company will benefit from such growth. The acceptance of object
oriented technology depends upon the widespread adoption of object oriented
programming, and there can be no assurance as to the rate or scale of such
adoption. For example, the number of software developers using object oriented
technology is relatively small compared to the number of developers using more
traditional software development technologies. The adoption of object oriented
technology by software programmers who have traditionally used other technology
requires reorientation to significantly different programming methods, and there
can be no assurance that the acceptance of object oriented technology will
expand beyond sophisticated programmers who were early adopters of the
technology. Furthermore, there can be no assurance that potential customers will
be willing to make the investment required to retrain programmers to build
software using object oriented technology rather than structured programming
techniques or other technologies. If the market for object oriented technology
fails to grow or grows more slowly than anticipated, the Company's business,
operating results and financial condition would be materially adversely
affected.
The market for object oriented technology is characterized by a lack of
standards and numerous competitors in the areas of components, methodology and
services. The Company's future financial performance will depend in part upon
the development of standards that the Company's products address. There can be
no assurance that the Company will be able to respond effectively to the
evolving requirements of the market. For example, to date the Company has
focused its efforts on the C, C++ and Java programming languages. Should these
languages lose acceptance in the marketplace or be replaced by
7
<PAGE>
other advanced languages, the Company's business, operating results and
financial condition would be materially adversely affected.
MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS
The Company's future growth depends upon market acceptance of its products.
There can be no assurance that a significant number of organizations will choose
to use the Company's products, or that they will do so in a time frame that will
benefit the Company. In particular, many of the Company's customers have
licensed only small quantities of the Company's components, and there can be no
assurance that these or new customers will license additional components from
the Company or broadly implement object oriented technology. Industry data
indicate that many complex software development projects are abandoned before
completion or fail to satisfy user requirements, often after the expenditure of
substantial amounts of money and time. While the Company believes that the
components and professional services that it provides can increase the
likelihood that a software development project will be completed successfully,
the Company participates in an industry with an inherently high failure rate and
there can be no assurance that the Company's customers will achieve success when
using the Company's products and services. Any publicized performance problems
relating to object oriented technology or products offered by the Company or by
any competitor of the Company could also slow customer adoption of the Company's
products. Moreover, to the extent that the Company is associated with
unsuccessful customer projects, even if due to factors beyond the Company's
control, the Company's reputation and competitive position could be materially
and adversely affected.
RISKS ASSOCIATED WITH SALES CYCLE
The Company's sales cycle is generally three to six months or more and
varies substantially from customer to customer. Due in part to the strategic
nature of the Company's products, potential customers are typically cautious in
making product acquisition decisions. The decision to license the Company's
products generally requires the Company to provide a significant level of
education to prospective customers regarding the uses and benefits of the
Company's products, and the Company must frequently commit substantial presales
support and consulting resources. The Company has been constrained in its
ability to provide consulting resources as a result of a lack of trained
personnel, which may cause sales cycles to be lengthened or result in the loss
of sales.
Sales of licenses are subject to a number of risks over which the Company
has little or no control, including customers' budgetary constraints, customers'
internal acceptance reviews, the success and continued internal support of
customers' own development efforts, the efforts of distributors and the
possibility of cancellation of projects by customers. The uncertain outcome of
the Company's sales efforts and the length of its sales cycles could result in
substantial fluctuations in operating results. If sales forecasted from a
specific customer for a particular quarter are not realized in that quarter, the
Company is unlikely to be able to generate revenues from alternate sources in
time to compensate for the shortfall. As a result, and due to the relatively
large size of some orders, a lost or delayed sale could have a material adverse
effect on the Company's quarterly operating results. Moreover, to the extent
that significant sales occur earlier than expected, current operating results
and/or those of subsequent quarters may be adversely affected.
RISK OF LOSS OF GOVERNMENT RESEARCH AND DEVELOPMENT FUNDING
The Company has received significant amounts of research and development
funding from the European Union and, to a lesser extent, agencies of the French
government, which approximated $2.5 million, $388,000 and $688,000 for 1996,
1997 and 1998, respectively. Such funding has been netted against, and has
therefore reduced, the Company's reported research and development expenses on a
dollar for dollar basis. Relevant authorities award research and development
funding on a discretionary basis based on applications made by the Company for
specific product related projects. The Company has
8
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contracts that provide for additional research and development funds through
March 2001 based upon recent funding applications. However, there can be no
assurance that any future grants will be made. Failure to receive future
funding, a reduction in existing levels of funding, or delays in receipt of
additional funding may cause the Company's research and development expenses to
increase and may adversely affect the Company's operating results on a dollar
for dollar basis. See "--Fluctuations in Operating Results."
SEASONALITY OF OPERATING RESULTS
A majority of the Company's sales have historically come from Europe.
Similar to many companies in the software industry with significant sales
outside of the U.S., the Company generally realizes lower revenues (i) in the
September quarter than in the immediately preceding quarter due primarily to
reduced economic activity in Europe in the summer months; and (ii) to a lesser
extent, in the March quarter compared to the immediately preceding quarter due
to the concentration by some customers of purchases in the fourth quarter of the
calendar year, and their consequently lower purchasing activity during the
following quarter. See "--Fluctuations in Operating Results."
RAPID TECHNOLOGICAL CHANGE AND INTRODUCTION OF NEW PRODUCTS AND PRODUCT
ENHANCEMENTS
The market for the Company's products and services is characterized by rapid
technological change, dynamic customer demands and frequent introductions of new
products and product enhancements. Customer requirements for products can change
rapidly as a result of innovations or changes within the computer hardware and
software industries, the introduction of new products and technologies
(including new hardware platforms and programming languages) and the emergence,
evolution or widespread adoption of industry standards. For example, increasing
commercial use of the internet may give rise to new customer requirements and
new industry standards. There can be no assurance that the Company will be
successful in modifying its products and services to address these requirements
and standards. The actual or anticipated introduction of new products,
technologies and industry standards can render existing products obsolete or
unmarketable or result in delays in the purchase of such products. As a result,
the life cycles of the Company's products are difficult to estimate. The Company
must respond to developments rapidly and make substantial product development
investments. Any failure by the Company to anticipate or respond adequately to
technology developments and customer requirements, or any significant delays in
product development or introduction, could result in loss of competitiveness
and/or revenues.
The Company's future success will depend in large part on its ability to
improve its current technologies and to develop and market new products and
product enhancements that address these changing market requirements on a timely
basis. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements, that the Company
will not experience difficulties that delay or prevent the successful
development, introduction or marketing of such products or enhancements or that
any new products or product enhancements will adequately address market
requirements and achieve market acceptance. As is customary in the software
industry, the Company has in the past experienced delays in the introduction of
new products and features, and may experience such delays in the future. If the
Company is unable, for technological or other reasons, to develop new products
or enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, operating
results and financial condition would be materially adversely affected.
PRODUCT CONCENTRATION RISK
The Company currently generates approximately 68% of its total license fees
from the ILOG Views and ILOG Solver product families. The Company expects that
revenues from these two product families will continue to represent a
substantial portion of its total license fees for the foreseeable future. As a
result, any factor adversely affecting licenses of either ILOG Views or ILOG
Solver would have a material
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adverse effect on the Company's business, operating results and financial
condition. The Company's future financial performance will depend in significant
part on the Company's successful development and introduction, and customer
acceptance, of new and enhanced versions of ILOG Views and ILOG Solver plus
other products. In addition, to the extent that competitive pressures or other
factors result in significant price erosion on these products, the Company's
results of operations would be materially adversely affected.
COMPETITION
The Company's present direct competitors include a number of private and
public companies such as Dash Associates Limited, Dynatech Corporation, IBM,
Neuron Data, Inc., SL Corporation and Template Software, Inc. In addition,
virtually all of the Company's customers have significant investments in their
existing solutions and have the resources necessary to enhance existing products
and to develop future products. These customers have or may develop and
incorporate competing technologies into their systems, thereby replacing the
Company's current or proposed components. This would eliminate their need for
the Company's services and components and limit future opportunities for the
Company. The Company therefore is required to persuade development personnel
within these customers' organizations to outsource the development of their
software and to provide products and solutions to these customers that cost-
effectively compete with their internally developed products. The Company
expects to face additional competition from other established and emerging
companies if the market for its components continues to develop and expand. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly gain significant market share. New or
enhanced products introduced by existing or future competitors could increase
the competition faced by the Company's products. Increased competition could
result in fewer customer orders, price reductions, reduced transaction size,
reduced gross margins and loss of market share, any of which could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able to
maintain prices for products at levels that will enable the Company to market
its products profitably. Any decrease in prices, as a result of competition or
otherwise, could have a material adverse effect on the Company's business,
operating results and financial condition.
Some of the Company's current, and many of the Company's potential,
competitors have longer operating histories, significantly greater financial,
technical, marketing, service and other resources, significantly greater name
recognition, broader product offerings and a larger installed base of customers
than the Company. In addition, the Company's current and potential competitors
may have well-established relationships with current and potential customers of
the Company. As a result, such competitors may be able to devote greater
resources to the development, promotion and sale of their products, may have
more direct access to corporate decision-makers based on previous relationships
and may be able to respond more quickly to new or emerging technologies and
changes in customer requirements. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE UPON DEVELOPMENT OF SALES AND MARKETING FORCE
The Company has made a significant investment in recent years in the
expansion of its sales and marketing force, primarily in the U.S. and Asia, and
plans to continue to expand its sales and marketing force. The Company's future
success will depend in part upon the productivity of its sales and marketing
force and the ability of the Company to continue to attract, integrate, train,
motivate and retain new sales and marketing personnel. There can be no assurance
that the Company's recent and planned investment in sales and marketing will
ultimately prove to be successful or that the incremental revenues generated
will
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exceed the significant incremental costs associated with these efforts. In
addition, there can be no assurance that the Company's sales and marketing
organization will be able to compete successfully against the significantly more
extensive and better funded sales and marketing operations of many of the
Company's current and potential competitors. The Company's inability to develop
and manage its sales and marketing force expansion effectively could have a
material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend in significant part upon the
continued service of its key technical, sales and senior management personnel,
including the Company's President and Chief Executive Officer, Pierre Haren. The
Company is particularly dependent upon its technical personnel with expertise in
object oriented technology. The loss of the services of one or more of the
Company's key employees could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's future
success will depend on its ability to attract, integrate, train, motivate and
retain highly qualified technical, sales and managerial personnel, and there can
be no assurance that the Company will be able to do so. Competition for such
personnel is intense, especially the competition for technical personnel with
expertise in object oriented technology. The Company expects that such
competition will continue for the foreseeable future, and may intensify. If the
Company is unable to hire qualified personnel on a timely basis in the future,
the Company's business, operating results and financial condition would be
materially adversely affected. Additions of new personnel and departures of
existing personnel, particularly in key positions, can be disruptive, might lead
to additional departures of existing personnel and could have a material adverse
effect upon the Company's business, operating results and financial condition.
The addition and assimilation of new personnel may be made more difficult by
the fact that the Company's research and development personnel are located
primarily in France, and its sales and marketing activities are located on three
continents, thus requiring the coordination of organizations separated by
geography and time zones, and the interaction of personnel with disparate
business backgrounds, languages and cultures. See "Risks Associated with
Worldwide Operations."
RISKS ASSOCIATED WITH WORLDWIDE OPERATIONS
The Company's engineering and research and development operations are
located in France except for the CPLEX products which are developed in Incline
Village, Nevada, and its sales and marketing operations are located on three
continents. The geographic distance between these locations has in the past led,
and could in the future lead, to logistical and communications difficulties.
There can be no assurance that the geographic, time zone, language and cultural
differences between the Company's French, North American and Asia personnel and
operations will not result in problems that materially adversely affect the
Company's business, operating results and financial condition. Further, the
Company's operations may be directly affected by economic and political
conditions in the countries where the Company does business.
The Company expects to commit additional time and resources to expanding its
worldwide sales and marketing activities, localizing its products for selected
markets and developing local sales and support channels. There can be no
assurance that such efforts will be successful. Failure to sustain or increase
worldwide revenue, especially in North America and Asia, could have a material
adverse effect on the Company's business, operating results and financial
condition. Worldwide operations are subject to a number of risks, including the
costs of localizing products for different countries, longer accounts receivable
collection periods in certain geographic regions, especially Europe, and greater
difficulty in accounts receivable collections, unexpected changes in regulatory
requirements, dependence on independent resellers and technology standards,
import and export restrictions and tariffs, difficulties and costs of staffing
and managing international operations, potentially adverse tax consequences,
political instability,
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<PAGE>
the burdens of complying with multiple, potentially conflicting laws and the
impact of business cycles and regional economic instability. Approximately 28%
of the Company's sales in 1998 were denominated in French francs, with the
remainder in U.S. dollars and, to a lesser extent, Singapore dollars and other
currencies. An increase in the value of the French franc relative to foreign
currencies could make the Company's products more expensive and, therefore, less
competitive in other markets.
MANAGEMENT OF POTENTIAL GROWTH
The Company has recently experienced a period of growth in revenues that has
placed a significant strain on its management systems and resources. In
addition, the size of the Company's staff increased from 281 to 398 employees
during 1998. Further increases in the number of employees are anticipated in
1999. Much of this growth has occurred and will occur in North America and Asia,
thus increasing the Company's need for information and communication systems.
The Company's ability to manage any future growth effectively will require it to
continue to improve its operational, financial and management controls,
accounting and reporting systems and procedures and other internal processes,
and there can be no assurance that the Company will be able to make such
improvements in an efficient and timely manner or that such improvement will be
adequate. If the Company's management is unable to manage growth and change
effectively, the Company's business, operating results and financial condition
could be materially adversely affected.
ACQUISITIONS
In August 1997, the Company acquired the business of CPLEX Optimization,
Inc. ("CPLEX") which developed and marketed linear based optimization libraries
written in C, with operations in Incline Village, Nevada in exchange for
1,700,000 Company shares, $10 million cash and $5 million of promissory notes.
In 1998 the Company commenced the integration of the CPLEX business into the
Company's operations. The process of integrating CPLEX's business into the
Company's operations may result in unforeseen operating difficulties and could
absorb significant management attention and/or expenditures that would otherwise
be available for the ongoing development of the Company's business. In August
1998, the Company also acquired Compass Modeling Solutions, Inc. ("Compass") in
Reno, Nevada a small value added reseller of CPLEX products in exchange for
51,852 Company shares.
The Company may in the future pursue other acquisitions of complementary
product lines, technologies or businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
any Company profitability. In addition, acquisitions, such as CPLEX, involve
numerous risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company may have limited direct prior experience, operating
companies in different geographical locations with different cultures, and the
potential loss of key employees of the acquired company. There are currently no
agreements with respect to any acquisitions. In the event that such an
acquisition does occur, however, there can be no assurance as to the effect
thereof on the Company's business, financial condition or operating results.
RISK OF SOFTWARE DEFECTS; PRODUCT LIABILITY
As a result of their complexity, software products frequently contain
undetected errors or failures, especially when first introduced or when new
versions or enhancements are released. There can be no assurance that, despite
testing by the Company and testing and use by current and potential customers,
errors will not be found in new products and product enhancements released by
the Company in the future. The occurrence of such errors could result in
significant losses to the Company or a customer, especially if such errors occur
in strategic applications. Such occurrence could also result in reduced market
acceptance of the Company's products, which would have a material adverse effect
on the
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Company's business, operating results and financial condition. The Company's
license agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential product liability and other claims. It
is possible, however, that the limitation of liability provisions contained in
the Company's license agreements, especially unsigned "shrink-wrap" licenses,
may not be effective under the laws of certain jurisdictions. Consequently, the
sale and support of the Company's software by the Company entail the risk of
such claims in the future. The Company currently has limited insurance against
product liability risks or errors or omissions coverage, and there can be no
assurance that additional insurance will be available to the Company on
commercially reasonable terms or at all. A product liability claim or claim for
economic loss brought against the Company could have a material adverse effect
upon the Company's business, operating results and financial condition.
CURRENCY FLUCTUATIONS
The Company publishes its financial statements in U.S. dollars. The Company
has historically recorded a majority of its expenses in French francs,
especially research and development expenses. A material portion of the
Company's revenues is denominated in French francs, with the remainder in U.S.
dollars and, to a lesser extent, Singapore dollars and other currencies.
Fluctuations in the value of the currencies in which the Company conducts its
business relative to the U.S. dollar have caused and will continue to cause
dollar-translated amounts to vary from one period to another. Due to the number
of currencies involved, the constantly changing currency exposures and the
volatility of currency exchange rates, the Company cannot predict the effect of
exchange rate fluctuations upon future operating results. To date, the Company
has not undertaken hedging transactions to cover its currency transaction
exposure but may undertake such transactions in a limited manner in the future.
PROTECTION OF INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its proprietary technology.
The Company relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
its proprietary technology. For example, the Company licenses its software
pursuant to signed license agreements and, to a lesser extent, "shrink-wrap"
licenses displayed on product packaging, which impose certain restrictions on
the licensee's ability to use the software. In addition, the Company seeks to
avoid disclosure of its trade secrets, including requiring those persons with
access to the Company's proprietary information to execute confidentiality
agreements with the Company and restricting access to the Company's source
codes. The Company seeks to protect its software, documentation and other
written materials under the laws relating to trade secret and copyright, which
afford only limited protection. The Company has no patents or pending patent
applications.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products,
obtain or use information that the Company regards as proprietary or use or make
copies of the Company's products. Policing unauthorized use of the Company's
products is difficult. In addition, the laws of many jurisdictions do not
protect the Company's proprietary rights to as great an extent as do the laws of
France and the U.S. In particular, "shrink-wrap" licenses may be wholly or
partially unenforceable under the laws of certain jurisdictions, and copyright
and trade secret protection for software may be unavailable in certain
countries. Under French intellectual property laws, rights over software are not
patentable but are protected under copyright law and infringements by third
parties can be enjoined. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology.
There can be no assurance that the Company will not receive communications
in the future from third parties asserting that the Company's products infringe,
or may infringe, on their proprietary rights. There can be no assurance that
licenses to disputed third-party technology would be available on reasonable
commercial terms, if at all. In addition, the Company may initiate claims or
litigation against third parties
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for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Litigation to determine the
validity of any claims could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel from
productive tasks, whether or not such litigation were determined in favor of the
Company. In the event of an adverse ruling in any such litigation, the Company
might be required to pay substantial damages, discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to infringing technology. In the event of a
successful claim against the Company and the failure of the Company to develop
or license a substitute technology, the Company's business, operating results
and financial condition would be materially adversely affected. As the number of
software products in the industry increases and the functionality of these
products further overlaps, the Company believes that software developers may
become increasingly subject to infringement claims. Any such claims against the
Company, with or without merit, as well as claims initiated by the Company
against third parties, could be time consuming and expensive to defend or
prosecute and to resolve.
VOLATILITY OF SHARE PRICE
The market price of the Company's ADSs has experienced significant
fluctuation and may continue to fluctuate significantly. In particular, the
trading price of the ADSs could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, downturns in the economy of regions
in which the Company does business, and other events or factors, many of which
are beyond the Company's control. In some future quarters the Company's
operating results may be below expectations of public market analysts and
investors. In such event, or in the event that adverse conditions prevail or are
perceived to prevail generally or with respect to the Company's business, the
price of the Company's ADSs would likely be immediately materially adversely
affected. In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of many technology
companies and that often has been unrelated or disproportionate to the operating
performance of such companies. These broad market fluctuations, as well as
general economic, political and market conditions such as recessions or
international currency fluctuations, have and may continue to adversely affect
the market price of the ADSs.
CONTROL BY OFFICERS AND DIRECTORS; FACTORS INHIBITING TAKEOVER
As of September 30, 1998, the Company's executive officers and directors and
their affiliates beneficially owned approximately 46% of the Company's Shares.
As a result, such persons and entities, acting together, will have the effective
ability to control the Company and direct its affairs and business. The
concentration of ownership of the Company's Shares may have the effect of
delaying, deferring or preventing a change in control of the Company.
Pursuant to the Company's charter or STATUTS, the members of the Company's
Board of Directors each serve for a three-year term. One-third of the directors
are elected every year, which may make it more difficult for the Company's
shareholders to replace the Board of Directors. The Board of Directors has also
been authorized by the shareholders of the Company to effect increases in the
Company's share capital in the context of a tender offer or exchange offer for
the securities of the Company, which could have an anti-takeover effect. See
"Directors and Executive Officers" and "Control of Registrant."
ENFORCEABILITY OF U.S. JUDGMENTS AGAINST FRENCH CORPORATIONS, DIRECTORS AND
OFFICERS
Judgments of U.S. courts, including judgments against the Company or its
directors or officers, predicated on the civil liability provisions of the
federal securities laws of the U.S. may not be enforceable in the Republic of
France.
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NO DIVIDENDS
The Company has not paid any cash dividends on its share capital to date.
The Company currently anticipates that it will retain any future earnings for
use in its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. Any dividend would be declared and paid in
French francs and under the French Company Law (the "French Law") and the
Company's STATUTS, may only be paid from pre-consolidated net income, as
increased or reduced, as the case may be, by any net income or loss of ILOG
carried forward from prior years.
CERTAIN MATTERS RELATED TO FRENCH COMPANIES
As a French SOCIETE ANONYME, the Company will be subject to certain
requirements not generally applicable to corporations organized in U.S.
jurisdictions. Among other things, holders of ADSs will be subject to voting
procedures that are more complicated than for U.S. jurisdictions. The Company's
ability to increase its share capital is subject to shareholder approval at an
extraordinary shareholders' meeting. Shareholder approval must in any event be
obtained for any issuances of share capital in connection with a merger even if
the Company is the surviving entity, or an acquisition of assets in exchange for
shares of the Company. In the case of an extraordinary general meeting, the
presence, in person or by proxy, of shareholders holding one-third of the Shares
upon first notice and one-quarter of the Shares upon second notice is required
for a quorum. The complicated voting procedures under French Law, coupled with
the increasing practice of ADS holders not to exercise their voting rights, may
prevent the Company from obtaining a quorum for future shareholders' meetings
and thereby impair the ability of the Company to take any action that requires
shareholder approval.
YEAR 2000 COMPLIANCE RISKS
The Company is aware that many currently installed information technology
("IT") systems, such as computer systems and software products, as well as
non-IT systems that include embedded technology, were not designed to correctly
process dates after December 31, 1999. The Company's own component products have
been determined by the Company to be "Year 2000" compliant, although the
customer applications into which they are integrated may not be Year 2000
compliant.
The Company is also assessing the impact of such Year 2000 issues on its
internal IT and non-IT systems as well as on its customers, suppliers and
service providers. The Company plans to implement a new internal IT and
enterprise accounting system in 1999 and believes that this will aid it in
ensuring that its own internal IT systems will be Year 2000 compliant. The
Company estimates that the expenses it has incurred to date to address Year 2000
issues have not been material and, although it has not completed its full
assessment of its Year 2000 readiness, it does not expect to incur material
expenses in connection with any required remediation efforts.
To date the Company has not identified any significant areas of
non-compliance with respect to its products or IT systems and expects that the
assessment and plans for remedial action for all of its products and non-IT
systems will be completed by the end of 1999. Further the Company anticipates
receiving assurances from its key suppliers and service providers in addressing
any Year 2000 issues which may affect the Company, in particular from utility
companies, telecommunication service companies and other mission critical
service providers that are outside the Company's control. Therefore, it may be
difficult for the Company to ensure Year 2000 readiness from such third parties.
Considering the complex interrelationships among Year 2000 issues both internal
and external to the Company, there can be no assurance that the Company will be
able to identify and accurately evaluate all Year 2000 issues and that
unresolved or undetected internal and external Year 2000 issues will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
If any customers, suppliers or service providers fail to appropriately
address their Year 2000 issues, such failure could have a material adverse
effect on the Company's business, financial condition and results
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of operation. For example, because a significant percentage of the purchase
orders received from the Company's customers are computer generated, a failure
of one or more of the computer systems of the Company's customers could have a
significant adverse effect on the level and timing of orders from such
customers. Similarly, if Year 2000 problems are experienced by any of the
Company's significant suppliers or service providers, such problems could cause
or contribute to delays or interruptions in the delivery of products or services
to the Company; such delays or interruptions could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company may develop contingency plans in the event it has not completed
all of its remediation programs in a timely manner. Such contingency plans may
also address Year 2000 issues relating to third parties who provide goods or
services essential to the Company's business but fail to appropriately address
their Year 2000 issues. Even if these plans are completed on time and put in
place, their can be no assurance that unresolved or undetected internal and/or
external Year 2000 issues will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Finally, disruption in the economy generally resulting from Year 2000 issues
could also materially adversely affect the Company. The occurrence of one or
more of the risks described above could have a material adverse effect on the
Company's business, financial condition or results of operations.
INTRODUCTION OF THE EURO
The Euro is scheduled to be introduced on January 1, 1999 in eleven European
Monetary Union countries including France where the Company has its headquarters
and a significant part of its worldwide operations is based, and in Germany and
Spain where it has sales subsidiaries. Legacy currencies however will continue
to be used as legal tender through January 1, 2002. The Company believes that
the introduction of the Euro will simplify the conduct of its business in the
above countries over time, however changes and/or improvements will need to be
made to its accounting and related internal systems.
The Company has commenced planning and the training of its personnel to
handle the currency change and in addition the Company is also assessing the
impact of the Euro on its internal IT and non-IT systems. The Company plans to
implement a new internal IT and enterprise accounting system in 1999 and modify
certain existing systems to accommodate the introduction of the Euro. The
Company believes that such systems and system modifications will aid in ensuring
that it will be able to accommodate the accounting and reporting requirements of
the new currency.
The Company does not expect to have to make major investments, other than in
IT systems, to handle the changeover. There however can be no assurance that new
systems will be introduced or existing systems modified in a timely and/or
effective manner such that the Company will be able to properly handle the
changeover to the Euro without causing a disruption to its business processes
and operations, which in turn may result in a material adverse effect on the
Company's business, financial condition and results of operations.
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the ADSs offered
hereby.
SELLING SHAREHOLDERS
The Selling Shareholders acquired the ADSs offered hereby in connection with
the merger of Compass into ILOG, Inc. effective as of August 31, 1998.
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Shares as of September 30,
1998 by the Selling Shareholders (without regard to shares sold by such person
pursuant to this Prospectus). The following table assumes the Selling
Shareholders sell all of the ADSs offered hereby. The Company is unable to
determine the exact number of Shares that will actually be sold.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES OWNED
-------------------------- SHARES BEING AFTER
NUMBER PERCENT OFFERED (2) OFFERING
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Daniel Fylstra.................................................... 28,614 * 20,514 8,100
Robert Fourer..................................................... 4,559 * 4,559 --
Joseph Hootman(1)................................................. 2,959 * 1,706 1,253
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding Shares
(1) Shares subject to options that are currently exercisable or exercisable
within 60 days of September 30, 1998 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person, but are not deemed to be
outstanding and to be beneficially owned for the purpose of computing the
percentage ownership of any other person.
(2) Each Selling Shareholder above is having only the Company's Shares received
by them in connection with the Merger of Compass into ILOG, Inc. registered
hereon. The Company is unaware of whether such Selling Shareholders intend
to sell any, some or all of such Shares. None, some or all of such Shares
may be sold.
PLAN OF DISTRIBUTION
The ADSs offered hereby are being offered directly by the Selling
Shareholders. The Company has been advised by the Selling Shareholders that they
may sell all of the ADSs offered hereby from time to time during the 1 year
period following the date of this Prospectus in the over-the-counter market and
that sales will be made at prices prevailing at the times of such sales. The
Selling Shareholders may also make private sales at negotiated prices directly
or through a broker or brokers, who may act as agent or as principal or by a
combination of such methods of sale. The Selling Shareholders and any
underwriter, dealer or agent who participate in the distribution of such ADSs
may be deemed to be "underwriters" under the Securities Act, and any discount,
commission or concession received by such persons might be deemed to be an
underwriting discount or commission under the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Shareholders (and, if acting as agent for the
purchaser of such ADSs, from such purchaser). Usual and customary brokerage fees
will be paid by the Selling Shareholders. Broker-dealers may agree with the
Selling Shareholders to sell a specified number of ADSs at a stipulated price
per ADSs, and, to the extent such a broker-dealer is unable to do so acting as
agent for the any of the Selling Shareholders, to purchase as principal any
unsold ADSs at the price required to fulfill the broker-dealer commitment to any
of the
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Selling Shareholders. Broker-dealers who acquire ADSs as principal may
thereafter resell such ADSs from time to time in transactions (which may involve
crosses and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, in negotiated transactions or by a combination of such
methods of sale or otherwise at market prices prevailing at the time of sale or
at negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such ADSs commissions computed as described above.
The Company has advised the Selling Shareholders that the anti-manipulative
Rules 10b-6 and 10b-7 under the Exchange Act may apply to sales in the market,
has furnished the Selling Shareholders with a copy of these Rules and has
informed the Selling Shareholders of the need for delivery of copies of this
Prospectus. The Selling Shareholders may indemnify any broker-dealer that
participates in transactions involving the sale of the ADSs against certain
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of such ADSs, may be
deemed to be underwriting discounts and commissions under the Securities Act if
any such broker-dealers purchase shares as principal.
In order to comply with the securities laws of certain states, if
applicable, the ADSs will be sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain states, the ADSs may not
be sold unless such ADSs have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
At the time a particular offer of the Shares registered hereunder is made,
if required, a Prospectus Supplement will be distributed that will set forth the
number of ADSs being offered and the terms of the offering including the name of
any underwriter, dealer or agent, the purchase price paid by any underwriter for
securities purchased from, any discount, commission and other item constituting
compensation and any discount, commission or concession allowed or reallowed or
paid to any dealer, and the proposed selling price to the public.
There can be no assurance that the Selling Shareholders will sell all or any
of the ADSs offered hereunder.
LEGAL MATTERS
The validity of the Shares corresponding to the ADSs offered hereby will be
passed upon for the Company by Stibbe Simont Monahan Duhot & Giroux, French
counsel to the Company.
EXPERTS
The consolidated financial statements of ILOG S.A. incorporated by reference
in the Company's Annual Report (Form 20-F) for the year ended June 30, 1998,
have been audited by Ernst & Young Audit, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
18
<PAGE>
ILOG S.A.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission................ $ 66
Accountant's fees................................................... $ 1,000
Legal fees.......................................................... $ 5,000
Miscellaneous....................................................... $ 1,000
---------
Total............................................................... $ 7,066
---------
---------
</TABLE>
All of the above expenses will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
French law prohibits the Company from entering into indemnification
agreements with its directors and officers providing for limitations on personal
liability for damages and other costs and expenses that may be incurred by
directors and officers arising out of or related to acts or omissions in such
capacity. French law also prohibits the status of the Company from providing for
the limitation of liability of a member of the Board of Directors. These
prohibitions may adversely affect the ability of the Company to attract and
retain directors. Generally, under French law, directors and officers will not
be held personally liable for decisions taken diligently and in the corporate
interest of the Company.
The Company has entered into an agreement with each of its directors, its
Chairman and Chief Executive Officer, its Chief Operating Officer, its Chief
Financial Officer and other members of senior management designated by the Board
of Directors pursuant to which the Company agreed to contract for and maintain
liability insurance against liabilities which may be incurred by such persons in
their respective capacities, including liabilities which may be incurred under
the U.S. federal and state securities laws, subject to certain limitations. The
Company believes that entering into such agreements and maintaining appropriate
liability insurance for its directors and officers will assist the Company in
attracting and retaining qualified individuals to serve as directors and
officers.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ------------- -------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Stibbe Simont Monahan Duhot & Giroux
23.1 Consent of Ernst & Young Audit
23.2 Consent of Stibbe Simont Monahan Duhot & Giroux (contained in Exhibit 5.1)
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
II-1
<PAGE>
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of a prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended, that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities act of 1933, as amended, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of any employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934, as amended) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
SIGNATURES
The registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form F-3 and has duly caused the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Paris on October 15, 1998
<TABLE>
<S> <C> <C>
ILOG S.A.
By: /s/ PIERRE HAREN
-----------------------------------------
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ PIERRE HAREN
- ------------------------------ Chairman and Chief
Pierre Haren Executive Officer
/s/ PATRICK ALBERT
- ------------------------------ Chief Technology Officer
Patrick Albert
/s/ STUART BAGSHAW
- ------------------------------ Chief Operating Officer
Stuart Bagshaw
/s/ DR. ROBERT BIXBY
- ------------------------------ Director and Technology
Dr. Robert Bixby Fellow
/s/ EDOUARD EFIRA Executive Vice President,
- ------------------------------ International Strategic
Edouard Efira Alliances
/s/ ROGER FRIEDBERGER
- ------------------------------ Chief Financial Officer
Roger Friedberger
/s/ TODD LOWE Director and Executive
- ------------------------------ Vice President, CPLEX
Todd Lowe and ILOG Direct
/s/ JEAN POMMIER
- ------------------------------ Vice President, Worldwide
Jean Pommier Professional Services
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ WILLIAM SCULL
- ------------------------------ Vice President of
William Scull Worldwide Marketing
- ------------------------------ Director
Pascal Brandys
- ------------------------------ Director
Philippe Claude
/s/ MARC FOURIER
- ------------------------------ Director
Marc Fourier
- ------------------------------ Director
Jean-Francois Abramatic
- ------------------------------ Director
Fredric Harman
/s/ STUART BAGSHAW
- ------------------------------ Authorized Representative
Stuart Bagshaw in the U.S.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Stibbe Simont Monahan Duhot & Giroux
23.1 Consent of Ernst & Young Audit
23.2 Consent of Stibbe Simont Monahan Duhot & Giroux (contained in Exhibit 5.1)
</TABLE>
II-5
<PAGE>
EXHIBIT 5.1
ILOG S.A.
9, rue de Verdun
94253 Gentilly
France
Paris, October 15, 1998
ILOG S.A.
Dear Sirs:
We have acted as your French counsel, in relation to French law, in
connection with the contribution of all of the shares of COMPASS MODELING
SOLUTIONS, INC. ("Compass") to ILOG S.A., a SOCIETE ANONYME organized under the
laws of the Republic of France (the "Company"), in exchange for shares of the
Company (the "Shares"). This opinion is being provided in connection with the
registration of 26,779 of the Shares in the form of American depository shares
under the Securities Act of 1933, as amended (the "Act").
For purposes of this opinion, we have examined the following documents:
1. a certified copy of the by-laws ("STATUTS") of the Company as amended on
August 3, 1998 and an extract (Form K-bis) of THE REGISTRE DU COMMERCE ET DES
SOCIETE DE CRETEIL relating to the Company dated August 26, 1998;
2. an asset contribution agreement ("CONTRAT D'APPORT") by and between the
Company and each of Compass shareholders (the "Contribution Agreement")'
3. all other relevant corporate documents of the Company, including without
limitation a copy of the minutes of the Board of Directors held on August 3,
1998, a copy of the minutes of the extraordinary general meeting of the
shareholders of the Company held on August 31, 1998, issuing the Shares, a copy
of the report of the Board of Directors and of the statutory auditors of the
Company for such shareholders' meeting as well as of the special auditors
("COMMISSAIRE AUX APPORTS") appointed by Court; and
4. a draft of the Company's Form F-3 Registration Statement for the
registration of 26,779 of the Shares of October 14, 1998 and
5. such further documents and matters of law as we have considered
necessary or appropriate for the purposes of rendering this opinion.
In examining the documents referred to above, we have assumed:
(i) the genuineness of all signatures, stamps and seals, the authenticity
and completeness of all documents submitted to us as originals and the
completeness and conformity to the originals of all documents supplied
to us as certified or photostatic or faxed copies and the authenticity
of the originals of such documents;
(ii) the due authorization, execution and delivery of the Contribution
Agreement by each of the parties thereto (other than the Company) and
that performance thereof if within the capacity and powers of each of
the parties thereto (other than the Company).
As we are members of the French Bar and do not represent ourselves to be
familiar with the laws of any jurisdiction other than France, we do not pass
upon and express no opinion with respect to any of the matters governed by or to
be determined on the basis of any such laws.
Based upon and subject to the foregoing and subject to the qualifications
below, and to any matters not disclosed to us by the parties concerned, and
having regard to such legal considerations as we deem to be relevant, we are of
the opinion that under French law as in effect at the date hereof, the 26,779
Shares to be registered under the Act have been duly and validly issued and are
fully paid up.
<PAGE>
We express no opinion as to any agreement, instrument or other document
other than as specified in this letter.
We hereby consent to the filing of this opinion as an exhibit to the Form
F-3 Registration Statement and to the reference to Stibbe Simont Monahan Duhot &
Giroux in the Prospectus included in the Form F-3 Registration Statement for the
registration of 26,779 Shares under the heading "Legal Matters." In giving such
consent, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act. This opinion may not be used for
any other purpose.
Very truly yours,
<TABLE>
<S> <C>
/s/ PATRICK SINGER /s/ OLIVIER EDWARDS
------------------------------------------- -------------------------------------------
Patrick Singer Olivier Edwards
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form F-3) and related Prospectus of ILOG S.A. for the
registration of 26,779 of its Ordinary Shares and to the incorporation by
reference therein of our report dated July 31, 1998, with respect to the
consolidated financial statements ILOG S.A. included in its Annual Report (Form
20-F) for the year ended June 30, 1998, filed with the Securities and Exchange
Commission.
ERNST & YOUNG Audit
Represented by John MACKEY
/s/ John Mackey
--------------------------------------
Paris, France
15 October, 1998
