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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1998,
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission File Number 0-24720
BUSINESS OBJECTS S.A.
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(Exact name of registrant as specified in its charter)
The Republic of France None
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(Jurisdiction of incorporation or organization) (I.R.S. Employer Identification
No.)
1 Square Chaptal, 92300 Levallois-Perret, France
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(Address of principal executive offices)
(408) 953-6000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Title of each class: Name of each exchange on which registered:
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American Depositary Shares, each representing Nasdaq National Market
one Ordinary Share
Ordinary Shares Nasdaq National Market*
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* Ordinary Shares are not traded, rather, they are deposited with the Bank of
New York, as Depositary, and one American Depositary Share is issuable for every
one Ordinary Share deposited with the Depositary.
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of our common equity held by non-affiliates,
based upon the closing sale price of our American Depositary Shares on February
15, 1999 as reported on the Nasdaq National Market, was approximately $648
million. Ordinary Shares held by each of our officers and directors and by each
person owning 5% or more of our outstanding Ordinary Shares are excluded because
such persons may be deemed to be affiliates of Business Objects. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of February 15, 1999, the number of outstanding shares of each class of
our common equity was 17,400,899 Ordinary Shares of one French franc nominal
value, including 15,948,323 American Depositary Shares (as evidenced by American
Depositary Receipts), each corresponding to one Ordinary Share.
DOCUMENTS INCORPORATED BY REFERENCE
We have incorporated by reference into Part III of this Form 10-K portions
of our Proxy Statement for our Annual Meeting of Shareholders.
References in this Form 10-K to the "Company," "Business Objects," "we,"
"our," and "us" refer to Business Objects S.A. and our consolidated
subsidiaries.
TRADEMARKS
Business Objects, the Business Objects logo, BUSINESSQUERY, BUSINESSMINER,
BUSINESSANALYZER, Microcube, PowerReport, Rapid Deployment Template,
ReportScript, Semantically Dynamic, SmartSpace, Universe Repository, and
WEBINTELLIGENCE are trademarks or registered trademarks of Business Objects S.A.
All other trademarks or trade names referenced in this Form 10-K are the
property of their respective owners.
REPORTING CURRENCY
All financial information contained in this document is expressed in United
States dollars, unless otherwise stated.
AMERICAN DEPOSITARY SHARES
We have sponsored a program that provides for the trading of our Ordinary
Shares in the United States in the form of American Depositary Shares ("ADSs").
Each ADS represents one
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Ordinary Share placed on deposit with The Bank of New York, as depositary (the
"Depositary") and is issued and delivered by the Depositary through its
principal office in New York City at 101 Barclay Street, New York, New York,
10286. Under the terms of the Deposit Agreement (the "Deposit Agreement") dated
September 22, 1994, as amended on May 8, 1996 and December 30, 1998, Ordinary
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 our investors. The form of the
Deposit Agreement as amended and restated on December 30, 1998 is being filed as
an exhibit to this Form 10-K.
Under the original Deposit Agreement, two Ordinary Shares converted into
one ADS. Following the amendment of the Deposit Agreement on May 8, 1996, one
Ordinary Share converts into one ADS. The 1996 amendment had the effect of
doubling the number of outstanding ADSs, and produced the same result as a
2-for-1 stock split. Except where otherwise indicated, all ADS and per ADS
information contained in this Form 10-K has been adjusted to give effect to this
amendment for all periods.
TABLE OF CONTENTS
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Part I Item 1. Description of Business 4
Item 2. Description of Property 19
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 43
Item 8. Financial Statements and Supplementary Data 45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 66
Part III Item 10. Directors and Executive Officers of Registrant 66
Item 11. Executive Compensation 66
Item 12. Security Ownership of Certain Beneficial Owners and Management 66
Item 13. Certain Relationships and Related Transactions 67
Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 67
Item 14A. Index to Exhibits 69
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ITEM 1. DESCRIPTION OF BUSINESS
OUR COMPANY
Business Objects develops, markets, and supports integrated enterprise
decision support software. Decision support software allows users to access,
analyze, and share information derived from a variety of sources, and enhances
the decision making process of a business by providing key information and
analyses to those people within an organization who are responsible for making
decisions. Our software enables users to direct powerful queries to complex
databases using representations of information, or "objects," that are
understandable by non-technical end users. Data retrieved by these queries can
then be analyzed using various tools, and sophisticated reports can be produced
to present the results of the analysis. Our principal product,
BUSINESSOBJECTS(TM), together with an array of supporting software components
and modules, is an integrated query, reporting, and online analytical
processing, or "OLAP" tool that operates on Windows 95, Windows NT, and Unix
Motif client/server operating systems and is interoperable with most major
databases. WEBINTELLIGENCE(TM), our thin-client platform, allows users to
perform the same query, reporting, and analysis as BUSINESSOBJECTS over the
internet.
Our products are distributed worldwide through both direct and indirect
sales channels. We sell our products to a wide range of organizations and in a
wide variety of industries. Based on our internal estimates, as of December 31,
1998, we have licensed our software to over 7,600 customers representing an
estimated 1,080,000 licenses in over 60 countries.
Business Objects was organized in 1990 as a societe anonyme, or limited
liability company, under the laws of the Republic of France. Our principal
executive office is located at 1 Square Chaptal, 92300 Levallois-Perret, France.
We also have wholly owned subsidiaries in the United States, United Kingdom,
Germany, the Netherlands, Belgium, Spain, Australia, Sweden, Canada, Singapore,
Japan, and Switzerland and a majority interest in a subsidiary in Italy.
INDUSTRY BACKGROUND
Organizations around the globe collect ever increasing amounts of data
about their business resources, activities and processes, their customers and
suppliers, and the industries in which they operate. The true value of
accumulated data cannot, however, be realized unless users can effectively
access and analyze the data. Accomplishing these tasks in today's enterprises is
complicated by the dispersed nature in which data tends to be created and stored
throughout an enterprise. Moreover, data is frequently created by and stored in
often incompatible hardware and software environments, including:
. data warehouses and data marts;
. application systems such as enterprise resource planning, human
resources, and finance software systems; and
. custom software applications for specialized use.
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To take full advantage of accumulated information and provide for more
effective decision making, organizations need to find ways to enable
participants in the organization to access this information efficiently and
effectively. However, many organizations do not have the tools needed to provide
for easy and organized access to information located throughout the enterprise.
The decision support software industry was born out of this need to enable
participants in an organization to make faster, more accurate decisions by
accessing information located throughout the enterprise more efficiently and
effectively. By providing faster access to meaningful information, organizations
are able to push decision making down to the front lines of the organization,
thereby rendering the organization more efficient and ultimately more
competitive.
THE BUSINESS OBJECTS SOLUTION
Our software solutions are based on five fundamental principles that enable
end users to access, analyze, and share data stored in relational databases:
. User-Oriented Representation of Information. Our software eliminates
the need for end users to understand the technical details of database
structures and enables end users to work with their own terminology to execute
queries, generate reports, and analyze data. Our software accomplishes this
result by transforming the technical details of database structures into
representations, or universes of business "objects," that are meaningful to end
users. The universes of objects are predefined by an organization's information
systems staff and made available to end users in a shared repository. End users
can then combine objects such as "Sales Revenue," "Products," or "Customers"
dynamically to formulate a query. As a result, an organization's information
systems staff is no longer required to define queries for individual users.
Furthermore, by defining even a limited number of objects, the information
systems staff can provide end users with substantial query potential.
. Intuitive and Reliable Query Technique. Our software insulates end
users from the complexities of Structured Query Language (SQL) and provides a
query technique based on a logic that we believe is more intuitive to the end
user than traditional query techniques. We believe that this results in greater
ease of use and better accuracy of results. The end user need only specify, in a
query panel, the objects he or she desires to retrieve, any applicable
conditions on these objects, and the desired sorting order of the results. The
end user does not have to understand technical concepts such as the location of
data, the definition of information elements, or the relationship between
different database tables. Permitting end users to formulate queries using an
intuitive and readily understandable vocabulary, predefined by database experts,
reduces the time spent on improperly defined queries that may result in
erroneous or useless results.
. Comprehensive, Integrated Suite of End User Tools. Our comprehensive,
integrated suite of analysis and presentation tools permits end users, following
a single query of the database, to generate a wide variety of reports and graphs
and to perform various forms of analysis, including multidimensional analysis or
OLAP, and data mining.
. Repository-Based Information System for Efficient Set-up, Control, and
Security. Our software enables an organization's information systems staff to
efficiently deploy a data access solu-
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tion throughout an organization through the use of a central repository where
universes of objects are defined, maintained, and stored. Using our software, an
organization's information systems staff can also control the use of available
computer resources by preventing or deferring the execution of queries that will
consume excessive amounts of processing time or return large amounts of data,
which can overload an organization's system. Further, by assigning specific
universes of objects to particular end users, an organization's information
systems staff can maintain control over data access security throughout the
organization.
. Enterprisewide Interoperability. We have developed our software
products to provide enterprisewide interoperability. Our software is compatible
with a variety of leading platforms including Microsoft Windows (Windows 95 and
NT) and Unix Motif, and most major databases, including Oracle, Sybase, IBM DB2
and SQL/400, Informix, Microsoft SQL Server, DEC Rdb and Teradata, as well as a
number of legacy mainframe databases. We maintain this interoperability either
through the use of native middleware or through open interfaces, such as
Microsoft ODBC. Our software products also support multidimensional databases or
OLAP servers, such as Oracle Express, Hyperion Essbase, Microsoft SQL Server 7.0
OLAP Services, and Informix Metacube.
BUSINESS STRATEGY
Our objective is to continue to be a leading supplier of software products
for the worldwide enterprise decision support software market. To accomplish our
objective, we focus on the following strategies:
. Concentrate on Decision Support Solutions. We intend to continue to
focus on decision support software solutions that facilitate enterprisewide
access, analysis, and sharing of information stored in data warehouses, data
marts, and business application systems. We also expect to continue investing
significant resources in research and development to enhance our core
technology, data representation, and query capabilities, and to develop new or
enhanced analysis and reporting products.
. Maintain Enterprisewide Focus. We intend to ensure that our products
can be used throughout the enterprise with the major desktop computer operating
systems and databases being used in the software. To this end, we intend to
evolve our products in order to remain compatible with the major desktop
computer operating systems and databases as they evolve over time. Our objective
is to make "seamless" the access and sharing of information across heterogeneous
enterprisewide environments.
. Increase Commitment to Deployments on Enterprise Resource Planning
(ERP) Systems. We intend to increase our focus on delivering products that
complement ERP systems, such as those offered by SAP, Oracle, Baan, and
PeopleSoft, in order to leverage the decision support opportunities that ERP
deployments create. Today we offer several Rapid Deployment Templates (RDTs) for
various ERP systems, which allow our customers to quickly deploy our products in
conjunction with an existing or newly installed ERP system. In addition, we have
received certification from SAP for Business Information Warehouse.
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. Expand Products and Services for the internet. The internet already
represents strong opportunities for us in the areas of intranet deployments
(within organizations) as well as extranet deployments that enable our customers
to link their customers, partners, and suppliers using our internet product.
. Diversify Channels of Distribution. In order to accelerate worldwide
market penetration, we are broadening our sales strategy, which has historically
focused on the direct sales approach, by establishing indirect sales channels
consisting of Value Added Resellers (VARs), system integrators, consulting
partners, distributors, and resellers. This strategy is designed to reach
organizations that we could not otherwise reach effectively with our direct
sales staff.
. Maintain Global Orientation. From our earliest stages of development,
our strategy has been to develop a global organization. We have developed a
strong presence both in Europe and in the United States and are expanding
operations in the Asia/Pacific region. This approach enables us to provide the
international presence and support required by large multinational customers and
to develop product and business strategies that will permit us to be competitive
on a worldwide basis. We consider our global orientation to be an essential
component of our success and culture.
. Offer Quality Customer Service and Technical Support. We believe that
offering responsive and highly skilled customer service and technical support is
a key competitive factor. We have established and intend to continue to enhance
and expand our worldwide service and support organization. In particular, we
globalized our support operation and systems in 1998. Our customer service
offerings currently include software maintenance and support, customer education
and training, and post-sales consulting services.
TARGET MARKETS
We design our software for medium to large business organizations and
governmental institutions, and focus our marketing efforts on the following four
target markets:
. Users of Data Warehousing/Data Marts. Data warehousing has emerged
recently as a popular architecture for decision support functions. To implement
data warehousing, an organization installs one or more servers to supplement
existing mainframes or other systems on which mission-critical transactional
applications run. The organization then regularly downloads data from its
transactional applications to the "data warehouses" that are used as information
servers for end users. Data marts are smaller scale data warehouses that are
focused on a particular business unit or specific function. Both data
warehousing and data marts enable end users to access data without incurring the
risk of "corrupting" production databases or slowing down mission-critical
transactional applications. In addition, transactional applications usually only
contain six to twelve months of data, in contrast to data warehouses and data
marts which, over time, may contain years of information. Because decision
support is the main objective of data warehousing, we consider our software to
be a key component of the data warehousing architecture, as it provides the end
user with front-end query tools and decision support to access warehoused data.
. Users of ERP Software. Organizations implementing complex
client/server packaged business applications from vendors such as SAP, Oracle,
PeopleSoft, and Baan frequently require
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comprehensive end user data access and reporting functionality. Our software
provides significant value to these organizations by virtue of its ability to
handle the complexities of the underlying databases that support these
applications. In addition, our Rapid Deployment Templates (RDTs) can be used
with certain of these client/server packaged business applications. RDTs provide
a set of predefined objects to organizations using such applications to
facilitate the implementation of our decision support solution. We intend to
continue to develop, independently or in conjunction with others, RDTs for use
with specific applications.
. Users of Custom Developed Client/Server Business Applications
Software. Many organizations have a number of end users using information
systems or applications developed by third parties in a relational database
environment and have accumulated a large volume of data in their databases. We
believe that the exposure of end users to the benefits of the relational
database environment has stimulated demand for more efficient and effective
access to the data. By allowing end users to independently access data, generate
reports, and perform analyses, our software enables these organizations to take
better advantage of their substantial investments in relational database and
client/server technology.
. Organizations Sharing Data and Doing Business Over the internet. Many
organizations are providing their customers, partners, and suppliers with access
to information about their relationship over the internet. For example, a
medical supplies distributor plans to open its data warehouse to its 5,000
suppliers and 1,500 hospitals, thus providing its entire supply chain with self-
service access to inventory and sales information. Our software products enable
these organizations to provide controlled access to information to end users
outside the organization through internet connectivity. While this currently
represents an insignificant portion of our existing business, we believe that
this is a growing new market. However, we cannot assure you that this market
will develop or that we will be successful in this market if it does develop.
PRODUCTS
We offer a complete suite of decision support software tools that include
query, reporting, online analytical processing, and data mining features for the
end user, and administration tools that enable information systems professionals
to set up and deploy our products across the enterprise. Our core offerings are
BUSINESSOBJECTS, which operates in a client/server environment, and
WEBINTELLIGENCE, which operates on thin-client platforms over the internet.
Although BUSINESSOBJECTS and WEBINTELLIGENCE operate on different platforms,
they share the same core technology and technical infrastructure, and can be
deployed together in the enterprise.
At the center of the BUSINESSOBJECTS environment is the "semantic layer" a
meaningful, business representation of data between the users and the database.
This semantic layer is made up of "universes," or groups, of business "objects,"
which end users combine to run their queries. For example, the semantic layer
may organize information according to such enterprise-relevant topical areas as
"sales revenue" or "customers."
Using an intuitive, point-and-click interface, information systems
professionals within an enterprise create the objects by assigning a Structured
Query Language (SQL) equivalent to a particular business term, and specify data
dimensions and hierarchies for multidimensional analysis.
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The information systems staff then specify the relationships between the
different tables of the relational database. Once created, this semantic layer
is available to end users through a central repository and may be modified by
the information systems staff in response to the changing needs of the business,
or to changes in the database structure. Both the client/server and web
platforms can utilize the same semantic layer. In addition, the central
repository allows information systems staff to control access to information
contained in the database, by adding an additional security layer on top of the
security features supported by the different relational database systems.
Once the semantic layer is created, end users can access the information
stored in the database, run customized queries, build reports, and analyze the
data.
We also offer relational database management system (RDBMS) drivers that
enable end users to connect and retrieve data from each particular database. We
offer RDBMS drivers for all the major relational databases.
User Products. To provide greater flexibility to our customers, we
offer products that can be deployed on client/server or internet platforms.
Our client/server decision support software tool, BUSINESSOBJECTS,
provides ad hoc query, reporting, and analysis capabilities on each of the
operating systems supported by our software, including Windows 95, Windows NT,
and Unix Motif. Versions of our BUSINESSOBJECTS product designed for Microsoft
Windows currently represent the substantial majority of our installed customer
base. We are currently shipping BUSINESSOBJECTS 4.1, and have recently
announced BUSINESSOBJECTS 5.0. We expect to begin shipping BUSINESSOBJECTS 5.0
in mid-1999.
Our thin-client decision support software tool, WEBINTELLIGENCE, allows end
users to perform ad hoc query, reporting, and analysis capability over the
internet. WEBINTELLIGENCE operates on any client platform that has a Java-
enabled web browser. WEBINTELLIGENCE eliminates the need for client-side
installation and maintenance of both application software and database
middleware, thereby providing organizations with a cost-effective way to broadly
deploy decision support software capabilities, and extend decision support
software beyond the organization to reach suppliers, partners, and customers.
WEBINTELLIGENCE is currently available only on Windows NT, with a Unix version
expected in mid-1999. We are currently shipping WEBINTELLIGENCE 2.0, which was
introduced in September 1998.
BUSINESSOBJECTS and WEBINTELLIGENCE include a number of basic end user
components and add-on modules that operate to retrieve and organize information
and enable the user to conduct sophisticated analysis of such information.
. REPORTER. Reporter is our base level query and reporting tool that
enables end users to retrieve information and build reports by independently
formulating queries with selected universes of relevant terms, or "objects," in
a single query panel. Reporter is used in substantially all applications of
BUSINESSOBJECTS and WEBINTELLIGENCE. Once data has been retrieved, users can
employ Reporter to generate and edit sophisticated reports based upon predefined
relationships between selected universes of objects. Reporter is fully
"wysiwyg," meaning what you see is what you get, and allows the inclusion of
bitmap images and Microsoft Object Linking and Embedding
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(OLE) documents. Reporter also includes a graph generator that enables end users
to produce a variety of different graph types and representations in two or
three dimensions.
. EXPLORER. Explorer is our base level analysis tool that enables end
users to conduct integrated multidimensional analysis of information and other
data retrieved or generated by Reporter. Explorer typically operates as an
integrated module to Reporter, and is also generally employed in most
implementations of our core products.
. BUSINESSQUERY for Excel. BusinessQuery for Excel is an add-on product
for people who use Microsoft Excel. BusinessQuery for Excel utilizes our query
engine to allow end users to retrieve data and generate sophisticated reports
directly within a Microsoft Excel spreadsheet.
. BUSINESSMINER. BusinessMiner is our desktop data mining tool used for
uncovering trends hidden in data retrieved or generated with Reporter and other
data sources. BusinessMiner displays this information in the form of a decision
tree to facilitate user analysis. BusinessMiner includes charts and graphs, to
easily visualize results, and wizards that guide users through the analysis
process. We license the object code for BusinessMiner from a third party under a
non-exclusive license agreement that expires in May 2001. The license agreement
automatically renews for an additional two years, however, unless either party
gives notice within 18 months of the expiration date of its intention to
terminate the agreement.
. READER/DRILLER. Reader and Driller are options that are available for
end users who require the functionality necessary to read reports but do not
require the ability to execute ad hoc queries. In this regard, Reader provides
read-only capabilities, while Driller enables end users to read and drill into
predefined reports. These products are particularly useful for large enterprises
that wish to make reports available to a wide audience throughout the
enterprise, but do not need to provide report generation functionality to all of
these end users.
Information Systems Department Tools. To assist information systems
professionals in setting up and maintaining decision support software solutions
using our software, we provide the following decision support software
administration tools and templates:
. DESIGNER. Designer enables an enterprise's information systems staff
to design and maintain universes of objects in the semantic layer, using a Quick
Design wizard, in just a few steps. Designer is a graphical tool that also
includes powerful routines for automatic design checking, including loop
detection and resolution.
. SUPERVISOR. Supervisor is our object-based security tool that allows
an enterprise's information systems staff to assign and modify the access rights
granted to end users and groups of end users. Using Supervisor, information
systems professionals can easily manage access to the resources available
through BusinessObjects and WebIntelligence, including documents, universes,
objects, and even menus. Supervisor can also control the ability of end users to
access centralized resources maintained on our BusinessObjects or the
WebIntelligence platforms.
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. DOCUMENT AGENT/SERVER. Document Agent is our production report and
distribution product that enables users to schedule the automatic execution and
distribution of queries and reports in order to save time and computing
resources. Document Agent processes requests in the background, and forwards
reports to the generating user and any other pre-specified end users. Document
Agent also enables the user to distribute reports over the internet using our
WebIntelligence platform.
We recently announced Broadcast Agent, an integrated reporting and
broadcast server, which is intended to replace Document Agent. Broadcast Agent
is a robust, multi-tier server that is designed to enable non-technical users to
quickly and easily publish, push, and broadcast pre-built or ad hoc reports via
e-mail, pager, and fax to other users throughout the enterprise. We expect to
begin shipping Broadcast Agent in mid-1999.
. Rapid Development Templates. We have also developed a series of rapid
development templates, or "RDTs," for organizations that wish to access data
stored in packaged applications from vendors such as SAP, Oracle, Baan, and
PeopleSoft. An RDT is a deployment "starter kit" that consists of predefined
"objects" of information which are organized according to commonly-used,
predefined terms such as "customers," "orders," and "materials." Related
objects are also grouped into "classes" and a set of classes belonging to a
functional area, such as finance or marketing, can be grouped together into a
universe of related objects. Use of RDTs enables our customers to rapidly
deploy our BusinessObjects and WebIntelligence platforms on top of packaged
applications, without the delay and expense associated with developing
universes, objects, and classes independently.
CUSTOMER SERVICE AND SUPPORT
We consider service and support to be an integral part of our customers'
satisfaction and success. In order to help our customers maximize their return
on investment, we provide the following services:
. Post-Sales Technical Support and Software Maintenance. Business
Objects' three regional customer support centers (Americas San Jose, California;
Europe Maidenhead, United Kingdom; and Asia/Pacific Tokyo, Japan) are staffed by
highly trained support engineers who answer customer inquiries by telephone. All
customer support centers use a common computerized call tracking and problem-
reporting system designed to enable engineers to share their knowledge, and
reduce the time it takes to resolve customer inquiries. Customer support is also
provided by our value-added resellers, systems integrators, consulting partners,
distributors, and resellers.
To help our customers become more self-sufficient, at the end of 1998 we
introduced an online technical support web site, available 24 hours a day and 7
days a week. This web site provides customers with access to up-to-date
technical information and helps customers independently resolve inquiries. We
intend to maintain and further enhance this technical support system.
Software maintenance releases and post-sales technical support are provided
to customers for an annual fee. As is customary in the software industry,
maintenance fees are charged in addition to the initial product license.
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. Customer Education and Training. We offer a comprehensive education
and training program to our customers, and to third-party consultants who
support our products. Courses range from entry level sessions for users, to more
advanced courses for information systems professionals. Every student is
guaranteed a complete hands-on experience to help reinforce learning with
practical exercises.
We offer training classes through in-house facilities at our offices in San
Jose, California and Chicago, Illinois in the United States, in the United
Kingdom, France, and other locations in Europe. These facilities are
complemented by a network of independent certified training centers in our
principal markets throughout the world. In addition, we also provide onsite
training services upon customer request. We intend to further develop our
training network for the BusinessObjects product line.
. After-Sales Consulting Services. We also provide consulting services
to our customers through our own staff and through certified consulting
partners. Our consulting services allow us to assist our customers in all stages
of their development life cycle, from initial analysis through delivery of
products. Our involvement can range from an advisory status to managing the
entire installation process. Typical consulting projects include: data
warehouses and data marts; project scoping, planning, and management;
prototyping and development; implementation planning and deployment;
applications integration (Oracle, SAP, PeopleSoft, Baan, Lawson); and ad-hoc and
production reporting. Our consultants have wide ranging industry, operational,
and technical knowledge of numerous database systems, and all have in-depth
knowledge of our product line.
SALES AND MARKETING
We market our software and services through a direct sales organization in
the United States, France, the United Kingdom, Germany, Belgium, Italy, Spain,
Canada, Australia, Sweden, the Netherlands, Japan, and Switzerland, and through
non-exclusive international distributors in a number of European, Asian and
Latin American countries and South Africa. Currently, we market products
directly and indirectly in over 60 countries.
Although we have traditionally employed a direct sales approach in
marketing our software and services, under our current sales and marketing
strategy we intend to expand our use of indirect sales channels such as VARs,
system integrators, consulting partners, distributors, and resellers. We are
pursuing this strategy to increase our market coverage and reach organizations
which we could not otherwise reach effectively with our direct sales staff. As
a part of this strategy, we are seeking to build and maintain relationships with
the following distribution partners in order to cover markets in which we have
only a limited presence:
. relational database management system VARs that sell application
software based on a relational database and whose typical customers
are business users in need of a decision support tool;
. hardware vendors, which offer hardware platforms, and, in many cases,
have comprehensive data warehouse programs in which they sell complete
solutions, including databases, middleware, and front-end decision
support tools; and
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. resellers, and, in particular, vertical application specialists and
regional resellers.
Our sales and marketing organization is comprised of sales teams, each
consisting of field sales, field technical support, telemarketing, and telesales
personnel. Each sales team is responsible for the coordination of both direct
and indirect sales within its assigned territory and works closely with third
party VARs, system integrators, consulting partners, distributors, and
resellers. In order to reduce conflict between our direct sales force and our
third party sales channels, our compensation structure rewards sales personnel
based on the total direct and indirect sales generated within the territory. We
believe that, with this compensation arrangement, sales teams leverage the
skills of their sales personnel, encourage cooperative sales efforts, and
maximize revenue generation and customer service.
We focus our initial sales efforts on the information systems staff of a
particular organization while also seeking to involve end users through
demonstrations and product trials. Typically, we perform one demonstration to
an organization's information system staff, which is then followed by a trial
period during which the information system staff develops a prototype with our
assistance. The information systems staff then use these prototypes to conduct
demonstrations for end users. Our sales cycle varies from customer to customer,
and generally requires from two to six months or longer, especially for larger
transactions.
To support our sales efforts, we conduct marketing programs, including
advertising, direct mail, public relations, seminars and demonstrations at
customer sites and at our offices, appearances at trade shows, and ongoing
customer communications programs.
We recently increased our sales through indirect channels; however,
revenues generated from such sales channels currently represent a smaller
portion of our total revenues than revenues generated from our direct sales
efforts. Our revenues from direct selling efforts increased by 39% from
approximately $74.3 million in 1997 to $103.5 million in 1998. Our revenues
from indirect channels increased 59% from approximately $40.0 million in 1997 to
$63.4 million in 1998. We do not expect any significant changes in these
revenue trends to occur in the future.
PRODUCT DEVELOPMENT
We believe that innovation, timeliness of product releases, and high
product quality are essential to maintain our competitive position.
Consequently, we dedicate considerable resources to research and development
efforts to enhance our existing products and to develop new products. To date,
we have relied primarily on internal development of our products, but have in
the past and may in the future continue to license or acquire technology or
products from third parties.
Our software is a decision support solution designed for use in both the
client/server and internet computing environments. The market for decision
support software tools is characterized by rapid technological advances, changes
in customer requirements, and frequent new product introductions and
enhancements. Existing products become obsolete and unmarketable when companies
introduce new products or enhancements to existing products that incorporate new
technologies, and when new industry standards emerge. For example, some
industry analysts believe that the recent emergence of the internet and
intranets, and in particular the world wide web, with its new mode of
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user operation, could negatively impact the market for traditional client/server
tools. To be successful, we must develop new products and enhancements to our
existing products that keep pace with technological developments, emerging
industry standards, and the increasingly sophisticated requirements of our
customers. If we fail to anticipate or respond adequately to technological
developments and evolving customer requirements, our financial performance could
suffer. See "Business Factors--The software markets that we target are subject
to rapid technological change and new product introductions."
COMPETITION
We specifically design and target our products for the decision support
software tools market. We believe that the principal competitive factors that
impact this market include:
. ease of use;
. functionality;
. product architecture;
. price;
. product quality;
. breadth of distribution;
. customer support; and
. name recognition.
Within our target market, we offer products that compete in four
subsections:
. the query and reporting market;
. the multidimensional analysis or OLAP market;
. the emerging desktop data mining market; and
. the market for integrated products or product suites that provide query,
reporting, and analysis support on client/server or internet platforms.
In the query and reporting market, our main competitors include:
. Cognos, Incorporated;
. Brio Technology, Inc.;
. Oracle Corporation; and
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. Seagate Technology, Inc.
In the multidimensional analysis or OLAP market, we face competition from:
. Cognos, Inc.;
. Hummingbird Communications, Ltd.;
. Oracle Corporation;
. Seagate Technology, Inc.;
. Microstrategy, Inc.;
. Hyperion Software Corporation; and
. Microsoft Corporation.
In the desktop data mining market, our main competitors include:
. Cognos, Inc.; and
. Angoss Software Corporation.
In the integrated query, analysis, and reporting market, our main
competitors include:
. Cognos, Inc.;
. Brio Technology, Inc.;
. Oracle Corporation;
. Seagate Technology, Inc.; and
. Microstrategy, Inc.
Some of our competitors have been in business longer than us and have
significantly greater financial, technical, sales, marketing, and other
resources than we do. In addition, some of our competitors enjoy greater name
recognition and a larger installed base than us. Moreover, some of our
competitors, particularly companies that offer relational database management
software systems and enterprise resource planning software systems, have well-
established relationships with some of our existing and targeted customers.
In the future, any of our competitors could introduce products with more
features and lower prices than our products. Some of these companies could also
bundle existing or new products with other more established products that they
offer in order to compete more effectively against our products. Because our
products are specifically designed and targeted to the decision support
15
<PAGE>
software tools market, we may lose sales to competitors offering a broader range
of products. Furthermore, other companies larger than us could enter the market
with products that cost less than our products, or could acquire or enter into a
strategic relationship with certain of our small competitors and provide such
competitors with additional resources or cause them to lower the price of their
products to be more competitive with our products. We believe that the decision
support software tools market will continue to grow and develop and that more
and more large companies may find it a desirable market in which to compete. To
the extent that we are unable to effectively compete against our current and
future competitors, as a result of some or all of the factors stated above, our
financial condition and operating results would suffer.
MANUFACTURING
We rely upon third party suppliers to perform our CD duplication, print our
user manuals, package our products, and manufacture certain related materials
incorporated into our products. To date, we have not experienced any material
difficulties or delays in manufacture by our third party suppliers. However, if
we were to experience delays or difficulties with one or more of our third party
suppliers, we may be unable to ship our products on a timely basis, which could
severely harm our revenues, financial condition, and operating results. See
"Business Factors--We rely on third party suppliers for most of our
manufacturing needs."
PATENTS AND INTELLECTUAL PROPERTY PROTECTION
We believe that we own or have licensed all proprietary rights relating to
our software products. Our success depends in part on our ability to protect
our property rights in our intellectual property. To protect our proprietary
rights, we use a combination of protections provided by:
. patent, copyright, and trademark laws;
. trade secret laws;
. confidentiality agreements; and
. licensing arrangements, including confidentiality provisions.
We cannot assure you that any of these methods of protection are adequate to
protect our technology from use or misappropriation by competitors. Despite our
precautions, it may be possible for unauthorized third parties to copy aspects
of our current or future products or to obtain and use information that we
regard as proprietary. In addition, competitors may independently develop
similar or superior technology, or patent technology that would harm our ability
to continue enhancing our products or to introduce new products. Policing
unauthorized use of software is difficult and some foreign laws do not protect
our proprietary rights to the same extent as in the United States. For example,
under French law we are unable to patent our proprietary rights in our software,
but we are able to protect these proprietary rights under copyright laws which
enable us to enjoin third party infringement.
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We currently have one patent issued in the United States, number 5,555,403,
relating to a "Relational Database Access System Using Semantically Dynamic
Objects." We are currently engaged in litigation asserting that one of our
competitors, Brio Technology, Inc., is infringing upon our rights under this
patent. See "Item 3, Legal Proceedings" and "Business Factors--Our business may
suffer if we cannot protect our intellectual property and proprietary rights."
We cannot assure you that any current or future patents will provide us with
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on our ability to do business.
Furthermore, we cannot assure you that others will not independently develop
similar or competing technology or design around any of our issued patents.
Litigation may be necessary to protect our proprietary property. Litigating
any such claim can be very expensive in terms of management time and resources.
Utilizing our resources on such litigation could cause our financial condition
and operating results to suffer.
In addition, although our name, together with our logo, is registered as a
trademark in France, the United States, and a number of other countries, we may
have difficulty asserting our ownership rights in the name "Business Objects."
Similar to monitoring unauthorized use of our product by customers, we may be
unable to effectively police unauthorized use of our name or otherwise prevent
the name of our software from becoming a part of the public domain.
While our competitive position may be affected by our ability to protect
our proprietary information, we believe that factors such as the technical
expertise and innovation skills of our personnel, our name recognition, and
ongoing product support and enhancement may be more significant in maintaining
our competitive position.
We do not believe that our products infringe upon the proprietary rights of
any third parties, and we are not aware of any third party claims that our
products do so. However, we cannot be certain and we cannot assure you that
third parties will never make such claims. We believe that software products
offered in our target market increasingly will be subject to such claims as the
number of products and competitors in our industry segment grows and product
functionalities begin to overlap. If a third party were to bring an
infringement claim against us, we would be forced to commit management resources
to resolve the claim and may incur substantial litigation costs in defense of
the claim. We may also have to expend significant development resources to
redesign our product. Finally, we may be required to enter into royalty and
licensing agreements with a third party bringing an infringement claim against
us, and these agreements may not contain terms that are favorable to us.
We often license our software products to customers through a "shrink-wrap"
license which becomes effective upon the opening of the product by the customer.
A "shrink-wrap" license agreement is a printed license agreement included within
packaged software that sets forth the terms and conditions under which the
purchaser may use the product. For example, these license agreements typically
provide that the licensed product may be used solely for the customer's internal
operations for a specified number of named or concurrent users and are
nonexclusive and nontransferable. "Shrink-wrap" license agreements are
difficult to monitor. We cannot be certain, nor can we assure you, that our
customers will comply with all of the terms and conditions of the "shrink-wrap"
licenses under which they purchase our products. For example, a customer may
permit more end
17
<PAGE>
users to use the product than the applicable "shrink-wrap" license allows
without paying for additional users. To the extent that our customers violate
the "shrink-wrap" licenses that apply to our products, we may be deprived of
revenues and our financial condition and operating results may suffer.
We also license a portion of our technology to third parties. Specifically
SPSS Inc., Alsoft, StatSoft, and ESRI have licensed the Business Objects query
technology and incorporated it into their products, BusinessQuery for SPSS from
SPSS Inc., BusinessQuery for GeoConcept from Alsoft, BusinessQuery for
Statistica, and BusinessQuery for ArcView GIS.
We license certain software from third parties, and sub-license this
software to our customers. In addition, we license certain software programs
from third parties and incorporate these programs into our software products.
Generally, the license agreements under which we license third party software
grant us non-exclusive, worldwide licenses to use the software for certain
limited purposes. By utilizing third party software in our business, however, we
are exposed to certain risks that are not associated with in-house software
development. For example, these third party providers may discontinue or alter
their operations, terminate their relationship with us, or generally become
unable to fulfill their obligations to us. If any of these circumstances were to
occur, we may be forced to seek alternative technology which may not be
available on commercially reasonable terms. In the future, we may be forced to
obtain additional third party software licenses to enhance our product offerings
and compete more effectively. We cannot be certain, nor can we assure you, that
we will be able to obtain and maintain licensing rights to desired or needed
technology, or similar technology, on commercially reasonable terms, or at all.
We have entered into source code escrow agreements with a limited number of
our distributors and end users that require us, under certain circumstances, to
release some of our source code to these distributors and end users. For
example, generally these agreements provide that these parties will have a
limited, non-exclusive right to use our source code if we become engaged in a
bankruptcy proceeding, if we cease to do business, or if we fail to meet our
contractual obligations. Using source code escrow agreements may increase the
likelihood that third parties will misappropriate our source code contained in
the escrow.
EMPLOYEES
As of December 31, 1998, we had 977 full-time employees, including:
. 155 in research and development;
. 607 in sales and marketing;
. 95 in customer service and support; and
. 120 in finance and administration.
Our employees are not represented by any collective bargaining
organization, and we have never experienced a work stoppage.
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Our success depends to a significant extent upon a number of key management
and technical personnel, including Bernard Liautaud, our chief executive officer
and co-founder, the loss of whom could adversely affect our business. We
maintain a key person life insurance policy on the life of Mr. Liautaud with the
proceeds payable to Business Objects. The loss of the services of key personnel
could have a material adverse effect on Business Objects. In addition, we
believe that our future success will also depend in a large part on our ability
to attract and retain highly skilled technical, management, sales, and marketing
personnel. Competition for such personnel in the computer software industry is
intense, and we may be unable to successfully attract and retain such personnel.
Under French law, management is required to hold monthly meetings with a
delegation of elected employee representatives to discuss, in particular,
employment matters and the economic condition of Business Objects and to provide
appropriate information and documents relating to such matters. As required
under French law, one employee representative is entitled to be present at
meetings of the Board of Directors of Business Objects, but does not have any
voting rights.
ITEM 2. DESCRIPTION OF PROPERTY
Our corporate headquarters are located in Levallois-Perret, France, a
suburb of Paris, in a leased facility consisting of approximately 37,000 square
feet. The lease term expires in 2005; however, we have the option to cancel the
lease without penalty in 2002. In addition, we lease approximately 58,000
square feet in San Jose, California, for our U.S. headquarters under a lease
that expires in 2001. We lease additional facilities and offices in Puteaux,
France; Maidenhead, England; Koln, Germany; Nieuwegein, the Netherlands; Sydney,
Australia; Tokyo, Japan; Madrid, Spain; Stockholm, Sweden; Zaventem, Belgium;
Rome and Milan, Italy; Geneva and Zurich, Switzerland; Toronto, Canada; and in
the United States in California, Texas, Illinois, Massachusetts, New Jersey,
Georgia, Maryland, Michigan, Minnesota, Colorado, New York, Pennsylvania, and
Connecticut.
ITEM 3. LEGAL PROCEEDINGS
During January 1997, we filed a lawsuit in United States District Court for
the Northern District of California against Brio Technology, Inc. for alleged
patent infringement. The lawsuit alleges that Brio Technology, Inc. infringes
our United States Patent No. 5,555,403 by making, using, and selling its product
known as BrioQuery Enterprise. Our complaint requests that the defendant be
enjoined from further infringing the patent. See "Business Factors--Our
business may suffer if we cannot protect our intellectual property and
proprietary rights."
In addition, the Company is involved in various legal proceedings arising
in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The ADSs are quoted on the Nasdaq National Market under the symbol "BOBJ."
Neither the ADSs nor the Ordinary Shares are listed or quoted on any other
quotation system or securities exchange. The following table sets forth the
range of quarterly high and low closing bid prices of the ADSs (each ADS
representing one Ordinary Share) on the Nasdaq National Market for each full
quarterly period within the two most recent fiscal years.
HIGH LOW
-------- -------
1998:
Fourth Quarter.................... $32.50 $ 7.88
Third Quarter..................... $18.75 $ 8.88
Second Quarter.................... $19.88 $13.00
First Quarter..................... $16.63 $ 9.50
1997:
Fourth Quarter.................... $14.00 $ 9.75
Third Quarter..................... $10.88 $ 6.75
Second Quarter.................... $11.75 $ 7.38
First Quarter..................... $16.00 $ 9.38
The depositary in respect of the ADSs is The Bank of New York. Each ADS
registered on the books of the Depositary corresponds to one Ordinary Share. As
of February 15, 1999, there were 48 record holders of American Depositary
Receipts evidencing 15,948,323 ADSs. As of February 15, 1999, there were
approximately 76 holders of record of Ordinary Shares. We have not, since the
formation of Business Objects, declared or paid any dividends on the Ordinary
Shares. We intend to employ all available funds for the development of our
business and, accordingly, do not intend to declare or pay any cash dividends in
the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Consolidated Financial Statements and related Notes thereto appearing
elsewhere in this Form 10-K. The selected statement of operations data for each
of the five years in the period ended December 31, 1998 and the balance sheet
data at December 31, 1998, 1997, 1996, 1995, and 1994, respectively, have been
derived from the Consolidated Financial Statements of the Company, which have
been prepared in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA: (In thousands, except per share and per ADS data)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees....................... $108,761 $ 78,478 $64,451 $48,782 $24,306
Services........................... 58,133 35,775 20,686 11,824 5,881
-------- -------- ------- ------- -------
Total revenues.................... 166,894 114,253 85,137 60,606 30,187
Cost of revenues:
License fees....................... 3,272 3,773 3,235 2,107 1,466
Services........................... 23,899 13,107 6,780 4,044 1,619
-------- -------- ------- ------- -------
Total cost of revenues............ 27,171 16,880 10,015 6,151 3,085
-------- -------- ------- ------- -------
Gross margin........................ 139,723 97,373 75,122 54,455 27,102
Operating expenses:
Sales and marketing................ 89,118 68,115 50,038 30,666 16,154
Research and development........... 19,434 14,050 10,634 8,071 4,299
General and administrative......... 15,394 11,076 7,402 5,706 3,447
-------- -------- ------- ------- -------
Total operating expenses.......... 123,946 93,241 68,074 44,443 23,900
-------- -------- ------- ------- -------
Income from operations.............. 15,777 4,132 7,048 10,012 3,202
Net interest income and other....... 2,078 1,673 1,849 1,999 383
-------- -------- ------- ------- -------
Income before minority interest 17,855 5,805 8,897 12,011 3,585
and provision for income taxes.....
Provision for income taxes.......... (7,316) (3,184) (3,737) (3,963) (1,208)
Minority interest................... (252) 256 -- -- --
-------- -------- ------- ------- -------
Net income.......................... $ 10,287 $ 2,877 $ 5,160 $ 8,048 $ 2,377
======== ======== ======= ======= =======
Net income per share and ADS--basic. $ 0.61 $ 0.17 $ 0.32 $ 0.51 $ 0.18
Net income per share and
ADS--diluted....................... $ 0.58 $ 0.17 $ 0.30 $ 0.49 $ 0.17
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------- ------------- ------------- -------------
BALANCE SHEET DATA: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents and
short term investments............. $ 71,713 $ 39,013 $42,171 $46,702 $30,849
Total current assets................ 121,942 80,020 70,057 66,669 40,915
Total assets........................ 138,085 94,340 80,770 71,013 45,237
Total current liabilities........... 70,838 43,541 28,915 24,431 10,435
Long term obligations............... -- -- 19 121 93
Shareholders' equity................ 67,247 50,799 51,836 46,461 34,709
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis together with
"Selected Consolidated Financial Data" and our Consolidated Financial Statements
and the notes to those statements included elsewhere in this Form 10-K. This
discussion contains forward-looking statements based on our current
expectations, assumptions, estimates, and projections about Business Objects and
our industry. These forward-looking statements involve risks and uncertainties.
Business Objects' actual results could differ materially from those indicated in
these forward-looking statements as a result of certain factors, as more fully
described in the "Business Factors" section and elsewhere in this Form 10-K.
Business Objects undertakes no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
OVERVIEW
Business Objects develops, markets, and supports decision support software
for the client/server and internet market. We derive our revenues from license
fees and charges for services, consisting of post-sale customer support,
consulting and training services.
Beginning in January 1, 1998, we adopted Statement of Position No. 97-2
"Software Revenue Recognition" as amended by Statement of Position No. 98-4.
The effect of adoption did not have a material impact on our results of
operations. Under the requirements of these accounting standards, we generally
recognize revenues from product licensing upon delivery of the software product
to the end user, unless the fee is not fixed or determinable or collectibility
is not probable. We consider all arrangements with payment terms extending
beyond twelve months and other arrangements with payment terms longer than
normal not to be fixed or determinable. If the fee is not fixed or
determinable, we recognize revenues as payments become due from the customer.
If collectibility is not considered probable, we recognize revenues when the fee
is collected.
Our post-contract customer support includes telephone support, bug fixes,
and rights to upgrades on a when-and-if available basis. We recognize revenues
from our post-contract customer support services on a straight-line basis over
the period during which we provide the support services. We recognize
consulting and training service revenues as the services are provided. In
software arrangements that include rights to multiple software products, post-
contract customer support, and/or other services, we allocate the total
arrangement fee among each deliverable based on the relative fair value of each
of the deliverables determined based on vendor-specific objective evidence.
Sales in our various markets are subject to risks inherent in international
business activities, including:
. general economic conditions in each country in which we operate;
. difficulties in staffing and managing international operations;
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. overlapping of differing tax structures;
. unexpected changes in regulatory requirements;
. complying with a variety of foreign laws and regulations;
. longer accounts receivables payment cycles in Europe;
. import and export licensing requirements;
. trade restrictions; and
. changes in tariff and freight rates.
In addition, we conduct a significant portion of our business in currencies
other than the U.S. dollar, the currency in which we report our financial
statements. Historically, we have generated a substantial majority of our
revenues in U.S. dollars, French francs, and British pounds sterling, but we
have incurred a majority of our corporate-related expenses in French francs,
particularly research and development expenses. In the past, we have
experienced fluctuations in the value of other currencies relative to the U.S.
dollar. These fluctuations have caused certain dollar-translated amounts
reported in our financial statements to change in comparison with previous
periods. We expect this pattern to continue. Due to the number of currencies
in which we conduct our business, and the substantial volatility of currency
exchange rates, we cannot predict the effect of exchange rate fluctuations upon
our future operating results. We have not undertaken hedging transactions to
cover our currency transaction exposure. See "Business Factors--There are a
number of factors associated with international operations that could adversely
affect our business" and "--We have multinational operations that are subject to
currency exchange rate fluctuations."
During April 1997, we exercised our option to acquire 51% of the
outstanding shares of a division of Datamat Ingegneria dei Sistemi S.p.A., our
Italian distributor, in exchange for $1,300,000 in cash. During April 1998, we
exercised our option to acquire an additional 29% of the outstanding shares of
our Italian distributor in exchange for $982,000, increasing our ownership
interest to 80%. The cost of the originally purchased shares and the additional
shares have been fully allocated to goodwill, and is being amortized over a
three-year period that began in April 1997. The purchase agreement provides for
a call/put option that gives us the right to purchase, and the minority
shareholder the right to require us to purchase, the remaining 20% of the shares
in 1999 for an amount to be determined using a net asset and revenue based
formula.
The effect of inflation on our financial position has not been significant.
In view of our significant growth in recent years, we believe that period-
to-period comparisons of our financial results are not necessarily meaningful
and you should not rely upon them as an indication of future performance. In
addition, our revenues and operating results can vary, sometimes substantially,
from quarter to quarter as a result of various factors. See "Business Factors."
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RESULTS OF OPERATIONS
The following table sets forth certain items from our consolidated
statements of income as a percentage of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
-------------- ----------- -------------
<S> <C> <C> <C>
Revenues:
License fees............................................... 65% 69% 76%
Services................................................... 35 31 24
--- ---- ----
Total revenues............................................ 100 100 100
=== ==== ====
Cost of revenues:
License fees............................................... 2 3 4
Services................................................... 14 11 8
--- ---- ----
Total cost of revenues.................................... 16 14 12
--- ---- ----
Gross margin................................................ 84 86 88
Operating expenses:
Sales and marketing........................................ 53 60 59
Research and development................................... 12 12 12
General and administrative................................. 9 10 9
--- ---- ----
Total operating expenses.................................. 74 82 80
--- ---- ----
Income from operations...................................... 9 4 8
Net interest income and other............................... 1 1 2
--- ---- ----
Income before minority interest and provision for income 11 5 10
taxes......................................................
Provision for income taxes.................................. (4) (2) (4)
Minority interest........................................... -- -- --
--- ---- ----
Net income.................................................. 6% 3% 6%
=== ==== ====
Gross margin:
License fees............................................... 97% 95% 95%
Services................................................... 59% 63% 67%
</TABLE>
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REVENUES
The following table sets forth information regarding the composition of our
revenues and period-to-period changes:
<TABLE>
<CAPTION>
PERCENT PERCENT
1998 CHANGE 1997 CHANGE 1996
------------- ------------- ------------ ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
License fees..................... $108,761 39% $ 78,478 22% $ 64,451
s Percentage of total revenues.... 65% 69% 76%
Services......................... $ 58,133 62% $ 35,775 73% $ 20,686
Percentage of total revenues.... 35% 31% 24%
Total revenues................... $166,894 46% $114,253 34% $ 85,137
</TABLE>
Total revenues increased to $166.9 million in 1998, up from $114.3 million
in 1997 and $85.1 million in 1996, representing increases of 46% from 1997 to
1998 and 34% from 1996 to 1997. In each year presented, a majority of our total
revenues was derived from license fees for BusinessObjects and related products.
Our service revenues were comprised of revenues from maintenance, consulting
services, and training activities related to licenses of BusinessObjects. Any
factor that adversely affects our ability to license BusinessObjects would
severely impact our financial condition and operating results.
. License Fees. Revenues from license fees increased approximately $30.3
million or 39% in 1998 over the level achieved in 1997. This compares to an
increase of $14.0 million or 22% during 1997 over the level achieved in 1996.
These increases in license fees reflected increased unit licenses of
BusinessObjects and related software products in all geographic areas into which
we sell. Revenues from the sale of WebIntelligence, our thin-client platform
for internet-based installations, represented approximately 12% of our total
license revenues during 1998. The revenues recognized from the sale of
WebIntelligence during 1997 was less than 1% of the total license revenue.
License revenues from our main geographic markets increased as follows:
European sales increased 44% from 1997 to 1998 as compared to a 25% increase
from 1996 to 1997. Sales in the Americas increased 31% from 1997 to 1998 as
compared to 11% from 1996 to 1997. License fees in the Asia Pacific region
increased 39% from 1997 to 1998 as compared to 57% from 1996 to 1997. The
decrease in the rate of growth in the Asia Pacific region during 1998 reflects
the economic weaknesses recently experienced by a number of countries in that
region. See "Business Factors--Weaknesses in the economies of countries in the
Asia Pacific region could negatively impact our revenues."
We plan to continue to enhance our current software and develop new
products. As a result, we anticipate that license fees, which represented
approximately 65% of our total revenues in 1998, will continue to represent a
substantial majority of our revenues for the foreseeable future. However, it is
expected that the percentage of license revenues to total revenues will decrease
in the future as the growth in service revenues exceeds the growth in license
revenues. We expect that the market penetration by, and number of, our
competitors will increase and, as a result, the growth rate in our license fees
in the future may not be as high as the growth rate in such license fees
achieved in the past.
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. Services. Revenues from services consist of consulting revenues,
training revenues, and maintenance revenues. Revenues from services increased
approximately $22.4 million or 62% in 1998 over the level achieved in 1997. This
compares to an increase of $15.1 million or 73% during 1997 over the level
achieved in 1996. The increase in revenues from services during both years was
due primarily to increases in maintenance revenues related to increases in our
installed base and increases in consulting and training revenues associated with
the increased level of licenses of BusinessObjects and related products. We
intend to increase our efforts to sell maintenance, training, and consulting
services, and expect that service revenues continue to represent a significant
portion of our total revenues.
COST OF REVENUES
The following table sets forth information regarding our cost of revenues and
period-to-period changes:
<TABLE>
<CAPTION>
PERCENT PERCENT
1998 CHANGE 1997 CHANGE 1996
-------------- ------------- ------------ ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cost of license fees................... $ 3,272 (13%) $ 3,773 17% $ 3,235
Percentage of license fees revenues... 3% 5% 5%
Cost of services....................... $23,899 82% $13,107 93% $ 6,780
Percentage of services revenues....... 41% 37% 33%
Total cost of revenues................. $27,171 61% $16,880 69% $10,015
Percentage of total revenues.......... 16% 14% 12%
</TABLE>
. License Fees. Cost of license fees, which consist primarily of
materials, packaging, and freight, decreased approximately $500,000 or 13% in
1998 over the level experienced in 1997. This compares to an increase of
$500,000 or 17% during in 1997 over the level experienced in 1996. Cost of
license fees as a percentage of license fee revenues decreased slightly from 5%
during 1996 and 1997 to 3% during 1998. This decrease was primarily due to the
improved management of inventory levels and freight costs. We expect the cost
of license fees to remain at the 1998 percent of revenue level for the near
future.
. Services. Cost of services, which consist of the cost of providing
consulting, training, and maintenance, increased approximately $10.8 million or
82% in 1998 over the level experienced in 1997. This compares to an increase of
$6.3 million or 93% in 1997 over the level experienced in 1996. The increases in
such costs in absolute amount during both years were primarily due to increases
in the number of personnel involved in our consulting, training, and maintenance
activities and, to a lesser extent, to costs associated with subcontracting of
some training activities. Cost of services as a percentage of service revenues
increased from 33% in 1996 to 37% in 1997 and 41% in 1998. The increase in cost
of services as a percent of service revenues was due to increased investment in
the consulting services segment and a faster growth rate in consulting services,
which is a lower gross margin as compared to the other services.
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OPERATING EXPENSES
The following table sets forth information regarding the composition of our
operating expenses and period-to-period changes:
<TABLE>
<CAPTION>
PERCENT PERCENT
1998 CHANGE 1997 CHANGE 1996
--------------- ------------ ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Sales and marketing................ $ 89,118 31% $68,115 36% $50,038
Percentage of total revenues...... 53% 60% 59%
Research and development........... $ 19,434 38% $14,050 32% $10,634
Percentage of total revenues...... 12% 12% 12%
General and administrative......... $ 15,394 39% $11,076 50% $ 7,402
Percentage of total revenues...... 9% 10% 9%
Total operating expenses........... $123,946 33% $93,241 37% $68,074
Percentage of total revenues...... 74% 82% 80%
</TABLE>
. Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions for our sales and marketing personnel, together with
amounts paid for advertising and product promotion activities. Sales and
marketing expenses were $89.1 million, or 53% of total revenues, in 1998 as
compared to $68.1 million, or 60% of total revenues, in 1997, and $50.0 million,
or 59% of total revenues, in 1996. Sales and marketing expenses increased in
absolute amount in each period as we expanded our sales and marketing
organization. This organization grew from 298 people at December 31, 1996 to 401
people at December 31, 1997 and to 601 people at December 31, 1998. The increase
in sales and marketing personnel was due to expansion of personnel in existing
offices. Sales and marketing expenses as a percentage of total revenues
decreased in 1998 as we experienced better productivity in our sales and
marketing organization. Sales and marketing expenses are expected to continue to
increase in absolute dollars in the future but may vary as a percent of
revenues.
. Research and Development. Research and development $14.1 million in
1997 and $10.6 million in 1996. expenses in 1998 consist primarily of salaries,
Research and development expenses have related benefits, third party consultant
fees, and represented 12% of total revenues in each period other costs
associated with our research and presented. The increase in research and
development activities. Research and development development expenses in
absolute amount is due expenses were $19.4 million in 1998, to increased
staffing and associated support for software engineers required to expand and
enhance our product line. From December 31, 1997 to December 31, 1998, our
research and development organization grew from 116 to 155 people. As of
December 31, 1998, we have not capitalized any software development costs and
all research and development costs have been expensed as incurred. See Note 1 of
Notes to Consolidated Financial Statements. Research and development expenses
are expected to continue to increase in absolute dollars in the future but may
vary as a percent of revenues.
. General and Administrative. General and administrative expenses
consist primarily of salaries, related benefits, fees for professional services
including legal and accounting services, and amortization of goodwill. General
and administrative expenses were $15.4 million, or 9% of
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total revenues, in 1998 as compared to $11.1 million, or 10% of total revenues,
in 1997 and $7.4 million, or 9% of total revenues, in 1996. General and
administrative expenses increased in absolute amounts in each period as we
increased our staffing to support our growth, and experienced higher
expenditures for legal and accounting services associated with operating a
larger company. In addition, general and administrative expenses included the
amortization of goodwill related to the acquisition of certain distributors in
1997 and 1998. Goodwill amortization expense totaled $1.3 million in 1998 and
$600,000 in 1997. No goodwill amortization expense was recorded in 1996. General
and administrative expenses are expected to continue to increase in absolute
dollars in the future but may vary as a percent of revenues.
NET INTEREST INCOME AND OTHER
The following table sets forth information regarding the composition of our
net interest and other income and period-to-period changes:
<TABLE>
<CAPTION>
PERCENT PERCENT
1998 CHANGE 1997 CHANGE 1996
------------ ------------- -------------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net interest income................ $1,931 77% $1,088 (30)% $1,556
Net exchange gain.................. $ 147 (75)% $ 585 100% $ 293
</TABLE>
Net interest income and other income represents net interest income and
expense, and net gains and losses resulting from foreign currency exchange rate
changes. Net interest income and other totaled $2.1 million in 1998, $1.7
million in 1997, and $1.8 million in 1996. The increase in net interest income
in 1998 was primarily due to an increase in our cash available for short-term
investing. The decrease in interest income in 1997 compared to 1996 was
predominantly due to lower cash balances for investment purposes and lower
interest rates. The decrease in net exchange gains in 1998 was predominantly
due to losses on U.S. dollar denominated intercompany receivables caused by the
general weakening of the U.S. dollar against the French franc.
INCOME TAXES
The following table sets forth information regarding our income taxes:
<TABLE>
<CAPTION>
PERCENT PERCENT
1998 CHANGE 1997 CHANGE 1996
------------- ------------- ------------- -------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Provision for income taxes......... $7,316 130% $3,184 (15)% $3,737
Effective tax rate................. 41% 55% 42%
</TABLE>
Income taxes totaled $7.3 million in 1998, $3.2 million in 1997, and $3.7
million in 1996. This represented an effective income tax rate of 41% in 1998,
55% in 1997, and 42% in 1996. The increase in the effective tax rate in 1997
was primarily due to limitations on our ability to offset net losses for tax
purposes in certain jurisdictions against taxable income in other jurisdictions,
as well as the increase in the French statutory tax rate from 36.7% to 41.7%
effective January 1, 1997. The decrease in our effective tax rate in 1998
reflects a return to our standard effective income tax rate.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
PERCENT
1998 CHANGE 1997
------------- ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Working capital............................................................ $ 51,104 40% $36,479
Cash, cash equivalents, and short-term investments......................... $ 71,713 84% $39,013
Net cash provided by operating activities.................................. $ 34,314 285% $ 8,919
Net cash provided by (used for) investing activities....................... $(27,648) (513)% $ 6,701
Net cash provided by financing activities.................................. $ 4,484 271% $ 1,208
</TABLE>
As of December 31, 1998, we had cash, cash equivalents, and short-term
investments of $71.7 million, an increase of $32.7 million from December 31,
1997. Net cash provided by operating activities was $34.3 million in 1998, as
compared to $8.9 million in 1997. Net cash provided by operating activities in
1998 primarily resulted from net income and non-cash charges for depreciation
and amortization expense, and increases in accounts payable, accrued payroll,
deferred revenue and value added taxes payable, and other current liabilities,
partially offset by increases in accounts receivable.
Accounts receivable increased to $42.2 million at December 31, 1998, from
$35.1 million at the end of 1997. The increases in accounts receivable resulted
primarily from the growth in revenues. Accounts receivable days' sales
outstanding (DSO) was 79 days at December 31, 1998, and 88 days at December 31,
1997. In general, due to the level of European sales which tend to have longer
collection cycles, and the historical pattern of revenue generation towards the
end of each quarter, we anticipate that accounts receivable and DSO will
continue to be substantial in the future.
Our investing activities consisted primarily of the purchase and sale of
short-term investments totaling $2.5 million of net proceeds in 1998 and $15.6
million in 1997, the acquisition of increased interests in distributors totaling
$1.0 million in 1998 and $2.6 million in 1997, and expenditures for fixed assets
totaling $6.8 million in 1998 and $6.3 million in 1997. We have no significant
capital commitments and we currently anticipate that additions to property and
equipment for the next year will be comparable to recent past years.
In 1998, our financing activities provided $4.5 million from the issuance
of shares upon the exercise of employee stock options and the sale of shares
under employee stock purchase plans. In 1997, our financing activities provided
$1.3 million from the issuance of shares upon the exercise of employee stock
options and the sale of shares under employee stock purchase plans.
We believe that cash from operations together with existing cash and cash
equivalents and short-term investments will be sufficient to meet our cash
requirements for at least the next 12 months.
BUSINESS FACTORS
Statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-K
include forward-looking statements that
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<PAGE>
involve a number of risks and uncertainties. Among the factors that could cause
actual results to differ materially are the following:
OUR OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER.
In the past, our revenues and operating results have varied, sometimes
substantially, from quarter to quarter. We expect our revenues and operating
results to continue to fluctuate from quarter to quarter in the future and we
may even experience losses in any particular quarter. Accordingly, quarter to
quarter comparisons of our revenues and operating results may not be meaningful
and you should not rely on them as indicative of our future performance. In
general, because license fees comprise a substantial majority of our revenues,
fluctuations in the amount of license fees generated in any one quarter can
cause variations in our quarterly revenues and operating results. Our license
fees tend to fluctuate as a result of a number of factors, including:
. the variability of our sales cycle;
. the size and timing of individual license transactions;
. the timing of our new product or product enhancement releases and of
competitors' new product or product enhancement releases;
. customer delays in purchases of our products in anticipation of new
releases or enhancements to our existing products;
. customer delays in purchases of our products because of our customers'
own budgeting decisions;
. the ability of our competitors to offer new products that successfully
compete with our products; and
. reductions in the prices of our products, or the prices of our
competitors' products relative to the prices of our products.
Our license fees may vary substantially from one quarter to the next if we
experience significant delays in customer orders at the end of a quarter. We
typically ship our products upon receipt of customer orders, and recognize
license revenues in the quarter such products are shipped to the customer. In
the past, we have often shipped the most product, and recognized the largest
amount of our licensing revenues, in the last weeks of the last month of each
quarter. However, each quarter we incur operating expenses based in part on
anticipated revenue levels, and a high percentage of our expenses are relatively
fixed. As a result, if a significant number of our customers delay their product
orders at the end of any particular quarter until the following quarter, we may
experience significant fluctuations in our revenues and operating results from
one quarter to the next and we may even experience losses in the preceding
quarter.
In addition, we currently plan to continue to increase our expenditures to
fund:
. greater levels of research and development;
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<PAGE>
. an increase in our direct sales and marketing staff;
. the development of new distribution and resale channels;
. broader customer support capabilities; and
. additional general and administrative staffing necessary to support
these functions.
We anticipate that such expenses will be relatively fixed and consistent from
quarter to quarter. As a result, these expense increases could result in more
significant quarter to quarter fluctuations in our operating results if revenues
earned in any particular quarter fall short because a significant number of our
customers delay their product orders from one quarter to the next, or because we
are unable to ship additional product to our customers consistently throughout
each quarter during which we make these expenditures.
Our revenues and operating results may also fluctuate from quarter to
quarter due to various seasonality factors. In other words, our revenue growth
generally slows, and our revenues may even decline, in the first quarter of each
calendar year as compared to the immediately preceding quarter. Seasonality like
this is typical in the computer software industry. We believe that this
seasonality is a result of two principal factors:
. due to spending and budgeting considerations, many of our customers
make their larger capital purchases in the fourth quarter of each
calendar year, and their lower capital purchases during the following
quarter;
. because there is typically lower economic activity throughout Europe
during the summer months, relative to other times during the year,
many European customers do not place orders during the third quarter
of the calendar year.
These two factors typically result in a higher level of revenues for the
fourth quarter of the calendar year, relative to other fiscal quarters. We
anticipate that this pattern of revenue seasonality will continue.
WE DEPEND ON SALES OF ONE PRODUCT FOR A MAJORITY OF OUR REVENUES.
We generate a substantial majority of our total revenues from licensing
fees generated from the sale of the BusinessObjects product. We expect that for
the foreseeable future we will continue to derive a substantial majority of our
revenues from the sale of the BusinessObjects product. We derive our remaining
revenues from the sale of our other licensed products and services which are
related to the BusinessObjects product. As a result, if our sales of
BusinessObjects decrease for any reason, our financial condition and operating
results would be severely impacted. Our future revenues and profits also depend
significantly on our ability to successfully develop and introduce new and
enhanced versions of our BusinessObjects product, and on customer acceptance of
these new and enhanced versions of our BusinessObjects product. Moreover, if we
are required to reduce the prices for our products, including BusinessObjects,
due to competitive pressures, or if
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<PAGE>
any other factors significantly erode the price that we are able to charge for
our BusinessObjects product, our financial condition and operating results could
suffer.
WE FACE SUBSTANTIAL COMPETITION FROM MANY COMPANIES THAT ARE LARGER THAN
US.
We specifically design and target our products for the decision support
software tools market. We believe that the principal competitive factors that
impact this market include:
. ease of use;
. functionality;
. product architecture;
. price;
. product quality;
. breadth of distribution;
. customer support; and
. name recognition.
Although we believe that we compete effectively with respect to these factors,
we may be unable to continue to do so in the future.
Within our target market, we offer products that compete in four
subsectors:
. the query and reporting market;
. the multidimensional analysis or OLAP market;
. the emerging desktop data mining market; and
. the market for integrated products or product suites that provide
query, reporting, and analysis support on client/server and internet
platforms.
Some of our competitors have been in business longer than us and have
significantly greater financial, technical, sales, marketing, and other
resources than we do. In addition, some of our competitors enjoy greater name
recognition and a larger installed customer base than we do. Moreover, some of
our competitors, particularly companies that offer relational database
management software systems and enterprise resource planning software systems,
have well-established relationships with some of our existing and targeted
customers.
In the future, any of our competitors could introduce products with more
features at lower prices. Some of these companies could also bundle existing or
new products with other more established products that they offer and compete
more effectively against our products. Because our products are specifically
designed and targeted to the decision support software tools market, we
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<PAGE>
may lose sales to competitors offering a broader range of products. Furthermore,
other companies larger than us could enter the market with products that cost
less than our products. Such companies could also acquire or enter into a
strategic relationship with certain of our smaller competitors and provide such
competitors with additional resources or cause them to lower the price of their
product to be more competitive with our products. We believe that the decision
support software tools market will continue to grow and develop, and that more
and more larger companies may find it a desirable market in which to compete. To
the extent that we are unable to effectively compete against our current and
future competitors, as a result of some or all of the factors stated above, our
financial condition and operating results would suffer.
THE SOFTWARE MARKETS THAT WE TARGET ARE SUBJECT TO RAPID TECHNOLOGICAL
CHANGE AND NEW PRODUCT INTRODUCTIONS.
The market for decision support software tools is characterized by:
. rapid technological advances;
. changes in customer requirements; and
. frequent new product introductions and enhancements.
As a result, existing products become obsolete and unmarketable when companies
introduce new products or enhancements to existing products that incorporate new
technologies and when new industry standards emerge. For example, some industry
analysts believe that the recent emergence of the internet and intranets, and in
particular the world wide web, with its new mode of user operation, could
negatively impact the market for traditional client/server tools. To be
successful, we must develop new products and enhancements to our existing
products that keep pace with technological developments, emerging industry
standards, and the increasingly sophisticated requirements of our customers.
However, in the future we may be unable to successfully develop new products or
enhancements to our existing products in a timely manner that adequately respond
to technological changes, evolving industry standards, or the requirements of
our customers. In addition, even if we are able to develop new products or
enhancements to our existing products, these products and product enhancements
may not be accepted in the marketplace. Moreover, our customers may defer or
forego purchases of our existing products if we do not adequately time the
introduction or the announcement of new products or enhancement to our existing
products, or if our competitors introduce or announce new products and product
enhancements. Any of these factors could severely harm our financial condition
and operating results.
OUR PRODUCTS MAY HAVE SOFTWARE DEFECTS AND ERRORS.
Our BusinessObjects product and WebIntelligence platform are internally
complex and frequently contain defects or errors, especially when first
introduced or when new versions or enhancements are released. For example, when
BusinessObjects 4.0 was first introduced in 1996, it would not run on Windows
3.1, and we had to rework a portion of the product to enable it to do so. The
revised product then took a significantly longer period than expected to achieve
operational stability, and contained a number of "bugs" resulting from the
significant rewriting and rearchitect-
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<PAGE>
ing of the product. We resolved these problems by the end of 1996, but our
operating results for the second quarter of 1996 were severely impacted.
In contrast to our previous products that are client-based, WebIntelligence
is server-based. We have limited experience and technical expertise in
developing server software. In addition, the success of WebIntelligence depends
on its availability on Unix, with which we have limited experience, and the
ability for the architecture to scale to large customer deployments. In the
future, there can be no assurances that we will be successful in meeting these
requirements.
Despite extensive testing, our new products and product enhancements may
contain defects and errors which we may not detect until after we have commenced
commercial shipments. If defects and errors are discovered in our products and
product enhancements after commercial release:
. potential customers may delay or forego purchases of these products
and product enhancements;
. our reputation in the marketplace may be damaged;
. we may incur additional service and warranty costs; and
. we may have to divert additional development resources to correct the
defects and errors.
If any or all of the foregoing occur, we may lose revenues or incur higher
operating expenses, either of which could severely harm our financial condition
and operating results.
WE RELY ON THIRD PARTY SUPPLIERS FOR MOST OF OUR MANUFACTURING NEEDS.
We rely upon third party suppliers to perform our CD duplication, print our
user manuals, package our products, and manufacture certain related materials
incorporated in our products. If we were to experience delays or difficulties
with one or more of our third party suppliers, we may be unable to ship our
products on a timely basis, which could severely harm our revenues, financial
condition, and operating results.
OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS.
Our success depends in part on our ability to protect our proprietary
rights in our intellectual property. To protect our proprietary rights, we use a
combination of protections provided by:
. patent, copyright, and trademark laws;
. trade secret laws;
. confidentiality agreements; and
. licensing arrangements, including confidentiality provisions.
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<PAGE>
We cannot assure you that any of these methods of protection are adequate to
protect our technology from use or misappropriation by our competitors. Despite
our precautions, it may be possible for unauthorized third parties to copy
aspects of our current or future products or to obtain and use information that
we regard as proprietary. Policing unauthorized use of software is difficult and
some foreign laws do not protect our proprietary rights to the same extent as in
the United States. For example, under French law we are unable to patent our
proprietary rights in our software, but we are able to protect these proprietary
rights under copyright laws which enable us to enjoin third party infringement.
Litigation may be necessary to protect our proprietary rights in our
intellectual property. For example, we currently have one patent issued in the
United States relating to a "Relational Database Access System Using
Semantically Dynamic Objects." We believe that one of our competitors, Brio
Technology, Inc., is infringing upon our rights under this patent, and we are
currently litigating this claim against Brio Technology. During January 1997, we
filed a lawsuit in the United States District Court for the Northern District of
California against Brio Technology alleging that it is infringing our patent by
making, using, and selling one of its products known as BrioQuery Enterprise. We
have requested that the court enjoin Brio Technology from further infringing on
our patent. We cannot assure you that we will receive a favorable outcome in
this litigation. Litigating this claim, or other claims we may believe are
necessary in the future to protect our proprietary rights, can be very expensive
in terms of management time and resources. Utilizing our resources on such
litigation could cause our financial condition and operating results to suffer.
In addition, although our name, together with our logo, is registered as a
trademark in France, the United States, and a number of other countries, we may
have difficulty asserting our ownership rights in the name "Business Objects."
Similar to monitoring unauthorized use of our product by customers, we may be
unable to effectively police unauthorized use of our name or otherwise prevent
the name of our software from becoming a part of the public domain.
THIRD PARTIES COULD ASSERT THAT OUR TECHNOLOGY INFRINGES ON THEIR
PROPRIETARY RIGHTS, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO DISTRIBUTE OUR
PRODUCTS AND RESULT IN COSTLY LITIGATION.
We do not believe that our products infringe upon the proprietary rights of
any third parties, and we are not aware of any third party claims that our
products do so. However, we cannot be certain and we cannot assure you that
third parties will never make such claims. We believe that software products
offered in our target market increasingly will be subject to such claims as the
number of products and competitors in our industry segment grows and product
functionalities begin to overlap. If a third party were to bring an infringement
claim against us, we would be forced to commit management resources to resolve
the claim and may incur substantial litigation costs in defense of the claim. We
may also have to expend significant development resources to redesign our
product as a result of such claims. Finally, we may be required to enter into
royalty and licensing agreements with a third party bringing an infringement
claim against us, and these agreements may not contain terms that are favorable
to us.
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<PAGE>
WE USE "SHRINK WRAP" LICENSES IN CONNECTION WITH THE SALE OF OUR PRODUCTS.
We often license our software products to customers through a "shrink-wrap"
license which becomes effective upon the opening of the product by the customer.
A "shrink-wrap" license agreement is a printed license agreement included within
packaged software that sets forth the terms and conditions under which the
purchaser may use the product. For example, these license agreements typically
provide that the licensed product may be used solely for the customer's internal
operations for a specified number of named or concurrent users and are
nonexclusive and nontransferable. "Shrink-wrap" license agreements are difficult
to monitor. We cannot be certain, nor can we assure you, that our customers will
comply with all of the terms and conditions of the "shrink-wrap" licenses under
which they purchase our products. For example, a customer may permit more end
users to use the product than the applicable "shrink-wrap" license allows
without paying for additional users. To the extent that our customers violate
the "shrink-wrap" licenses that apply to our products, we may be deprived of
revenues and our financial condition and operating results may suffer.
WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES.
We license certain software from third parties, and sub-license this
software to our customers. In addition, we license certain software programs
from third parties and incorporate these programs into our own software
products. Generally, the license agreements under which we license third party
software grant us a non-exclusive, worldwide license to use the software for
certain limited purposes. By utilizing third party software in our business,
however, we incur certain risks that are not associated with developing software
in-house. For example, these third party providers may discontinue or alter
their operations, terminate their relationship with us, or generally become
unable to fulfill their obligations to us. If any of these circumstances were to
occur, we may be forced to seek alternative technology which may not be
available on commercially reasonable terms. In the future, we may be forced to
obtain additional third party software licenses to enhance our product offerings
and compete more effectively. We cannot be certain, nor can we assure you, that
we will be able to obtain and maintain licensing rights to desired or needed
technology or similar technology on commercially reasonable terms, or at all.
OUR SOURCE CODE ARRANGEMENTS MAY MAKE IT EASIER FOR A THIRD PARTY TO
MISAPPROPRIATE OUR TECHNOLOGY.
We have entered into source code escrow arrangements with a limited number
of our distributors and end users that require us to release some of our source
code to these distributors and end users under certain circumstances. For
example, generally these agreements provide that these parties will obtain a
limited, non-exclusive right to use our source code if we become engaged in a
bankruptcy proceeding, if we cease to do business, or if we fail to meet our
contractual obligations to these distributors and end users. Using source code
escrow arrangements may increase the likelihood that third parties will
misappropriate our source code contained in the escrow.
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<PAGE>
THERE ARE A NUMBER OF FACTORS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT
COULD ADVERSELY AFFECT OUR BUSINESS.
We conduct a significant portion of our business outside of North America
and France. For example, in 1998, sales in France accounted for 18.3% of total
revenues, sales in North America accounted for 29.6% of total revenues, sales in
the United Kingdom accounted for 22.7% of total revenues, and sales in other
European countries and in the Asia Pacific region collectively accounted for
29.4% of total revenues. We currently have offices in over 15 countries
throughout the world. Sales in these various markets subject us to a number of
risks inherent in international business activities which could severely harm
our operations, financial condition and operating results, including:
. general economic conditions in each such country;
. difficulties in staffing and managing international operations;
. overlap of inconsistent tax structures;
. managing an organization spread over various jurisdictions;
. unexpected changes in regulatory requirements;
. compliance with a variety of foreign laws and regulations;
. longer accounts receivables payment cycles in Europe;
. import and export licensing requirements;
. trade restrictions; and
. changes in tariff and freight rates.
WE HAVE MULTINATIONAL OPERATIONS THAT ARE SUBJECT TO CURRENCY EXCHANGE RATE
FLUCTUATIONS.
We conduct a significant portion of our business in currencies other than
the U.S. dollar, the currency in which we report our financial statements.
Assets and liabilities of these subsidiaries are translated into U.S. dollars at
exchange rates in effect as of the applicable balance sheet date, and any
resulting translation adjustments are included as an adjustment to retained
earnings. Revenues and expenses generated from these subsidiaries are translated
at average exchange rates during the month the transactions occur. Gains and
losses from these currency transactions are included in net earnings.
Historically, we have generated a significant portion of our revenues and
incurred a significant portion of our expenses in French francs, British pounds
sterling, and Italian lira. As a result, the Company's operating results may be
adversely impacted by currency exchange rate fluctuations on the U.S. dollar
value of foreign currency-denominated revenues and expenses. In the past, we
have experienced fluctuations in the value of these and other currencies
relative to the U.S. dollar, and we expect this pattern to continue. These
fluctuations have caused certain U.S. dollar-translated amounts reported in our
financial statements to change in comparison with previous periods, and resulted
in currency transaction gains and losses which have been included in net
earnings. Due to the number of currencies in which we conduct our business and
the substantial volatility of
37
<PAGE>
currency exchange rates, we cannot predict the effect of exchange rate
fluctuations upon our future operating results. As of December 31, 1998, we were
not engaged in a foreign currency hedging program to cover our currency
transaction exposure.
WEAKNESSES IN THE ECONOMIES OF COUNTRIES IN THE ASIA PACIFIC REGION COULD
NEGATIVELY IMPACT OUR REVENUES.
Countries in the Asia Pacific region, including Japan, have recently
experienced weaknesses in their currency, banking, and equity markets. Although
we generated only approximately 6.0% of our consolidated revenues for the year
ended December 31, 1998 in this region, weaknesses in the Asia Pacific region
could adversely affect demand for our products. Moreover, weaknesses in this
region could adversely affect the U.S. dollar value of our foreign currency-
denominated sales in the Asia Pacific region and ultimately our consolidated
results of operations.
WE FACE RISKS RELATED TO THE EUROPEAN MONETARY CONVERSION.
On January 1, 1999, 11 of the 15 member countries of the European Union
established a fixed conversion rate between their sovereign currencies and the
Euro and adopted the Euro as their common legal currency. As a result, the Euro
now trades on currency exchanges and will be available for non-cash
transactions. We expended resources, reviewed and modified pricing policies in
the new economic environment, analyzed the legal and contractual implications
for contracts, evaluated system capabilities, and ensured that banking vendors
support our operations in Euro-related transactions. We expect to modify our
business operations and systems to accommodate the Euro conversion on a timely
basis, but we do not believe that the cost of these modifications will
significantly affect our operating results. We cannot be certain nor can we
assure you that we will be able to successfully complete these modifications in
a manner that complies with Euro requirements. In addition, the costs of
completing these modifications could be higher than we currently anticipate,
which could negatively impact our financial condition and operating results. For
example, we have not yet completed our evaluation of the impact of the Euro
conversion upon our functional currency designations. In addition, our vendors
and suppliers may be unable to make appropriate modifications to their business
operations and systems to support Euro-related transactions. While we cannot
predict what effect these various factors may have on our financial condition
and operating results, we believe that factors relating to the Euro conversion
could cause significant volatility in our future financial performance and stock
price.
WE CURRENTLY RELY PRIMARILY ON DIRECT SALES, BUT MAY BECOME MORE DEPENDENT
UPON PRODUCT DISTRIBUTION AND SUPPORT FROM THIRD PARTIES.
We currently rely primarily upon our direct sales efforts to distribute and
market our products, but we have been increasing our sales through indirect
channels. We expect to continue to increase our sales through indirect channels,
such as VARs, system integrators, consulting partners, distributors, and
resellers. However, we may be unable to successfully establish indirect sales
channels that are capable of marketing and supporting our products effectively.
Moreover, any VARs, system integrators, consulting partners, distributors or
resellers who market and support our products may discontinue their relationship
with us at any time. If we are unable to recruit or retain a significant number
of VARs, system integrators, consulting partners, distributors, or resellers to
effectively
38
<PAGE>
market and support our products, our operating results may suffer. Additionally,
our financial performance and operating results may suffer if we are unable to:
. expand our own sales and marketing organization;
. implement new indirect sales channels to penetrate different and
broader markets than those addressed by our existing direct sales
force and international distributors; or
. expand our support organization commensurate with our base of
installed products.
WE ARE SUSCEPTIBLE TO PROBLEMS ASSOCIATED WITH THE YEAR 2000.
Many computer programs define references to applicable years by using two
digits rather than four. As a result, many computer programs or hardware that
have date-sensitive software or embedded chips may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations that disrupt our operations. For example, computer
systems failures resulting from improper date references may temporarily disrupt
our ability to process transactions, send invoices, or engage in similar normal
business activities.
We have developed our current core product and platforms, BusinessObjects
4.1 and WebIntelligence 2.0, to comply with the Year 2K Conformity Requirements
developed by the British Standards Institute. We believe that it is essential
that we continue to design and test our products and platforms in compliance
with these standards. Based on our testing against the Y2K standards, we believe
BusinessObjects 4.1 is compliant with such standards. We have also conducted
testing on our WebIntelligence 2.0 platform. Although we believe this platform
to be compliant under most customer environments, we have identified a
limitation which, for a specific customer operation (importing and exporting
data in certain file formats) would result in non-compliance with the Y2K
standards. We believe this limitation is applicable to a limited number of
customer environments. We have developed a workaround for this limitation that
can easily be implemented by the customer. We are in the process of developing a
patch to correct this issue, which we expect will be available in mid-1999.
Because our product and platforms are used in conjunction with underlying
operating systems, and other database, middleware, and other software programs,
they are necessarily subject to the limitations, including year 2000 related
limitations, of such third party software. In order to minimize potential year
2000 compliance issues, we recommend to our customers that they use our current
products and platforms in conjunction with the most current releases of any
third party software. As new versions of the third party software used by our
customers become available, we intend to continue to design and test our
products and platforms as used with such third party software against the
British Standards Institute definition of Year 2K Conformity Requirements.
However, because we are dependent upon our customers' use of third party
software in connection with their use of our products and platforms, we cannot
assure you that the implementation of our products and platforms will not be
affected in the future by year 2000 issues related to modification or revisions
in any such third party software.
39
<PAGE>
Furthermore, some of our customers continue to operate older versions of
our products that may experience problems associated with the year 2000 issues.
We have been encouraging these customers to migrate to current versions of our
software, but some of them may not do so prior to January 1, 2000.
We are currently using a four step process to address the year 2000 issues
associated with our internal management information systems: assessment,
remediation, testing, and implementation. We have completed the assessment
phase for our IT systems. The assessment phase of our IT systems indicated that
some of our critical IT systems may not be year 2000 compliant. We are
reviewing corrective actions and contingency plans to these critical IT systems,
and have retained external consultants to assist in this process.
We are still in the process of completing the assessment phase of our non-
IT systems, which is expected to be completed by the end of our first calendar
quarter. Some of the suppliers and vendors that provide us with products,
services, and systems, and others with whom we transact business on a worldwide
basis, continue to operate business systems or offer products that will
experience problems associated with the year 2000. If any of these third
parties cannot timely provide us with products, services, or systems that have
been modified to operate in the year 2000 and beyond, our business may be
disrupted and our operations may suffer. We are currently assessing the year
2000 compliance plans of our major suppliers and vendors.
We are in the process of evaluating the need for contingency plans with
respect to problems associated with the year 2000. We believe that the need for
contingency plans must be evaluated on a case-by-case basis, and will vary
considerably in nature depending on the year 2000 issue involved.
We expect to complete our year 2000 remediation, testing, and
implementation processes for both our IT and non-IT systems by the end of 1999,
and to incur no more than $300,000 in connection with the entire process.
However, if we are unable to successfully complete this process before the end
of 1999, both our day-to-day business operations and operating results could be
significantly adversely affected. Furthermore, other factors relating to the
year 2000, including litigation, may materially and adversely affect our
business, financial condition, and operating results.
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS; WE
MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED.
Our success depends to a significant extent upon a number of key management
and technical personnel, including Bernard Liautaud, our chief executive officer
and co-founder, the loss of whom could adversely affect our business. We
maintain a key person life insurance policy on the life of Mr. Liautaud with
proceeds payable to Business Objects. The loss of the services of key personnel
could have a material adverse effect on Business Objects. In addition, we
believe that our future success will also depend in a large part on our ability
to attract and retain highly skilled technical, management, sales, and marketing
personnel. Competition for such personnel in the computer software industry is
intense, and we may be unable to successfully attract and retain such personnel.
40
<PAGE>
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
Our business has grown rapidly in recent years. If we continue to grow at
the same pace, this growth may place a significant strain on our management and
operations. Our future operating results depend in part on the ability of our
officers and key employees to continue to implement and improve our operational
and financial control systems and to hire, expand, train, and manage our
employees. If we are unable to manage our growth effectively, our financial
condition and operating results could suffer.
WE ARE CURRENTLY ENGAGED IN LEGAL PROCEEDINGS WITH THIRD PARTIES.
We are involved in various legal proceedings that have arisen in the
ordinary course of our business, including the patent infringement lawsuit
described earlier. We believe that the ultimate resolution of these matters
will not have a material adverse effect on our financial condition, operating
results, or cash flows. However, we may become involved in a significant
lawsuit in the future which could drain important resources and could materially
and adversely harm our financial condition and operating results.
41
<PAGE>
QUARTERLY INFORMATION
The following tables set forth statements of income data for each of the
eight quarters in the period ended December 31, 1998 in dollars and as a
percentage of total revenues. This unaudited quarterly information has been
prepared on the same basis as the annual information presented elsewhere herein
and, in management's opinion, includes all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the information
for the quarters presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1998 1998 1998 1998 1997 1997 1997 1997
---------- --------- --------- --------- -------- --------- --------- ---------
Revenues: (in thousands, except per share and ADS data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
License fees............... $33,950 $26,232 $25,157 $23,422 $24,265 $19,442 $18,032 $16,739
Services................... 17,570 15,025 14,395 11,143 11,769 9,060 8,296 6,650
------- ------- ------- ------- ------- ------- ------- -------
Total revenues............ 51,520 41,257 39,552 34,565 36,034 28,502 26,328 23,389
Cost of revenues:
License fees............... 915 781 889 687 1,388 826 739 820
Services................... 7,297 6,253 5,562 4,787 4,377 3,505 2,859 2,366
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.... 8,212 7,034 6,451 5,474 5,765 4,331 3,598 3,186
------- ------- ------- ------- ------- ------- ------- -------
Gross margin................ 43,308 34,223 33,101 29,091 30,269 24,171 22,730 20,203
Operating expenses:
Sales and marketing........ 25,340 22,214 21,768 19,796 19,744 17,095 17,135 14,141
Research and
development................ 5,647 4,956 4,697 4,134 4,132 3,503 3,279 3,136
General and
administrative............. 4,934 3,692 3,552 3,216 3,456 2,874 2,660 2,086
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................. 35,921 30,862 30,017 27,146 27,332 23,472 23,074 19,363
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............... 7,387 3,361 3,084 1,945 2,937 699 (344) 840
Net interest income and
other.................... 675 618 398 387 195 178 388 912
------- ------- ------- ------- ------- ------- ------- -------
Income before minority
interest and provision for
income taxes............... 8,062 3,979 3,482 2,332 3,132 877 44 1,752
Provision for income taxes (3,305) (1,631) (1,428) (952) (1,713) (716) (19) (736)
Minority interest........... (138) (40) (74) -- 223 35 (2) --
------- ------- ------- ------- ------- ------- ------- -------
Net income.................. $ 4,619 $ 2,308 $ 1,980 $ 1,380 $ 1,642 $ 196 $ 23 $ 1,016
======= ======= ======= ======= ======= ======= ======= =======
Net income per ADS and per
share--basic............... $ 0.27 $ 0.14 $ 0.12 $ 0.08 $ 0.10 $ 0.01 $ 0.00 $ 0.06
ADS and shares used in ======= ======= ======= ======= ======= ======= ======= =======
computing net income
per ADS and per
share--basic............... 17,153 16,975 16,942 16,782 16,770 16,689 16,614 16,417
Net income per ADS and
per share--diluted......... $ 0.26 $ 0.13 $ 0.11 $ 0.08 $ 0.10 $ 0.01 $ 0.00 $ 0.06
======= ======= ======= ======= ======= ======= ======= =======
ADS and shares used in
computing net income
per ADS and per
share--diluted.............. 18,030 17,624 17,950 17,439 17,280 16,798 16,760 16,672
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1998 1998 1998 1998 1997 1997 1997 1997
---------- --------- --------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees.............. 65.9% 63.6% 63.6% 67.8% 67.3% 68.2% 68.5% 71.6%
Services.................. 34.1 36.4 36.4 32.2 32.7 31.8 31.5 28.4
---------- --------- --------- --------- -------- --------- --------- ---------
Total revenues........... 100% 100% 100% 100% 100% 100% 100% 100%
========== ========= ========= ======== ======== ========= ========= =========
Cost of revenues:
License fees.............. 1.8 1.9 2.2 2.0 3.9 2.9 2.8 3.5
Services.................. 14.2 15.2 14.1 13.8 12.1 12.3 10.9 10.1
---------- --------- --------- --------- -------- --------- --------- ---------
Total cost of revenues... 15.9 17.1 16.3 15.8 16.0 15.2 13.7 13.6
---------- --------- --------- --------- -------- --------- --------- ---------
Gross margin............... 84.1 82.9 83.7 84.2 84.0 84.8 86.3 86.4
Operating expenses:
Sales and marketing....... 49.2 53.8 55.0 57.3 54.8 60.0 65.1 60.5
Research and
development.............. 11.0 12.0 11.9 12.0 11.5 12.3 12.4 13.4
General and
administrative........... 9.6 8.9 9.0 9.3 9.6 10.1 10.1 8.9
---------- --------- --------- --------- -------- --------- --------- ---------
Total operating
Expenses............... 69.7 74.7 75.9 78.5 75.9 82.4 87.6 82.8
---------- --------- --------- --------- -------- --------- --------- ---------
Income (loss) from
operations.............. 14.3 8.2 7.8 5.6 8.2 2.4 (1.3) 3.6
Net interest income and
other................... 1.3 1.5 1.0 1.1 0.5 0.6 1.5 3.9
---------- --------- --------- --------- -------- --------- --------- ---------
Income before minority
interest and provision for
income taxes............ 15.6 9.7 8.8 6.7 8.7 3.0 0.2 7.5
Provision for income
taxes................... (6.4) (4.0) (3.6) (2.8) (4.8) (2.5) (0.1) (3.1)
Minority interest.......... (0.3) (0.1) (0.2) (0.0) 0.6 0.1 (0.0) --
---------- --------- --------- --------- -------- --------- --------- ---------
Net income................. 9.0% 5.6% 5.0% 4.0% 4.6% 0.6% 0.1% 4.3%
========== ========= ========= ======== ======== ========= ========= =========
</TABLE>
Earnings per ADS and per share amounts for the first three quarters of 1997
have been restated to comply with Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (FAS 128). For further discussion of earnings per
ADS and per share and the impact of FAS 128, see the Notes to Consolidated
Financial Statements included elsewhere in this Form 10-K.
Our growth in revenues and income from operations in recent quarters is not
necessarily indicative of future results. In view of the significant growth of
our operations in recent years, we believe that period to period comparisons of
our financial results should not be relied upon as an indication of future
performance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
foreign currency exchange rates. This discussion contains forward-looking
statements that are subject to risks and uncertainties. Actual results could
vary materially as a result of a number of factors including those set forth
under the captions "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Business Factors--We have multinational operations
that are subject to
43
<PAGE>
currency exchange rate fluctuations" and "--We face risks related to the
European monetary conversion."
We conduct a significant portion of our business in currencies other than
the U.S. dollar, the currency in which we report our financial statements. Our
assets and liabilities are translated into U.S. dollars at exchange rates in
effect as of the applicable balance sheet date, and any resulting translation
adjustments are included as an adjustment to retained earnings. Our revenues
and expenses are translated at average exchange rates during the month the
transactions occur. Gains and losses from these currency transactions are
included in net earnings. Historically, we have generated a significant portion
of our revenues and incurred a significant portion of our expenses in French
francs, British pounds sterling, and Italian lira. As a result, our operating
results may be adversely impacted by currency exchange rate fluctuations on the
U.S. dollar value of foreign currency-denominated revenues and expenses. In the
past, we have experienced fluctuations in the value of these and other
currencies relative to the U.S. dollar, and we expect this pattern to continue.
These fluctuations have caused certain U.S. dollar-translated amounts reported
in our financial statements to change in comparison with previous periods, and
resulted in currency transaction gains and losses which have been included in
net earnings. Due to the number of currencies in which we conduct our business
and the substantial volatility of currency exchange rates, we cannot predict the
effect of exchange rate fluctuations upon our future operating results. As of
December 31, 1998, we were not engaged in a foreign currency hedging program to
cover our currency transaction exposure.
44
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
Business Objects S.A.
We have audited the accompanying consolidated balance sheets of Business
Objects S.A. as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Business Objects S.A. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
January 29, 1999
45
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except for per ordinary share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 71,713 $36,508
Short term investments....................................................... -- 2,505
Accounts receivable, net of allowances of $1,672 and $1,568 at December 31,
1998 and 1997, respectively................................................. 42,236 35,113
Inventories.................................................................. 393 344
Deferred tax assets, net..................................................... 3,958 1,185
Prepaid and other current assets............................................. 3,642 4,365
-------- -------
Total current assets....................................................... 121,942 80,020
Goodwill, net................................................................ 1,460 1,626
Property and equipment, net.................................................. 13,804 12,020
Deposits and other assets.................................................... 879 674
-------- -------
Total assets............................................................... $138,085 $94,340
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 10,439 $ 8,089
Accrued payroll and related expenses......................................... 16,597 9,944
Investment grant............................................................. -- 668
Income taxes payable......................................................... 7,337 1,269
Deferred revenue............................................................. 21,684 16,825
Value added taxes payable.................................................... 4,450 2,901
Other current liabilities.................................................... 10,331 3,829
Current portion of capital lease obligations................................. -- 16
-------- -------
Total current liabilities.................................................. 70,838 43,541
Commitments and contingencies
Shareholders' equity:
Ordinary shares, FF 1 nominal value ($0.18 U.S. as of December 31, 1998):
Authorized 36,243; Issued and outstanding--17,255 and 16,778
at December 31, 1998 and 1997, respectively................................. 3,166 3,084
Additional paid-in capital................................................... 38,705 34,270
Retained earnings............................................................ 28,394 18,107
Accumulated other comprehensive income....................................... (3,018) (4,662)
-------- -------
Total shareholders' equity................................................. 67,247 50,799
-------- -------
Total liabilities and shareholders' equity................................. $138,085 $94,340
======== =======
</TABLE>
See accompanying notes.
46
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per ADS and per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
License fees..................................................... $108,761 $ 78,478 $64,451
Services......................................................... 58,133 35,775 20,686
-------- -------- -------
Total revenues................................................. 166,894 114,253 85,137
Cost of revenues:
License fees..................................................... 3,272 3,773 3,235
Services......................................................... 23,899 13,107 6,780
-------- -------- -------
Total cost of revenues......................................... 27,171 16,880 10,015
-------- -------- -------
Gross margin........................................................ 139,723 97,373 75,122
Operating expenses:
Sales and marketing.............................................. 89,118 68,115 50,038
Research and development......................................... 19,434 14,050 10,634
General and administrative....................................... 15,394 11,076 7,402
-------- -------- -------
Total operating expenses....................................... 123,946 93,241 68,074
-------- -------- -------
Income from operations.............................................. 15,777 4,132 7,048
Interest and other income, net...................................... 1,931 1,088 1,556
Net foreign currency exchange gain.................................. 147 585 293
-------- -------- -------
Income before minority interest and provision for income taxes...... 17,855 5,805 8,897
Provision for income taxes.......................................... (7,316) (3,184) (3,737)
Minority interest................................................... (252) 256 --
-------- -------- -------
Net income.......................................................... $ 10,287 $ 2,877 $ 5,160
======== ======== =======
Net income per ADS and share--basic................................. $0.61 $0.17 $ 0.32
======== ======== =======
ADS and shares used in computing net income per ADS and
per share--basic.................................................. 16,966 16,624 16,265
======== ======== =======
Net income per ADS and per share--diluted........................... $ 0.58 $ 0.17 $ 0.30
======== ======== =======
ADS and shares and common share equivalents used in computing net
income per ADS and per share--diluted.............................. 17,741 16,876 16,924
======== ======== =======
</TABLE>
See accompanying notes.
47
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON STOCK PAID-IN RETAINED UNEARNED COMPREHENSIVE SHAREHOLDERS'
----------------------
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION INCOME EQUITY
---------- ----------- --------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ 16,082,752 $2,957 $30,870 $10,070 $(259) $ 2,823 $46,461
Issuance of stock pursuant to
employee stock option plans..... 211,511 42 1,003 -- -- -- 1,045
Common stock issued............... 90,761 18 1,129 -- -- -- 1,147
Compensation related to stock
option plans........................ -- -- 35 -- 71 -- 106
Amortization of unearned
compensation related to stock
options........................... -- -- -- -- 125 -- 125
Cancellation of options............. -- -- (1) -- 1 -- --
Components of comprehensive income..
Translation adjustment......... -- -- -- -- -- (2,208) (2,208)
Net income..................... -- -- -- 5,160 -- -- 5,160
---------
Total comprehensive income.......... -- -- -- -- -- -- 2,952
----------- ------- -------- --------- ----------- --------- ---------
Balance at December 31, 1996........ 16,385,024 3,017 33,036 15,230 (62) 615 51,836
Issuance of stock pursuant to
employee stock option plans..... 285,366 49 406 -- -- -- 455
Common stock issued............... 107,273 18 828 -- -- -- 846
Amortization of unearned
compensation related to stock
options............................. -- -- -- -- 62 -- 62
Components of comprehensive
income (loss).....................
Translation adjustment......... -- -- -- -- -- (5,277) (5,277)
Net income..................... -- -- -- 2,877 -- -- 2,877
---------
Total comprehensive income (loss) -- -- -- -- -- -- (2,400)
----------- ------- -------- --------- ----------- --------- ---------
Balance at December 31, 1997........ 16,777,663 3,084 34,270 18,107 -- (4,662) 50,799
Issuance of stock pursuant to
employee stock option plan........ 319,014 56 2,719 -- -- -- 2,775
Common stock issued................ 158,764 26 1,316 -- -- -- 1,342
Tax Benefit of Nonqualified
Stock Options..................... -- -- 400 -- -- -- 400
Components of comprehensive income..
Translation adjustment......... -- -- -- -- -- 1,644 1,644
Net income..................... -- -- -- 10,287 -- -- 10,287
---------
Total comprehensive income......... -- -- -- -- -- -- 11,931
----------- ------- -------- --------- ----------- --------- ---------
Balance at December 31, 1998........ 17,255,441 $3,166 $38,705 $28,394 $ -- $(3,018) $67,247
=========== ======= ======== ========= =========== ========= =========
</TABLE>
See accompanying notes.
48
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $10,287 $ 2,877 $ 5,160
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 5,385 4,179 2,075
Recognition of investment grant........................................... (712) -- --
Amortization of goodwill.................................................. 1,254 598 --
Compensation expense...................................................... -- 62 197
Deferred income taxes..................................................... (2,768) (257) 135
Changes in operating assets and liabilities:
Accounts receivable, net................................................ (6,056) (12,914) (7,178)
Inventories............................................................. (28) 131 (259)
Prepaid and other current assets........................................ (475) (2,326) (653)
Deposits and other assets............................................... (162) (151) (250)
Accounts payable........................................................ 2,043 4,017 1,221
Accrued payroll and related expenses.................................... 9,673 3,089 1,130
Income taxes payable.................................................... 6,160 1,310 (3,918)
Deferred revenue........................................................ 4,323 7,007 4,407
Value added taxes and other current liabilities......................... 5,390 1,297 2,028
------- -------- ---------
Net cash provided by operating activities.................................... 34,314 8,919 4,095
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................................... (6,787) (6,332) (8,260)
Acquisition of distributors................................................. (972) (2,640) --
Purchases of short term investments......................................... -- (70,374) (175,408)
Proceeds from sales of short term investments............................... 2,505 86,047 185,279
Long term investment........................................................ 17 -- --
------- -------- ---------
Net cash provided by (used for) investing activities......................... (5,237) 6,701 1,611
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations............................. (16) (93) (170)
Issuance of shares.......................................................... 4,500 1,301 2,195
------- -------- ---------
Net cash provided by financing activities................................... 4,484 1,208 2,025
Effect of foreign exchange rate changes on cash and
cash equivalents........................................................... 1,643 (2,182) (514)
------- -------- ---------
Net increase in cash and cash equivalents................................... 35,205 14,646 7,217
Cash and cash equivalents at the beginning of the year...................... 36,508 21,862 14,645
------- -------- ---------
Cash and cash equivalents at end of the year................................ $71,713 $ 36,508 $ 21,862
======= ======== =========
Supplemental disclosures of non-cash activities:
Supplemental disclosures of cash flow information:
Cash paid for income taxes................................................. $ 6,903 $ 1,837 $ 7,510
</TABLE>
See accompanying notes.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- BUSINESS OBJECTS S.A.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
. Organization and Basis of Presentation. Business Objects S.A. (the
Company) was organized in 1990 as a societe anonyme, or limited liability
company, under the laws of the Republic of France. The Company develops,
markets, and supports enterprisewide decision support software tools.
During 1998, the Company acquired an additional 29% of the outstanding
shares of its Italian distributor, increasing its ownership to 80%. The
transaction has been recorded using the purchase method.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority controlled subsidiaries, after
elimination of intercompany transactions and balances.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States, applied on a
consistent basis. The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying footnotes. Actual results could differ from those
estimates.
. Translation of Financial Statements of Foreign Entities. The functional
currency of the Company and its subsidiaries is the applicable local currency in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation," while the Company's reporting currency is the U.S.
dollar. Assets and liabilities of the Company and its subsidiaries with
functional currencies other than the U.S. dollar are translated into U.S. dollar
equivalents at the rate of exchange in effect on the balance sheet date. Income
and expenses are translated at the weighted average exchange rates for the year.
Translation gains or losses are recorded as a separate component of
shareholders' equity, and transaction gains and losses are reflected in net
income.
Due to the number of currencies involved, the constant change in currency
exposures, and the substantial volatility of currency exchange rates, the effect
of exchange rate fluctuations upon future operating results could be
significant. To date, the Company has not undertaken hedging transactions to
cover any currency exposure.
. Revenue Recognition. Beginning in January 1, 1998, the Company adopted
Statement of Position 97-2 "Software Revenue Recognition" as amended by
Statement of Position 98-4. The effect of adoption did not have a material
impact on the Company's results of operations.
The Company develops, markets, and supports decision support software tools
for the client/server and intranet market. The Company's revenue is derived
from license fees and charges for services, consisting of post-contract customer
support (PCS), consulting, and training services. Revenue from product
licensing is generally recognized upon delivery of the software product to the
end user, unless the fee is not fixed or determinable or collectibility is not
probable. The Company
50
<PAGE>
considers all arrangements with payment terms extending beyond twelve months and
other arrangements with payment terms longer than normal not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. If collectibility is not considered
probable, revenue is recognized when the fee is collected.
PCS includes telephone support, bug fixes, and rights to upgrades on a
when-and-if available basis. PCS revenue is recognized on a straight-line basis
over the period the PCS is provided. Consulting and training service revenue is
recognized as the services are provided. In software arrangements that include
rights to multiple software products, PCS, and/or other services, the Company
allocates the total arrangement fee among each deliverable based on the relative
fair value of each of the deliverables determined based on vendor-specific
objective evidence.
. Sales Returns and Warranties. The Company's distributors do not have
the right to return merchandise for credit or refund. Any other potential sales
returns are covered by the Company's allowance for sales returns and doubtful
accounts. The Company provides for the costs of warranty when specific problems
are identified. The Company has not experienced any significant warranty claims
to date.
. Net Income Per ADS and Per Share. The Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128),
beginning with the Company's fourth quarter of 1997. FAS 128 replaced the
calculation of primary and fully diluted earnings per ADS and per share with
basic and diluted earnings per ADS and per share. Unlike primary earnings per
ADS and per share, basic earnings per ADS and per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
ADS and per share are very similar to the previously reported fully diluted
earnings per ADS and per share.
Net income per share and per ADS reflect the adjustment in May of 1996 of
the conversion ratio between Ordinary Shares and American Depositary Shares
(ADSs) from two-Ordinary-Shares-to-one-ADS to one-Ordinary-Share-to-one-ADS,
producing the same results as a two-for-one stock split.
. Cash, Cash Equivalents, and Short-Term Investments. The Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. Investments with maturity dates of
greater than three months and less than one year are considered to be short-term
investments. Cash equivalents and short-term investments include marketable
securities that are principally money market funds, certificates of deposit,
term deposits, and commercial paper.
Management classifies investments as held-to-maturity or available-for-sale
at the time of purchase and periodically reevaluates such designation under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (FAS 115). Debt
securities not classified as held-to-maturity are classified as available-for-
sale and are reported at fair value. Unrecognized gains or losses on available-
for-sale securities are included, net of tax, in equity until their disposition.
Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in net interest income.
The cost of securities sold is based on the specific identification method.
51
<PAGE>
All the Company's cash equivalents and short-term investments are
classified as available-for-sale at December 31, 1998 and 1997, and are carried
at amortized cost, which approximates estimated fair value based on quoted
market prices.
. Inventories. Inventories consist principally of software media and
related documentation stated at the lower of cost (first-in, first-out) or
market.
. Software Development Costs. The Company capitalizes eligible software
development costs upon achievement of technological feasibility subject to net
realizable value considerations. Based on the Company's development process,
technological feasibility is generally established upon completion of a working
model. Research and development costs prior to the establishment of
technological feasibility are expensed as incurred. Because the period between
achievement of technological feasibility and the general release of the
Company's products has been of relatively short duration, costs qualifying for
capitalization were insignificant during the years ended December 31, 1998 and
1997. There were no capitalized software development costs at December 31, 1998
and 1997.
. Property and Equipment. Property and equipment are stated at cost.
Office and computer equipment is depreciated using the straight-line method over
estimated useful lives ranging from three to five years. Assets under capital
leases are amortized over the shorter of the asset life or the lease term.
Leasehold improvements are depreciated over the shorter of the asset life or the
remaining lease term.
. American Depositary Shares. On May 10, 1996, the Company amended its
Deposit Agreement with the Bank of New York, changing the ratio at which the
Company's Ordinary Shares are converted into ADSs. Under the original Deposit
Agreement, two Ordinary Shares converted into one ADS. Following the amendment,
one Ordinary Share converts into one ADS. All ADS and per ADS amounts have been
restated to reflect this change.
. Concentration of Credit Risk. The Company sells its products to
various companies across several industries throughout the world. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses. Such losses have been within management's expectations.
The Company generally requires no collateral from its customers. Substantially
all revenues of the Company have been derived from the successive releases of
one product and, as a consequence, any factor adversely affecting any release of
this product would have a material adverse effect on the Company.
. Employee Stock Option Plans. The Company has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations in accounting for its employee
stock options because the alternative fair market value accounting provided for
under Statement of Financial Accounting Standards Statement No. 123, "Accounting
for Stock-Based Compensation" (FAS 123), requires the use of option valuation
models that were not developed for use in valuing employee stock options, and
has provided for additional disclosures required by FAS 123. The Company
generally grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair market value of the shares at the date of
grant, and no compensation expense is recorded. When the exercise
52
<PAGE>
price of the Company's employee stock options is less than the market price of
the underlying shares of the date of the grant, compensation expense is
recognized.
. Advertising Costs. The Company expenses advertising expenses as
incurred. Advertising expenses totaled $1,189,000, $1,672,000, and $1,492,000
for the years ended December 31, 1998, 1997, and 1996, respectively.
. Recent Pronouncements. In March 1998, the Accounting Standards Board
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 is
effective for years beginning after December 15, 1998. SOP 98-1 will require
the capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
currently expenses such costs as incurred. The Company does not believe that
SOP 98-1 will have a significant impact on its consolidated financial position,
results of operations, or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activity" (FAS 133),
which is required to be adopted in years beginning after June 15, 1999. FAS 133
permits early adoption as of the beginning of any fiscal quarter. FAS 133
requires the recognition of all derivatives on the balance sheet at fair value.
Derivatives that are not hedges of underlying transactions must be adjusted to
fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company does not believe that FAS 133 will have a significant impact on its
consolidated financial position, results of operations, or cash flows.
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" (SOP 98-9) was issued in
December 1998 and addresses software revenue recognition as it applies to
certain multiple-element arrangements. SOP 98-9 also amends Statement of
Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2," to
extend the deferral of application of certain passages of Statement of Position
97-2 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years beginning after March 15, 1999. The Company will comply with the
requirements of SOP 98-9 as they become effective and this is not expected to
have a significant effect on the Company's revenues and earnings.
. Reclassifications. Certain prior year amounts have been reclassified
to conform with current year presentation.
53
<PAGE>
2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company's cash and cash equivalents and short-term investments as of
December 31, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash and cash equivalents:
Cash.................................... $48,631 $29,739
Money market funds...................... 23,082 6,769
------- -------
Total cash and cash equivalents....... $71,713 $36,508
======= =======
Short-term investments:
Certificates of deposit................. -- $ 2,505
------- -------
Total short-term investments.......... -- $ 2,505
------- -------
Total............................... $71,713 $39,013
======= =======
</TABLE>
Unrealized holding gains and losses on available-for-sale securities at
December 31, 1998 and 1997, and gross realized gains and losses on sales of
available-for-sale securities during 1998, 1997, and 1996 were insignificant.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997, are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Office and computer equipment................ $ 22,287 $ 16,552
Leasehold improvements....................... 4,421 2,900
-------- --------
Total property and equipment.............. 26,708 19,452
Accumulated depreciation and amortization.... (12,904) (7,432)
-------- --------
Property and equipment, net............... $ 13,804 $ 12,020
======== ========
</TABLE>
Depreciation and amortization expense on property and equipment totaled
$5,385,000, $4,179,000, and $2,075,000 for the years ended December 31, 1998,
1997, and 1996, respectively.
4. COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" (FAS 130), which
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's results of operations or stockholders' equity. FAS 130 requires
unrealized gains or losses on the Company's available-for-sale securities and
the foreign currency translation adjustments, which prior to adoption were
reported separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of FAS 130.
The components of accumulated other comprehensive income (loss), net of
related tax, at December 31 were as follows (in thousands):
54
<PAGE>
<TABLE>
<CAPTION>
INCOME
BEFORE-TAX TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
<S> <C> <C> <C>
Cumulative Translation Adjustment at
December 31, 1996........................... $ (3,807) $ 1,599 $(2,208)
Cumulative Translation Adjustment at
December 31, 1997........................... (11,727) 6,450 (5,277)
Cumulative Translation Adjustment at
December 31, 1998........................... $ 2,786 $(1,142) $ 1,644
</TABLE>
5. INVESTMENT GRANT
In May 1992, the Company was awarded a grant from the French Ministry of
the Economy, Finance, and the Budget. The Company received FF 2,500,000 in
August 1992 and FF 1,500,000 in December 1993 from this grant. Due to the
achievement of certain milestones, this grant was recognized as income and
booked as other income during 1998. Using the end of period exchange rate at
December 31, 1998, the dollar equivalent of the grant recognized was $711,478.
6. CAPITAL LEASE OBLIGATIONS
The Company leases certain of its equipment under capital leases.
Capitalized costs of approximately $523,000 and $491,000 are included in
property and equipment at December 31, 1998 and 1997, respectively. These leased
assets were fully amortized as of December 31, 1998.
7. ACQUISITIONS
During April 1997, the Company exercised its option to acquire 51% of the
outstanding shares of a division of Datamat Ingegneria dei Sistemi S.p.A., its
Italian distributor, in exchange for $1,300,000 in cash. During April 1998, the
Company exercised its option to acquire an additional 29% of the outstanding
shares of its Italian distributor in exchange for $982,000, increasing the
Company's ownership interest to 80%. The cost of the originally purchased
shares and the additional shares has been fully allocated to goodwill, and is
being amortized over a three-year period beginning in April 1997. The purchase
agreement provides for a call/put option that gives the Company the right to
purchase and the minority shareholder the right to require the Company to
purchase the remaining 20% of the shares in 1999 for an amount to be determined
using a net asset and revenue based formula.
During May 1997, the Company acquired all the outstanding shares of Delphi
Software A.G., its Swiss distributor, in exchange for approximately $900,000 in
cash. Goodwill of approximately $1,058,000 was recorded as a result of the
purchase, and is being amortized over three years.
The Company has accounted for both acquisitions using the purchase method.
The operating results of the acquired companies have been included in the
accompanying consolidated financial statements from their dates of acquisition.
Accumulated amortization of goodwill totaled $1,852,000 at December 31, 1998 and
$598,000 at December 31, 1997.
55
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under operating
leases that expire through 2004. Future minimum lease payments under operating
leases due for the fiscal years ending December 31 are as follows (in
thousands):
<TABLE>
<S> <C>
1999............. $ 7,338
2000............. 5,779
2001............. 4,001
2002............. 1,207
2003............. 174
Thereafter....... 70
-------
Total.......... $18,569
=======
</TABLE>
Rent expense under all operating leases was approximately $7,000,000,
$5,800,000, and $3,900,000, for the years ended December 31, 1998, 1997, and
1996, respectively.
The Company leases certain facilities under operating leases that contain
free rent periods. Rent expense under these leases has been recorded on a
straight-line basis over the lease term. The difference between amounts paid
and rent expense is recorded as deferred rent and is included in other current
liabilities. The deferred rent liability under these leases was $618,000 and
$382,000 at December 31, 1998 and 1997, respectively.
The Company is involved in various legal proceedings arising in the
ordinary course of business. The Company believes that the ultimate resolution
of these matters will not have a material effect on the Company's financial
position, results of operations, or cash flows.
9. SHAREHOLDERS' EQUITY
. Dividend Rights. Net income in each fiscal year after deduction for
legal reserves is available for distribution to shareholders of the Company as
dividends, subject to the requirements of French law and the Company's
"statuts," or articles of association. Dividends may also be distributed from
reserves of the Company, subject to approval by the shareholders and certain
limitations. Dividend distributions, if any, will be made in French francs.
Payment of dividends is fixed by the ordinary general meeting of shareholders at
which the annual accounts are approved following recommendations of the Board of
Directors. If net income is sufficient, the Board of Directors has the
authority, subject to French law and regulation and without the approval of
shareholders, to distribute interim dividends. The Company has not distributed
any dividends since its inception.
The Company is required to maintain a legal reserve equal to 10% of the
aggregate nominal value of its share capital, funded by a transfer of at least
5% of the Company's net income per year to such legal reserve. The legal
reserve balance requirement was $317,000 and $308,000 as of December 31, 1998
and 1997, respectively. The legal reserve is distributable only upon the
liquidation of the Company. The Company's "statuts" also provide that
distributable profits, after deduction of any amounts required to be allocated
to the legal reserve, can be allocated to one or more special purpose reserves
or distributed as dividends as may be determined by the general meeting of
shareholders.
56
<PAGE>
. Liquidation Rights. In the event that the Company is liquidated, the
assets of the Company remaining after payment of debts, liquidation expenses,
and all remaining obligations will be distributed first to repay in full the
capital of any outstanding shares. The surplus, if any, will then be
distributed pro rata among the shareholders in proportion to the nominal value
of their share holdings and subject to special rights granted to holders of
priority shares, if any.
. Preemptive Subscription Rights. Shareholders have preemptive rights to
subscribe for additional shares issued by the Company for cash on a pro rata
basis. Shareholders may waive such preemptive subscription rights at an
extraordinary general meeting of shareholders under certain circumstances.
Preemptive subscription rights, if not previously waived, are transferable
during the subscription period relating to a particular offer of shares.
. Repurchase of Shares. Pursuant to French company law, the Company may
not make open market repurchases of its shares or otherwise acquire shares
except (a) to reduce its share capital by subscription and cancellation of such
shares under certain circumstances with approval of the shareholders at an
extraordinary general meeting, (b) to obtain shares for distribution to
employees under an approved profit-sharing or stock option plan, and (c) for the
purpose authorized by shareholders, such as the stabilization of a quotation on
a securities exchange, the use of excess cash balances, or as a consideration in
the context of an acquisition, after obtaining approval from the shareholders at
an extraordinary general meeting. Purchases under (c) may only be effected by
companies listed on a French Stock exchange ("marche reglenente"). The amounts
repurchased under (b) and (c) may not, in either case, result in the Company
holding more than 10% of the then outstanding shares.
. Stock Option Plans. The Company's 1991 and 1993 Stock Option Plans
(the 1991 and 1993 Plans) provide for the grant of stock options to certain
employees and executive officers of the Company. Under these plans, the Board of
Directors determines the vesting and exercise of the option grants. Generally
options granted under the 1991 and 1993 Plan vested at a rate of 25% per year
subject to a minimum of one year of continued service with the Company. The
exercise price per share, which was fixed at the date of grant, was determined
by a formula which was based on the share price applicable with respect to the
last subscription of the capital of the Company prior to the particular grant
date of the options granted to the employee. The share price formula also took
into consideration the number of days intervening between such subscription date
and the particular grant date and the revenues generated by the Company in the
four quarters preceding such grant date. No additional grants have been made
under the 1991 and 1993 Plans since the adoption of the 1994 Plan, and all
options available for grant under these plans have expired as of December 31,
1998.
On August 17, 1994, the shareholders of the Company authorized the creation
of a new stock option plan (the 1994 Plan) pursuant to which the Board of
Directors was authorized to issue options to subscribe for 1,000,000 shares. On
June 13, 1996, the shareholders of the Company authorized an additional
1,000,000 shares reserved for issuance under the 1994 Plan. On June 19, 1997,
the shareholders of the Company authorized an additional 1,000,000 shares
reserved for issuance under the 1994 Plan. On June 18, 1998, the shareholders
of the Company authorized an additional 750,000 shares reserved for issuance
under the 1994 Plan. The 1994 Plan was approved by the Company's shareholders
at the 1995 Annual Meeting and is intended to qualify as an incentive stock
option plan within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended. The Board of
57
<PAGE>
Directors determines the vesting and exercise of the option grants. Generally
options granted under the plan vest at a rate of 25% per year subject to a
minimum of one year of continued service with the Company. The 1994 Plan
provides that the exercise price of options granted will be based on the closing
price of the ADSs on the Nasdaq National Market, after converting the dollar
closing price into French francs at the Noon Buying Rate on the date prior to
such grant. The options granted under the 1994 Plan are exercisable up to ten
years from the date of grant (other than options granted to employees in the
United Kingdom, which have a term of seven years less one day).
Due to a decline in the market price of the Company's shares, the Board of
Directors implemented an Option Exchange Program in November 1996 (the 1996
Program), under which optionees were offered the opportunity to exchange their
outstanding options for new options at a lower exercise price. The 1996 Program
was restricted to outstanding options with an exercise price above 103 French
francs per share (equivalent to approximately $18 per share based on the
exchange rate at December 31, 1998). Members of the senior management of the
Company were not eligible to participate in the 1996 Program. In addition, in
consideration for the new lower exercise price, participating employees were
required to relinquish their rights to 10% of the number of underlying shares.
Approximately 144,000 options were cancelled and 130,000 options were granted as
a result of the 1996 Exchange Program.
The Board of Directors approved a second Option Exchange Program on July
28, 1997. The exchange period ended on September 2, 1997 (the 1997 Program).
All employees, including executive officers and officers, were eligible to
participate in the 1997 Program, with the exception, however, of the Chief
Executive Officer, Chief Operating Officer, and Chief Financial Officer. Under
the 1997 Program, participating employees were permitted to exchange one or more
of their outstanding options with an exercise price above 50 French francs per
share (equivalent to approximately $8 per share based on the exchange rate at
September 2, 1997, and equal to the fair market value of the stock as of that
date), on a one-for-one basis for new options. In consideration for the new
exercise price, the number of shares vested under the new option for the entire
twelve months following the exchange date was determined to be equal to only 50%
of the shares vested under the old option as of the exchange date. As of
September 2, 1998, the new options became exercisable to the same extent as the
old option would have been, had no exchange taken place. Specific
exercisability features of new options granted to French employees were provided
in order to eliminate any potential social security costs arising from the
exercise of the new options and disposition of underlying shares prior to the
expiration of a five-year period from the date of the exchange. For these
optionees, it was provided that no repriced option may be exercised prior to
September 2, 1999. After September 2, 1999, the new options shall be
exercisable to the same extent as the old options would have been had no
exchange taken place. Approximately 1,141,000 options were cancelled and
granted as a result of the 1997 Exchange Program.
In December 1996, the French parliament adopted a law that requires French
companies to pay French social contributions and certain salary-based taxes of
up to 45% for France-based employees on the difference between the exercise
price of a stock option and the fair market value of the underlying shares on
the exercise date, if the beneficiary disposes of the shares before a five-year
period following the grant of the option. The law, amended in July 1998,
applies to all options granted on or after January 1, 1997.
58
<PAGE>
The Company has not recorded a liability for social charges on options
granted prior to January 1, 1997 due to the legislation passed in July 1998,
which legislation removed the retroactivity of social charges on options granted
prior to such date. Therefore, all options granted prior to January 1, 1997
have no social charges due.
Options granted on or after January 1, 1997 are subject to social charges
on an exercise gain if the shares are sold or disposed of within five years from
the date of grant. Currently, for options issued after January 1, 1997, holders
of such options are not permitted to sell or dispose their options within five
years from the date of grant and, therefore, no social charges are due on these
options.
. Employee Stock Purchase Plans. The Company has an Employee Stock
Purchase Plan intended to qualify under the provisions of sections 421 and 423
of the 1986 Internal Revenue Code of the United States under which an additional
165,000 shares were authorized for issuance by the Board in June 1998. Under
the terms of this plan, employees may contribute via payroll deductions up to
10% of their compensation to purchase shares at a price equal to 85% of the
lower of the fair market value as of the beginning or end of the six-month
offering period. The Company issued 90,952 shares under this plan during 1998.
In addition, the Company also has an Employee Stock Purchase Plan available
to the Company's French employees as part of the Employee Savings Plan, which is
qualified under the provisions of French tax regulations. Under this plan,
135,000 shares have been authorized for issuance. Stock purchases are limited
under this plan to 10% of an employee's compensation received during the
offering period. The Company issued 67,812 shares under the Employee Savings
Plan during 1998.
. Stock Based Compensation. Pro forma information regarding net income
and net income per share is required by FAS 123, and has been determined as if
the Company had accounted for its employee stock options under the fair value
method of FAS 123. The fair value for these options for 1998, 1997, and 1996
was estimated at the date of grant using a Black-Scholes option pricing model
assuming no dividends, risk-free weighted average interest rates of 5%, 6%, and
6% for 1998, 1997, and 1996, respectively, and a weighted average expected
option life of six months and three years for options granted under Employee
Stock Purchase Plans and Stock Options Plans, respectively. The volatility
factor of the expected market price of the Company's ordinary shares was assumed
to be 77%, 70%, and 60% for 1998, 1997, and 1996, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. The Black-Scholes model requires the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because the changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands, except for net income and pro
forma net income per share information):
59
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Net income as reported...................... $ 10,287 $ 2,877 $ 5,160
Pro forma net income........................ $ 3,689 $ 291 $ 836
Net income per share as reported--basic..... $ 0.61 $ 0.17 $ 0.32
Pro forma net income per share--basic....... $ 0.22 $ 0.02 $ 0.05
Net income per share as reported--diluted... $ 0.58 $ 0.17 $ 0.30
Pro forma net income per share--diluted..... $ 0.21 $ 0.02 $ 0.05
</TABLE>
The effects on pro forma disclosure of applying FAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because FAS 123 is applicable only to options granted after December 31, 1994,
the pro forma effect will not be fully reflected until approximately 1999.
60
<PAGE>
A summary of the Company's stock option activity under the 1991 and 1993
Plans, and the 1994 Plan, and related information for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
WEIGHTED
AVERAGE PRICE
OPTIONS NUMBER PER SHARE
AVAILABLE OF SHARES (IN FF)
----------- ----------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1995................. 721,151 1,378,131 54.93
Shares reserved............................. 1,000,000 -- --
Granted..................................... (1,097,326) 1,097,326 108.84
Canceled.................................... 501,856 (501,856) 129.63
Exercised................................... -- (211,511) 25.12
----------- -----------
Balance at December 31, 1996................. 1,125,681 1,762,090 70.80
Shares reserved............................. 1,000,000 -- --
Granted..................................... (2,176,576) 2,176,576 54.17
Canceled.................................... 1,464,038 (1,464,038) 82.54
Exercised................................... -- (285,366) 9.20
----------- -----------
Balance at December 31, 1997................. 1,413,143 2,189,262 54.32
Shares reserved............................. 750,000 -- --
Granted..................................... (1,487,725) 1,487,725 84.89
Canceled.................................... 635,204 (635,204) 67.85
Exercised................................... -- (319,014) 49.31
Expired (1991 and 1993 Option Plans)........ (527,174) -- --
----------- ----------- -----------
Balance at December 31, 1998................. 783,448 2,722,769 68.49
=========== =========== ===========
</TABLE>
Options to purchase approximately 778,000 shares were exercisable at
December 31, 1998.
The following table summarizes the status of the Company stock options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
-------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OF SHARES IN YEARS PRICE OF SHARES PRICE
- -------------------------- ----------- ------------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FF 1.78-FF 11.60 62,577 4.2 FF 7.52 62,577 FF 7.52
FF 24.56-FF 55.33 1,070,054 8.0 FF 47.54 547,403 FF 47.30
FF 67.75-FF 98.59 1,562,437 8.9 FF 84.29 146,695 FF 83.64
FF 110.02-FF 114.49 27,701 6.3 FF 13.33 20,943 FF 113.34
--------- --- ------- ------
All options 2,722,769 8.4 FF 68.49 777,618 FF 52.74
========= === ===== ======= =====
</TABLE>
For certain options granted under the 1991 and 1993 Plans, the Company
recognized as compensation the excess of the fair value of the common stock
issuable upon exercise of such options over the aggregate exercise prices of
such options. The compensation expense was amortized rata-
61
<PAGE>
bly over the vesting period of the options. The compensation expense related to
options granted was $0, $62,000, and $125,000 for the years ended December 31,
1998, 1997, and 1996, respectively.
. Warrants. On April 25, 1995, the Board of Directors approved the
issuance of warrants to purchase 12,000 shares to a Director with an exercise
price of FF 72.79 per share, vesting at a rate of 33.33% per year from June 22,
1995. The warrants were issued in June 1995 after formal shareholder approval.
The difference between the exercise price and the estimated fair value of such
warrants was immaterial. As of December 31, 1998, all of such warrants were
outstanding.
On April 28, 1997, the Board of Directors approved the issuance of warrants
to purchase 12,000 shares to four Directors, representing 48,000 shares in
total, with an exercise price of FF 55.33 per share. These warrants vest monthly
over three years commencing January 1, 1997. The warrants were issued in June
1997 after formal shareholder approval. The difference between the exercise
price and the estimated fair value of such warrants was immaterial. As of
December 31, 1998, all of such warrants were outstanding.
On April 28, 1998, the Board of Directors approved the issuance of warrants
to purchase 70,000 shares to five directors. The warrants were issued on June
18, 1998 after formal shareholder approval and have an exercise price of FF
96.66 per share, representing the French francs equivalent of the closing price
of one American Depositary Share of the Company as quoted on the Nasdaq National
Market on June 17, 1998. These warrants vest annually over the remaining term of
office of the recipient. As of December 31, 1998, all such warrants were
outstanding.
10. EMPLOYEE SAVINGS PLANS
During 1991, we established an Employee Savings Plan that allows voluntary
tax contributions by all full-time employees who are employed by our French
entity and have completed at least six months of service with us. In 1995, the
Employee Savings Plan was amended to allow these employees to purchase Ordinary
Shares of the Company. Eligible employees may contribute up to 25% of pretax
earnings to the Employee Savings Plan, of which a maximum of 10% of pre-tax
earnings may be used to purchase shares of the Company. See Note 9.
Shareholders' Equity Employee Stock Purchase Plans. The Company does not match
employee contributions.
The Company is subject to a Statutory Profit Sharing Plan (Statutory Plan)
for substantially all of the employees of its French entity. Contributions
under the Statutory Plan are based on a formula prescribed by French law. In
addition, employees of the Company's French entity may receive contributions
from a separate profit sharing plan sponsored by the Company (Company Plan).
Contributions under the Company Plan are based on the achievement of certain
goals established by the Board of Directors. Contributions under the Company
Plan are reduced by contributions required to be made under the Statutory Plan.
The Company has accrued for all contributions required by the Company for the
Plans as of December 31, 1997 and December 31, 1998.
The Company's subsidiary in the United States has a defined contribution
401(k) plan covering substantially all of its employees. In 1998 and 1997,
participants could elect to contribute up to 15% of their compensation to this
plan up to the statutory maximum amount. The Company
62
<PAGE>
could make discretionary contributions to this plan determined solely by the
Board of Directors. The Company has not made any contributions to this plan
through December 31, 1998.
Effective January 1999, the U.S. 401(k) plan was amended whereby the
Company will match employee payroll contributions at a rate of $0.50 for each
U.S. dollar contributed by a participant up to an annual employer matching
contribution of $1,500 per participant per year. The employer contributions
vest over three (3) years based on a participant working a minimum of 1,000
hours during each plan year. Employees receive retroactive vesting credit based
on their date of hire. In addition, the maximum deferral percentage allowed
under the 401(k) plan has increased from 15% to 20% subject to the statutory
maximum amount of $10,000.
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income per ADS and per share (in thousands, except per ADS and per share
amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income.......................................................... $ 10,287 $ 2,877 $ 5,160
-------- -------- --------
Denominator:
Weighted average ADSs and shares outstanding........................ 16,966 16,624 16,265
-------- -------- --------
Denominator for basic earnings per ADS and per share................ 16,966 16,624 16,265
Incremental common shares attributable to shares exercisable
under employee stock plans and warrants.............................. 775 252 659
-------- -------- --------
Denominator for diluted earnings per ADS and per share................ 17,741 16,876 16,924
======== ======== ========
Net income per ADS and per share--basic............................... $ 0.61 $ 0.17 $ 0.32
======== ======== ========
Net income per ADS and per share--diluted............................. $ 0.58 $ 0.17 $ 0.30
======== ======== ========
</TABLE>
12. INCOME TAXES
Income before provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
France................. $ 5,039 $ 2,589 $ 5,582
Rest of world.......... 12,816 3,216 3,315
-------- -------- --------
Total................ $ 17,855 $ 5,805 $ 8,897
======== ======== ========
</TABLE>
63
<PAGE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Current:
France........................................ $ 1,913 $1,288 $1,973
Rest of world................................. 8,172 2,300 1,756
------- ------ ------
Total current................................ 10,085 3,588 3,729
Deferred:
France........................................ 204 (254) 292
Rest of world................................. (2,973) (150) (284)
------- ------ ------
Total deferred............................... (2,769) (404) 8
------- ------ ------
$ 7,316 $3,184 $3,737
======= ====== ======
</TABLE>
Tax benefits resulting from the exercise of nonqualified stock options and
the disqualifying disposition of shares acquired under the Company's incentive
stock option plan reduced taxes currently payable as shown above by
approximately $400,000 in 1998. Such benefits were credited to capital in excess
of par value when realized.
A reconciliation of income taxes computed at the French statutory rate
(36.7% in 1996 and 41.7% in 1997 and 1998) to the provision for income taxes is
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Income tax provision computed at the French statutory rate................ $7,439 $2,420 $3,261
Operating losses not utilized............................................. 9 779 228
Non-deductible provisions................................................. 165 149 340
Income at lower tax rates................................................. (598) -- --
Other individually immaterial items....................................... 301 (164) (92)
------ ------ ------
$7,316 $3,184 $3,737
====== ====== ======
</TABLE>
Deferred taxes reflect the net tax effects of loss carryforwards and
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred taxes consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $ 3,557 $ 4,283
Deferred revenue............................................... 2,054 986
Accrued bonuses and compensation............................... 396 363
Allowance for doubtful accounts................................ 293 415
Deferred rent.................................................. 251 --
Other reserves and accruals not currently deductible........... 1,986 800
Other.......................................................... 631 229
------- -------
Total deferred tax assets.................................... 9,168 7,076
Valuation allowance.......................................... (4,892) (5,649)
------- -------
4,276 1,427
Deferred tax liabilities:
Individually immaterial items.................................. (318) (242)
------- -------
Net deferred tax assets...................................... $ 3,958 $ 1,185
======= =======
</TABLE>
64
<PAGE>
Approximately $3.1 million of the valuation allowance is attributed to
stock options, the benefit of which will be credited to additional paid-in
capital when realized.
As of December 31, 1998, the Company has U.S. federal and state net
operating loss carryforwards of approximately $6.0 million and $1.6 million,
respectively. These net operating loss carryforwards will expire in the years
1999 through 2019, if not utilized. The Company also has German, Singaporean,
and Canadian net operating loss carryforwards of approximately $2.5 million,
$0.6 million, and $0.3 million respectively. Tax losses in Singapore and Germany
may be carried forward indefinitely. Tax losses in Canada may be carried forward
for seven years.
13. SEGMENT AND GEOGRAPHIC INFORMATION
. Segment. The Company and its subsidiaries operate in one reportable
industry segment, the development, marketing, and support of enterprisewide
decision support tools. The Company makes key decisions and evaluates
performance of the Company based on this single industry segment.
. Geography. Operations outside of France consist principally of sales,
marketing, finance, customer support, and to a lesser extent, research and
development activities. Transfers between geographic areas are accounted for at
amounts that are generally above cost and consistent with the rules and
regulations of governing tax authorities. Such transfers are eliminated in the
consolidated financial statements. Identifiable assets are those assets that can
be directly associated with a particular geographic area. The following is a
summary of operations within geographic area:
<TABLE>
<CAPTION>
TRANSFERS
REVENUES FROM BETWEEN
UNAFFILIATED GEOGRAPHIC TOTAL IDENTIFIABLE
CUSTOMERS AREAS REVENUES ASSETS
------------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1998:
France $ 30,472 $ 28,967 $ 59,439 $ 79,360
United Kingdom 37,858 -- 37,858 30,171
Rest of Europe 39,109 -- 39,109 33,447
North America 49,453 -- 49,453 28,048
Asia Pacific 10,002 -- 10,002 6,080
Eliminations -- (28,967) (28,967) (39,021)
-------- -------- -------- --------
$166,894 $ -- $166,894 $138,085
======== ======== ======== ========
1997:
France $ 27,492 $ 17,744 $ 45,236 $ 63,395
United Kingdom 23,394 -- 23,394 16,728
Rest of Europe 21,633 -- 21,633 25,093
North America 34,905 -- 34,905 24,641
Asia Pacific 6,829 -- 6,829 5,593
Eliminations -- (17,744) (17,744) (41,110)
-------- -------- -------- --------
$114,253 $ -- $114,253 $ 94,340
======== ======== ======== ========
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
TRANSFERS
REVENUES FROM BETWEEN
UNAFFILIATED GEOGRAPHIC TOTAL IDENTIFIABLE
CUSTOMERS AREAS REVENUES ASSETS
------------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1996:
France $ 24,987 $ 16,098 $ 41,085 $ 60,661
United Kingdom 17,198 -- 17,198 12,151
Rest of Europe 10,274 -- 10,274 7,140
North America 28,429 -- 28,429 18,450
Asia Pacific 4,249 -- 4,249 3,315
Eliminations -- (16,098) (16,098) (20,947)
--------- --------- -------- --------
$ 85,137 $ -- $ 85,137 $ 80,770
========= ========= ======== ========
</TABLE>
14. RELATED PARTY TRANSACTIONS
During June 1997, the Company loaned $200,000 to one of its executive
officers. The loan was secured by a deed of trust, and bore interest at the rate
of 6.23% per annum. Principal and interest were initially due on July 1, 1999.
The loan was repaid to the Company in 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is hereby incorporated herein by reference
from the section entitled "Compliance with Section 16(a) of the Exchange Act" in
the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.
66
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Item 8 of this Form 10-K.
2. Financial Statement Schedules
The following financial statement schedule of the Company for each of the
years ended December 31, 1998, 1997, and 1996 is filed as part of this Form 10-K
and should be read in conjunction with the Consolidated Financial Statements,
and related notes thereto, of the Company.
PAGE NUMBER
-----------
Schedule II-Valuation and Qualifying Accounts 71
Schedules other than those listed above have been omitted since they are
either not required, not applicable, or the information is otherwise included.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed as part
of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
67
<PAGE>
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 17, 1999 BUSINESS OBJECTS S.A.
By: /s/ Bernard Liautaud
------------------------------------------
Bernard Liautaud
Chairman of the Board, President,
and Chief Executive Officer
Know all Person by These Presents, that each person whose signature appears
below constitutes and appoints Bernard Liautaud and Clifton T. Weatherford,
jointly and severally, his attorneys-in fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------------------- --------------
<S> <C> <C>
/s/ Bernard Liautaud Chairman of the Board, President and Chief March 17, 1999
- ------------------------------------- Executive Officer (Principal Executive Officer)
Bernard Liautaud
/s/ Clifton T. Weatherford Chief Financial Officer and Senior Group Vice March 17, 1999
- ------------------------------------- President (Principal Financial and Accounting
Clifton T. Weatherford Officer)
/s/ Bernard Charles Director March 17, 1999
- -------------------------------------
Bernard Charles
/s/ Arnold Silverman Director March 17, 1999
- -------------------------------------
Arnold Silverman
/s/ Philippe Claude Director March 17, 1999
- -------------------------------------
Philippe Claude
/s/ Vincent Worms Director March 17, 1999
- -------------------------------------
Vincent Worms
/s/ Albert Eisenstat Director March 17, 1999
- -------------------------------------
Albert Eisenstat
</TABLE>
68
<PAGE>
INDEX TO EXHIBITS
Item 14(a). Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.0* Status or Charter of the Company (English translation), is incorporated herein by reference to
Exhibit 3.1 filed with the Company's Registration Statement on Form S-8 filed with the SEC on
December 11, 1997 (File No. 333-42063).
3.1* Bylaws of the Company, as amended, dated February 10, 1998, is incorporated herein by reference
to Exhibit 3.1 filed with the Company's 1997 Form 10-K filed with the SEC.
4.0 Form of Deposit Agreement, as amended and restated as of December 30, 1998, among Business
Objects S.A., the Bank of New York as Depositary, and holder from time to time of American
Depositary Shares issued thereunder, and Exhibit A to Deposit Agreement.
10.0* Lincoln Park Lease Agreement by and between Metropolitan Life Insurance Company and the Company
dated January 18, 1996, as amended, and assignment of interest to Speiker Properties, L.P., is
incorporated herein by reference to Exhibit 10.0 filed with the Company's 1997 Form 10-K filed
with the SEC.
10.1* Office Building Lease by and between Nabarro Nathanson, D.J. Downing, J.M. Jones Properties
Limited and the Company dated March 6, 1996 is incorporated herein by reference to Exhibit 10.1
filed with the Company's 1997 Form 10-K filed with the SEC.
10.2* Commercial Lease by and between Foncierne Chaptal and the Company dated June 4, 1996 is
incorporated herein by reference to Exhibit 10.2 filed with the Company's 1997 Form 10-K filed
with the SEC.
10.3* 1991 Stock Option Plan is incorporated herein by reference to Exhibit 10.2 filed with the
Company's Registration Statement on Form F-1 filed with the SEC on September 20, 1994 (File No.
33-83052).
10.4* 1993 Stock Option Plan is incorporated herein by reference to Exhibit 10.3 filed with the
Company's Registration Statement on Form F-1 filed with the SEC on September 20, 1994 (File No.
33-83052).
10.5* 1994 Stock Option Plan is incorporated herein by reference to Exhibit 4.2 filed with the
Company's Registration Statement on Form F-1 filed with the SEC on September 20, 1994 (File No.
33-83052).
10.6* 1995 International Employee Stock Purchase Plan, amended, is incorporated herein by reference
to Exhibit 4.2 filed with the Company's Registration Statement on Form S-8 filed with the SEC
on December 11, 1997 (File No. 333-42063).
10.7* French Employee Savings Plan is incorporated herein by reference to Exhibit 4.3 filed with the
Company's Registration Statement on Form S-8 filed with the SEC on December 11, 1997 (File No.
333-42063).
10.8* Summary: in English of 1992 Grant by the French Ministry of the Economy, Finance and the Budget
is incorporated herein by reference to Exhibit 10.4 filed with the Company's Registration
Statement on Form F-1 filed with the SEC on September 20, 1994 (File No. 33-83052).
10.9* Stock subscription warrant for Albert Eisenstat is incorporated herein by reference to Exhibit
4.2 filed with the Company's Registration Statement on Form S-8 filed with the SEC on September
5, 1995 (File No. 333-96598).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.10* Stock subscription warrant for Arnold Silverman is incorporated herein by reference to Exhibit
4.3 filed with the Company's Registration Statement on Form S-8 filed with the SEC on September
5, 1995 (File No. 333-96598).
10.11* Stock subscription warrant for Philippe Claude dated June 19, 1997, is incorporated herein by
reference to Exhibit 4.2 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on December 11, 1997 (File No. 333-42059).
10.12* Stock subscription warrant for Albert Eisenstat dated June 19, 1997, is incorporated herein by
reference to Exhibit 4.3 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on December 11, 1995 (File No. 333-42059).
10.13* Stock subscription warrant for Arnold Silverman dated June 19, 1997, is incorporated herein by
reference to Exhibit 4.4 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on December 11, 1995 (File No. 333-42059).
10.14* Stock subscription warrant for Vincent Worms dated June 19, 1997, is incorporated herein by
reference to Exhibit 4.5 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on December 11, 1995 (File No. 333-42059).
10.15* Value Added Reseller Agreement for Visigenics Products with Reseller Rights dated March 27,
1997, by and between the Company is incorporated herein by reference to Exhibit 10.16 with the
Company's 1997 Form 10-K filed with the SEC.
10.16* Stock subscription warrant for Bernard Charles dated June 18, 1998, is incorporated herein by
reference to Exhibit 4.2 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on October 9, 1998 (File No. 333-65549).
10.17* Stock subscription warrant for Philippe Claude dated June 18, 1998, is incorporated herein by
reference to Exhibit 4.3 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on October 9, 1998 (File No. 333-65549).
10.18* Stock subscription warrant for Albert Eisenstat dated June 18, 1998, is incorporated herein by
reference to Exhibit 4.4 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on October 9, 1998 (File No. 333-65549).
10.19* Stock subscription warrant for Arnold Silverman dated June 18, 1998, is incorporated herein by
reference to Exhibit 4.5 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on October 9, 1998 (File No. 333-65549).
10.20* Stock subscription warrant for Vincent Worms dated June 18, 1998, is incorporated herein by
reference to Exhibit 4.6 filed with the Company's Registration Statement on Form S-8 filed with
the SEC on October 9, 1998 (File No. 333-65549).
10.21+ License, Distribution, and Marketing Agreement by and between the Company and Microsoft
Corporation, dated June 23, 1998.
21.0 List of Subsidiaries of the Company.
23.0 Consent of Ernst & Young, LLP, Independent Auditors.
24.0 Power of Attorney is herein referenced to the signature page of this Annual Report on Form 10K.
27.0 Financial Data Schedule.
</TABLE>
- ---------------------------
* Previously filed.
+ Confidential treatment for portions of this exhibit has been requested.
<PAGE>
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS--BUSINESS OBJECTS S.A.
<TABLE>
<CAPTION>
BALANCE CHARGED BALANCE
AT BEGINNING TO COSTS AT END
OF PERIOD AND EXPENSES WRITE-OFFS OF PERIOD
------------ ------------ ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ending December 31, 1995 $ 440 $419 -- $ 859
Year ending December 31, 1996 $ 859 $201 -- $1,060
Year ending December 31, 1997 $1,060 $626 $118 $1,568
Year ending December 31, 1998 $1,568 $585 $481 $1,672
</TABLE>
<PAGE>
EXHIBIT 4.0
====================================================
BUSINESS OBJECTS S.A.
AND
THE BANK OF NEW YORK
AS DEPOSITARY
AND
OWNERS AND HOLDERS OF AMERICAN DEPOSITARY RECEIPTS
AMENDED AND RESTATED DEPOSIT AGREEMENT
DATED AS OF MAY 8, 1996
AS AMENDED AND RESTATED AS OF DECEMBER 30, 1998
====================================================
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1. DEFINITIONS......................................................................... 3
SECTION 1.1 American Depositary Share......................................................... 3
SECTION 1.2 Commission........................................................................ 4
SECTION 1.3 Custodian......................................................................... 4
SECTION 1.4 Deposit Agreement................................................................. 4
SECTION 1.5 Depositary; Corporate Trust Office................................................ 4
SECTION 1.6 Deposited Securities.............................................................. 5
SECTION 1.7 Dollars; Francs................................................................... 5
SECTION 1.8 Foreign Registrar................................................................. 5
SECTION 1.9 Issuer............................................................................ 5
SECTION 1.10 Owner............................................................................. 5
SECTION 1.11 Receipt........................................................................... 5
SECTION 1.12 Registrar......................................................................... 5
SECTION 1.13 Restricted Securities............................................................. 6
SECTION 1.14 Securities Act of 1933............................................................ 6
SECTION 1.15 Shares............................................................................ 6
ARTICLE 2. FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND DELIVERY,
TRANSFER AND SURRENDER OF RECEIPTS................................................................. 6
SECTION 2.1 Form and Transferability of Receipts.............................................. 6
SECTION 2.2 Deposit of Shares................................................................. 7
SECTION 2.3 Execution and Delivery of Receipts................................................ 8
SECTION 2.4 Transfer of Receipts; Combination and Split-up of Receipts........................ 9
SECTION 2.5 Surrender of Receipts and Withdrawal of Shares.................................... 9
SECTION 2.6 Limitations on Execution and Delivery, Transfer and Surrender of Receipts......... 10
SECTION 2.7 Lost Receipts, etc................................................................ 11
SECTION 2.8 Cancellation and Destruction of Surrendered Receipts.............................. 11
SECTION 2.9 Pre-Release of Receipts........................................................... 11
ARTICLE 3. CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS........................................... 12
SECTION 3.1 Filing Proofs, Certificates and Other Information................................. 12
SECTION 3.2 Liability of Owner for Taxes...................................................... 13
SECTION 3.3 Warranties on Deposit of Shares................................................... 13
SECTION 3.4 Information Requests.............................................................. 13
SECTION 3.5 Disclosure of Interest............................................................ 14
ARTICLE 4. THE DEPOSITED SECURITIES............................................................ 14
SECTION 4.1 Cash Distributions................................................................ 14
SECTION 4.2 Distributions Other Than Cash, Shares or Rights................................... 15
SECTION 4.3 Distributions in Shares........................................................... 15
SECTION 4.4 Rights............................................................................ 16
SECTION 4.5 Conversion of Foreign Currency.................................................... 17
SECTION 4.6 Fixing of Record Date............................................................. 18
SECTION 4.7 Voting of Shares.................................................................. 19
SECTION 4.8 Changes Affecting Deposited Securities............................................ 20
SECTION 4.9 Reports........................................................................... 20
SECTION 4.10 Lists of Owners................................................................... 21
SECTION 4.11 Withholding....................................................................... 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 5. THE DEPOSITARY, THE CUSTODIANS AND THE ISSUER....................................... 22
SECTION 5.1 Maintenance of Office and Transfer Books by the Depositary........................ 22
SECTION 5.2 Prevention or Delay in Performance by the Depositary or the Issuer................ 22
SECTION 5.3 Obligations of the Depositary, the Custodian and the Issuer....................... 23
SECTION 5.4 Resignation and Removal of the Depositary......................................... 24
SECTION 5.5 The Custodians.................................................................... 25
SECTION 5.6 Notices and Reports............................................................... 26
SECTION 5.7 Distribution of Additional Shares, Rights, etc.................................... 26
SECTION 5.8 Indemnification................................................................... 27
SECTION 5.9 Charges of Depositary............................................................. 28
SECTION 5.10 Retention of Depositary Documents................................................. 29
SECTION 5.11 Exclusivity....................................................................... 29
SECTION 5.12 List of Restricted Securities Owners.............................................. 29
ARTICLE 6. AMENDMENT AND TERMINATION........................................................... 29
SECTION 6.1 Amendment......................................................................... 29
SECTION 6.2 Termination....................................................................... 30
ARTICLE 7. MISCELLANEOUS....................................................................... 31
SECTION 7.1 Counterparts...................................................................... 31
SECTION 7.2 No Third Party Beneficiaries...................................................... 31
SECTION 7.3 Severability...................................................................... 31
SECTION 7.4 Holders and Owners as Parties; Binding Effect..................................... 31
SECTION 7.5 Notices........................................................................... 31
SECTION 7.6 Governing Law..................................................................... 32
SECTION 7.7 Compliance with U.S. Securities Laws.............................................. 32
</TABLE>
-2-
<PAGE>
DEPOSIT AGREEMENT
AMENDED AND RESTATED DEPOSIT AGREEMENT dated as of May 8, 1996, as amended
and restated as of December 30, 1998, further amending and restating that
certain Deposit Agreement dated as of September 22, 1994, among BUSINESS OBJECTS
S.A., a societe anonyme incorporated under the laws of The Republic of France
(herein called the Issuer), THE BANK OF NEW YORK, a New York banking corporation
(herein called the Depositary), and all Owners and holders from time to time of
American Depositary Receipts issued hereunder.
W I T N E S S E T H:
WHEREAS, the Issuer desires to provide, as hereinafter set forth in this
Deposit Agreement (as hereinafter defined), for the deposit of Shares (as
hereinafter defined) of the Issuer from time to time with the Depositary or with
the Custodian (as hereinafter defined) as agent of the Depositary for the
purposes set forth in this Deposit Agreement, for the creation of American
Depositary Shares (as hereinafter defined) entitling the Owners thereof to
receive the Shares so deposited and for the execution and delivery of American
Depositary Receipts (as hereinafter defined) evidencing the American Depositary
Shares; and
WHEREAS, the American Depositary Receipts are to be substantially in the
form of Exhibit A annexed hereto, with appropriate insertions, modifications and
omissions, as hereinafter provided in this Deposit Agreement; and
WHEREAS, this Deposit Agreement and the form of American Depositary Receipt
annexed hereto as Exhibit A are hereby amended and restated in accordance with
Section 6.1 hereof.
NOW, THEREFORE, in consideration of the premises, it is agreed by and
between the parties hereto as follows:
ARTICLE 1. DEFINITIONS.
The following definitions shall for all purposes, unless otherwise clearly
indicated, apply to the respective terms used in this Deposit Agreement:
SECTION 1.1 American Depositary Share.
--------------------------
The term "American Depositary Share" shall mean the security entitling
the Owner thereof to an undivided interest in the Deposited Securities and
evidenced by
<PAGE>
the Receipts issued hereunder. Each American Depositary Share shall entitle the
Owner thereof to receive one Share, until there shall occur a distribution upon
Deposited Securities covered by Section 4.3 or a change in Deposited Securities
covered by Section 4.8 with respect to which additional Receipts are not
executed and delivered, and thereafter American Depositary Shares shall entitle
the Owner thereof to receive the amount of Shares or Deposited Securities
specified in such Sections.
SECTION 1.2 Commission.
-----------
The term "Commission" shall mean the Securities and Exchange
Commission of the United States or any successor governmental agency in the
United States.
SECTION 1.3 Custodian.
----------
The term "Custodian" shall mean, as of the date hereof, the designated
Paris offices of Banque Nationale de Paris, 14, Rue Bergere, 75009 Paris,
France; Banque Paribas, 12 BD de la Madeleine, 75009 Paris, France; Banque
Worms, 45 Boulevard Haussmann, 75009 Paris, France; Credit Lyonnais, 19
Boulevard des Italiens BC, 75002 Paris, France; Banque Indosuez, 44 Rue de
Courcelles, 75008 Paris, France; and the designated Nantes Cedex office of
Societe Generale, France, 32, rue du Champ de Tir, Department Titres et Bourse,
BP 1135-44024 Nantes Cedex, France; in each case as agents of the Depositary for
the purposes of this Deposit Agreement, and, subject to the last paragraph of
Section 5.5, any other firm or corporation which may hereafter be appointed by
the Depositary pursuant to the terms of Section 5.5, as substitute or additional
custodian or custodians hereunder, as the context shall require and the terms
"Custodian(s)" and "Custodian" shall also mean all of them, collectively.
SECTION 1.4 Deposit Agreement.
------------------
The term "Deposit Agreement" shall mean this Agreement, as the same
may be amended from time to time in accordance with the provisions hereof and
all instruments supplemental thereto.
SECTION 1.5 Depositary; Corporate Trust Office.
----------------------------------
The term "Depositary" shall mean The Bank of New York, a New York
banking corporation and any successor as depositary hereunder. The term
"Corporate Trust Office," when used with respect to the Depositary, shall mean
the office of the Depositary which at the date of this Agreement is 101 Barclay
Street, New York, New York, 10286.
<PAGE>
SECTION 1.6 Deposited Securities.
---------------------
The term "Deposited Securities" as of any time shall mean Shares at
such time deposited or deemed to be deposited under this Deposit Agreement and
any and all other securities, property and cash received by the Depositary or
the Custodian in respect thereof and at such time held hereunder, subject as to
cash to the provisions of Section 4.5.
SECTION 1.7 Dollars; Francs.
----------------
The term "Dollars" shall mean United States dollars. The term
"Francs" or "FF" shall mean the lawful currency of France.
SECTION 1.8 Foreign Registrar.
------------------
The term "Foreign Registrar" shall mean the accredited financial
intermediary in France appointed as agent of the Issuer for the transfer and
registration of Shares or any successor as registrar for the Shares.
SECTION 1.9 Issuer.
-------
The term "Issuer" shall mean Business Objects S.A., a societe anonyme
incorporated under the laws of The Republic of France, having its registered
office at Tour Chantecoq, 5, rue Chantecoq, 92800 Puteaux, France and its
successors.
SECTION 1.10 Owner.
------
The term "Owner" shall mean the person in whose name a Receipt is
registered on the books of the Depositary maintained for such purpose.
SECTION 1.11 Receipt.
--------
The term "Receipt" shall mean the American Depositary Receipts issued
hereunder evidencing American Depositary Shares.
SECTION 1.12 Registrar.
----------
The term "Registrar" shall mean any bank or trust company having an
office in the Borough of Manhattan, The City of New York, which shall be
appointed by the Depositary to register Receipts and transfers of Receipts as
herein provided and shall include any co-registrar appointed by the Depositary,
upon request or with the approval of the Issuer.
<PAGE>
SECTION 1.13 Restricted Securities.
----------------------
The term "Restricted Securities" shall mean Shares, or Receipts
entitling the Owner thereof to receive such Shares, which are acquired directly
or indirectly from the Issuer or its affiliates (as defined in Rule 144 under
the Securities Act of 1933) in a transaction or chain of transactions not
involving any public offering or which are subject to resale limitations under
Regulation D under that Act or both, or which are held by an officer, director
(or persons performing similar functions) or other affiliate of the Issuer, or
which are subject to other restrictions on sale or deposit under the laws of the
United States or The Republic of France, or under a shareholder agreement or the
statuts of the Issuer.
SECTION 1.14 Securities Act of 1933.
-----------------------
The term "Securities Act of 1933" shall mean the United States
Securities Act of 1933, as from time to time amended.
SECTION 1.15 Shares.
-------
The term "Shares" shall mean ordinary shares, nominal value one French
Franc each, of the Issuer in administered registered form (titres nominatifs
------ ----------
administres: i.e. shares which are registered in the Issuer's shareholders'
- ----------- ----
accounts and which are managed by the Custodian, an accredited financial
intermediary, acting as agent on behalf of such owner), as permitted by French
law from time to time, heretofore validly issued and outstanding and fully paid,
nonassessable and free of any pre-emptive rights of the holders of outstanding
Shares or hereafter validly issued and outstanding and fully paid, nonassessable
and free of any pre-emptive rights of the holders of outstanding Shares.
ARTICLE 2. FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND DELIVERY,
TRANSFER AND SURRENDER OF RECEIPTS.
SECTION 2.1 Form and Transferability of Receipts.
-------------------------------------
Definitive Receipts shall be substantially in the form set forth in
Exhibit A annexed to this Deposit Agreement, with appropriate insertions,
modifications and omissions, as hereinafter provided. No Receipt shall be
entitled to any benefits under this Deposit Agreement or be valid or obligatory
for any purpose, unless such Receipt shall have been executed by the Depositary
by the manual or facsimile signature of a duly authorized signatory of the
Depositary and, if a Registrar for the Receipts shall have been appointed,
countersigned by the manual or facsimile signature of a duly authorized officer
of the Registrar. The Depositary shall maintain books on which each Receipt so
executed and delivered as hereinafter provided and the transfer of each such
Receipt shall be
-4-
<PAGE>
registered. Receipts bearing the manual or facsimile signature of a duly
authorized signatory of the Depositary who was at any time a proper signatory of
the Depositary shall bind the Depositary, notwithstanding that such signatory
has ceased to hold such office prior to the execution and delivery of such
Receipts by the Registrar or did not hold such office on the date of issuance of
such Receipts.
The Receipts may be endorsed with or have incorporated in the text
thereof such legends or recitals or modifications not inconsistent with the
provisions of this Deposit Agreement as may be required by the Depositary or
required to comply with any applicable law or regulations thereunder or with the
rules and regulations of any securities exchange or market upon which American
Depositary Shares may be traded or to conform with any usage with respect
thereto, or to indicate any special limitations or restrictions to which any
particular Receipts are subject by reason of the date of issuance of the
underlying Deposited Securities or otherwise.
Title to a Receipt (and to the American Depositary Shares evidenced
thereby), when properly endorsed or accompanied by proper instruments of
transfer, shall be transferable by delivery with the same effect as in the case
of a negotiable instrument; provided, however, that the Depositary,
notwithstanding any notice to the contrary, may treat the Owner thereof as the
absolute owner thereof for the purpose of determining the person entitled to
distribution of dividends or other distributions or to any notice provided for
in this Deposit Agreement and for all other purposes.
SECTION 2.2 Deposit of Shares.
------------------
Subject to the terms and conditions of this Deposit Agreement, Shares
may be deposited by any person (including by electronic transfer thereof) by
inscription of ownership of such Shares in the name of the Depositary in an
account maintained by the Foreign Registrar and in an account maintained by the
Custodian as agent on behalf of the Depositary or Owner, pursuant to appropriate
instructions for transfer in a form satisfactory to the Issuer or the Foreign
Registrar or the Custodian, as the case may be, together with all such
certifications as may be required by the Depositary or the Custodian in
accordance with the provisions of this Deposit Agreement, and, if the Depositary
requires, together with a written order directing the Depositary to execute and
deliver to, or upon the written order of, the person or persons stated in such
order a Receipt or Receipts for the number of American Depositary Shares so
deposited. The Custodian will, upon request by the Depositary, issue or cause
to be issued written confirmations as to holdings of Shares, it being agreed and
understood that such confirmations do not constitute documents of title. No
Shares shall be accepted for deposit unless accompanied by evidence satisfactory
to the Depositary that any necessary approval has been granted by the
governmental body in The Republic of France, if any, which is then performing
the function of the regulation of currency exchange or which has jurisdiction
over foreign investment or regulates foreign ownership of French companies.
<PAGE>
If required by the Depositary, Shares presented for deposit at any
time, whether or not the shareholders' accounts of the Issuer or the Foreign
Registrar are closed, shall also be accompanied by an agreement or assignment,
or other instrument satisfactory to the Depositary, which will provide for the
prompt transfer to the Depositary or the Custodian with respect to such Shares
of any dividend, or right to subscribe for additional Shares or to receive other
property which any person in whose name the Shares are or have been registered
may thereafter receive upon or in respect of such deposited Shares, or in lieu
thereof, such agreement of indemnity or other agreement as shall be satisfactory
to the Depositary.
As long as the Depositary holds any Shares pursuant to this Deposit
Agreement, the Depositary shall ensure that at least one Share is owned in the
name of the Depositary and one Share is owned in the name of the Custodian, each
in registered form. All other Shares may be held either in registered or in
bearer form as permitted by the laws of The Republic of France and the statuts
of the Issuer from time to time.
SECTION 2.3 Execution and Delivery of Receipts.
-----------------------------------
Upon receipt by the Custodian of any deposit pursuant to Section 2.2
hereunder (and in addition, if the shareholders' accounts of the Issuer or the
Foreign Registrar or the transfer books of the Custodian, if applicable, are
open), the Depositary may in its sole discretion require a proper acknowledgment
or other evidence from the Issuer, or the Foreign Registrar or the Custodian, as
applicable, that any Deposited Securities have been recorded upon the books of
the Issuer or the Foreign Registrar or the Custodian, if applicable, in the name
of the Depositary or its nominee or such Custodian or its nominee), together
with the other documents required as above specified, such Custodian shall
notify the Depositary of such deposit and the person or persons to whom or upon
whose written order a Receipt or Receipts are deliverable in respect thereof and
the number of American Depositary Shares to be evidenced thereby. Such
notification shall be made by letter or, at the request, risk and expense of the
person making the deposit, by cable, telex or facsimile transmission. Upon
receiving such notice from such Custodian, the Depositary, subject to the terms
and conditions of this Deposit Agreement, shall execute and deliver at its
Corporate Trust Office, to or upon the order of the person or persons entitled
thereto, a Receipt or Receipts, registered in the name or names and evidencing
any authorized number of American Depositary Shares requested by such person or
persons, but only upon payment to the Depositary of the fees of the Depositary
for the execution and delivery of such Receipt or Receipts as provided in
Section 5.9, and of all taxes and governmental charges and fees payable in
connection with such deposit and the transfer of the Deposited Securities.
<PAGE>
SECTION 2.4 Transfer of Receipts; Combination and Split-up of Receipts.
-----------------------------------------------------------
The Depositary, subject to the terms and conditions of this Deposit
Agreement, shall register transfers of Receipts on its transfer books promptly,
upon any surrender of a Receipt, by the Owner in person or by a duly authorized
attorney, properly endorsed or accompanied by proper instruments of transfer,
and duly stamped as may be required by the laws of the State of New York and of
the United States of America. Thereupon the Depositary shall execute a new
Receipt or Receipts and deliver the same to or upon the order of the person
entitled thereto.
The Depositary, subject to the terms and conditions of this Deposit
Agreement, shall upon surrender of a Receipt or Receipts for the purpose of
effecting a split-up or combination of such Receipt or Receipts, execute and
deliver a new Receipt or Receipts for any authorized number of American
Depositary Shares requested, evidencing the same aggregate number of American
Depositary Shares as the Receipt or Receipts surrendered.
The Depositary shall ensure that it has on hand at all times a
sufficient supply of Receipts to meet the demands for transfer.
The Depositary may appoint one or more co-transfer agents approved by
the Issuer for the purpose of effecting transfers, combinations and split-ups of
Receipts at designated transfer offices on behalf of the Depositary. In
carrying out its functions, a co-transfer agent may require evidence of
authority and compliance with applicable laws and other requirements by Owners
or persons entitled to Receipts and will be entitled to protection and
indemnity to the same extent as the Depositary.
SECTION 2.5 Surrender of Receipts and Withdrawal of Shares.
-----------------------------------------------
Upon surrender at the Corporate Trust Office of the Depositary of a
Receipt for the purpose of withdrawal of the Deposited Securities which
correspond to the American Depositary Shares evidenced by such Receipt, and upon
payment of the fee of the Depositary for the surrender of Receipts as provided
in Section 5.9 and payment of all taxes and governmental charges payable in
connection with such surrender and withdrawal of the Deposited Securities, and
subject to the terms and conditions of this Deposit Agreement, the Issuer's
statuts and the Deposited Securities, the Owner of such Receipt shall be
entitled to the transfer of the Deposited Securities to an account registered in
the Issuer's shareholders' accounts and which is managed by the Custodian, as an
accredited financial intermediary, acting as agent on behalf of and in the name
of such Owner or such name as shall be designated by such Owner of the amount of
the Deposited Securities at the time corresponding to such Receipt. Such
transfer shall be made, as hereinafter provided, without unreasonable delay.
<PAGE>
A Receipt surrendered for such purposes may be required by the
Depositary to be properly endorsed in blank or accompanied by proper instruments
of transfer in blank, and if the Depositary so requires, the Owner thereof shall
execute and deliver to the Depositary a written order directing the Depositary
to cause the Deposited Securities being withdrawn to be transferred to an
account registered in the Issuer's shareholders' accounts and which is managed
by the Custodian, as an accredited financial intermediary, acting as agent on
behalf of and in the name of such Owner or such name as shall be designated by
such Owner. Thereupon, the Depositary shall, in its discretion, effect the
transfer of, or direct one (or more) of the Custodians, subject to Sections 2.6,
3.1 and 3.2, and to the other terms and conditions of this Deposit Agreement, to
effect the transfer of the amount of Deposited Securities which such Receipt
entitles the Owner to receive, except that the Depositary may make delivery to
such person or persons at the Corporate Trust Office of the Depositary of any
dividends or distributions with respect to the Deposited Securities which such
Receipt entitles the Owner to receive, or of any proceeds of sale of any
dividends or distributions which may at the time be held by the Depositary.
In the event any delivery of Deposited Securities under this Section
2.5 would otherwise require delivery of fractional Deposited Securities, the
Depositary may sell the amount of Deposited Securities corresponding to the
aggregate of such fractions and distribute the net proceeds, all in the manner
and subject to the conditions described in Section 4.1.
SECTION 2.6 Limitations on Execution and Delivery, Transfer and
---------------------------------------------------
Surrender of Receipts.
- ---------------------
As a condition precedent to the execution and delivery, registration
of transfer, split-up, combination or surrender of any Receipt or withdrawal of
any Deposited Securities, the Depositary, Custodian or Registrar may require
payment from the depositor of Shares or the presentor of the Receipt of a sum
sufficient to reimburse it for any tax or other governmental charge and any
stock transfer or registration fee with respect thereto (including any such tax
or charge and fee with respect to Shares being deposited or withdrawn) and
payment of any applicable fees as herein provided, may require the production of
proof satisfactory to it as to the identity and genuineness of any signature and
may also require compliance with any regulations the Depositary may establish
consistent with the provisions of this Deposit Agreement, including, without
limitation, this Section 2.6.
The delivery of Receipts against deposits of Shares generally or
against deposits of particular Shares may be suspended, registration of or the
transfer of Receipts in particular instances may be refused, or the registration
of transfer of outstanding Receipts generally may be suspended, during any
period when the transfer books of the Depositary are closed, or if any such
action is deemed necessary or advisable by the
-8-
<PAGE>
Depositary or the Issuer at any time or from time to time because of any
requirement of law or of any government or governmental body or commission, or
under any provision of this Deposit Agreement, or the statuts of the Issuer or
for any other reason, subject to the provisions of the following sentence. The
surrender of outstanding Receipts and withdrawal of Deposited Securities may not
be suspended except as permitted in General Instruction I(A)(1) to Form F-6 (as
may be amended from time to time) under the Securities Act of 1933, which
currently permits suspension only in connection with (i) temporary delays caused
by closing the transfer books of the Depositary or the Issuer (or the appointed
agent for the Issuer for the registration of transfer of such Shares) or the
deposit of Shares in connection with voting at a shareholders' meeting, or the
payment of dividends, (ii) the payment of fees, taxes and similar charges, and
(iii) compliance with any U.S. or foreign laws or governmental regulations
relating to the Receipts or to the withdrawal of the Deposited Securities.
Without limitation of the foregoing, the Depositary shall not knowingly accept
for deposit under this Deposit Agreement any Shares required to be registered
under the provisions of the Securities Act of 1933, unless a registration
statement is in effect as to such Shares. The Depositary shall comply with
written instructions from the Issuer requesting that the Depositary not accept
for deposit hereunder any Shares or rights reasonably identified in such
instructions in order to facilitate the Issuer's compliance with U.S. securities
laws or the laws of any state of the United States or the laws of The Republic
of France.
SECTION 2.7 Lost Receipts, etc.
-------------------
In case any Receipt shall be mutilated, destroyed, lost or stolen, the
Depositary shall execute and deliver a new Receipt of like tenor in exchange and
substitution for such mutilated Receipt upon cancellation thereof, or in lieu of
and in substitution for such destroyed, lost or stolen Receipt. Before the
Depositary shall execute and deliver a new Receipt in substitution for a
destroyed, lost or stolen Receipt, the Owner thereof shall have (a) filed with
the Depositary (i) a request for such execution and delivery before the
Depositary has notice that the Receipt has been acquired by a bona fide
purchaser and (ii) a sufficient indemnity bond and (b) satisfied any other
reasonable requirements imposed by the Depositary.
SECTION 2.8 Cancellation and Destruction of Surrendered Receipts.
-----------------------------------------------------
All Receipts surrendered to the Depositary shall be cancelled by the
Depositary and may not be reissued. The Depositary is authorized to destroy
Receipts so cancelled.
SECTION 2.9 Pre-Release of Receipts.
------------------------
Notwithstanding Section 2.3 hereof, the Depositary may execute and
deliver Receipts prior to the receipt of Shares pursuant to Section 2.2 ("Pre-
Release"). The Depositary may, pursuant to Section 2.5, deliver Shares upon the
receipt and
<PAGE>
cancellation of Receipts which have been Pre-Released, whether or not such
cancellation is prior to the termination of such Pre-Release or the Depositary
knows that such Receipt has been Pre-Released. The Depositary may receive
Receipts in lieu of Shares in satisfaction of a Pre-Release. Each Pre-Release
shall be (a) preceded or accompanied by a written representation from the person
to whom Receipts are to be delivered that such person, or its customer, owns the
Shares or Receipts to be remitted, as the case may be, (b) at all times fully
collateralized with cash or such other collateral as the Depositary deems
appropriate, (c) terminable by the Depositary on not more than five (5) business
days notice, and (d) subject to such further indemnities and credit regulations
as the Depositary deems appropriate. The number of American Depositary Shares
which are outstanding at any time as a result of Pre-Releases will not normally
exceed thirty percent (30%) of the Shares deposited hereunder; provided,
however, that the Depositary reserves the right to disregard such limit from
time to time as it deems appropriate and may, with the prior written consent of
the Issuer, change such limit for purposes of general application.
The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
With respect to any Pre-Release (as defined in this Section 2.9),
neither the Issuer nor the Custodian shall be responsible to any Owners or
holders of Receipts for any liabilities or expenses (a) which may be imposed
under any United States Federal, state or local income tax laws, (b) which may
arise out of the failure of the Depositary to deliver Deposited Securities when
required under the terms of Section 2.5 hereof, or (c) the non-performance by
the Depositary or the Custodian of any obligations relating to any Pre-Release
under this Section 2.9 or any other agreement between the Depositary and the
Issuer relating to Pre-Release. The preceding sentence shall not apply to any
liability or expense which may arise out of any misstatement or alleged
misstatement or omission or alleged omission in any registration statement,
proxy statement, prospectus (or placement memorandum), or preliminary prospectus
(or preliminary placement memorandum) relating to the offer of sale of American
Depositary Shares, except to the extent any such liability or expense arises out
of (i) information relating to the Depositary or the Custodian, as applicable,
furnished in writing expressly for use in any of the foregoing documents, or,
(ii) material omissions from such information furnished by the Depositary or the
Custodian.
ARICLE 3. CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS.
SECTION 3.1 Filing Proofs, Certificates and Other Information.
--------------------------------------------------
Any person presenting Shares for deposit or any Owner of a Receipt may
be required from time to time to file with the Depositary or the Custodian such
proof of citizenship or residence, exchange control approval, payment of
applicable French or other
<PAGE>
taxes or governmental charges or legal or beneficial ownership or such
information relating to the registration of the Shares on the books of the
Issuer or the Foreign Registrar, if applicable, to execute such certificates and
to make such representations and warranties, as the Depositary may deem
necessary or proper or the Issuer may reasonably require upon written request to
the Depositary or the Custodian. The Depositary may withhold the delivery or
registration of transfer of any Receipt or the distribution of any dividend or
sale or distribution of rights or of the proceeds thereof or the delivery of any
Deposited Securities until such proof or other information is filed or such
certificates are executed or such representations and warranties are made
pertaining to the Receipt.
The Depositary shall provide the Issuer, upon the Issuer's request and
in a timely manner, with copies of any information or other material which it
receives pursuant to this Section 3.1.
SECTION 3.2 Liability of Owner for Taxes.
-----------------------------
If any tax or other governmental charge shall become payable with
respect to any Receipt or any Deposited Securities which any Receipt entitles
the Owner to receive, such tax or other governmental charge shall be payable by
the Owner of such Receipt to the Depositary. The Depositary may refuse to
effect any transfer of such Receipt or any withdrawal of Deposited Securities
corresponding to American Depositary Shares evidenced by such Receipt until such
payment is made, and may withhold any dividends or other distributions, or may
sell for the account of the Owner thereof any part or all of the Deposited
Securities corresponding to the American Depositary Shares evidenced by such
Receipt, and may apply such dividends or other distributions or the proceeds of
any such sale in payment of such tax or other governmental charge and the Owner
of such Receipt shall remain liable for any deficiency.
SECTION 3.3 Warranties on Deposit of Shares.
--------------------------------
Every person depositing Shares under this Deposit Agreement shall be
deemed thereby to represent and warrant that such Shares and each certificate
therefor are validly issued, fully paid, nonassessable and free of any pre-
emptive rights of the holders of outstanding Shares and that the person making
such deposit is duly authorized so to do. Every such person shall also be
deemed to represent that the deposit of such Shares and the sale of Receipts
evidencing American Depositary Shares entitling the Owner to receive such Shares
by that person are not restricted under the Securities Act of 1933 or under the
laws of The Republic of France. Such representations and warranties shall
survive the deposit of Shares and issuance of Receipts in respect thereof.
SECTION 3.4 Information Requests.
---------------------
The Issuer may from time to time request Owners of Receipts to provide
information as to the capacity in which such Owners own or owned Receipts and
<PAGE>
regarding the identity of any other persons then or previously interested in
such Receipts as to the nature of such interest and various other matters. The
Depositary agrees to use reasonable efforts to comply with written instructions
received from the Issuer requesting that the Depositary forward any such
requests to the Owner and to forward to the Issuer any responses to such
requests received by the Depositary.
SECTION 3.5 Disclosure of Interest.
-----------------------
Notwithstanding any other provisions of this Deposit Agreement, each
Owner and holder of Receipts agrees to comply with the Company's statuts, as
they may be amended from time to time, and the laws of The Republic of France,
if applicable, with respect to any disclosure requirements regarding ownership
of Shares, all as if such Receipts were, for this purpose, the Shares
corresponding thereto.
In order to facilitate compliance with the notification requirements,
an Owner or holder of Receipts may deliver any notification to the Depositary
with respect to Shares to which American Depositary Shares evidenced by such
Receipts relate, and the Depositary shall, as soon as practicable, forward such
notification to the Issuer and, if applicable, the Societe des Bourses
-------------------
Francaises or any other authorities in The Republic of France.
- ----------
ARTICLE 4. THE DEPOSITED SECURITIES.
SECTION 4.1 Cash Distributions.
-------------------
Whenever the Depositary or the Custodian shall receive any cash
dividend or other cash distribution on any Deposited Securities, the Depositary
shall, subject to the provisions of Section 4.5, convert such dividend or
distribution into Dollars and shall distribute the amount thus received (net of
the fees of the Depositary as provided in Section 5.9 hereof, if applicable) to
the Owners entitled thereto, in proportion to the number of American Depositary
Shares corresponding to such Deposited Securities held by them respectively;
provided, however, that in the event that the Issuer, the Custodian or the
Depositary shall be required to withhold and does withhold from such cash
dividend or such other cash distribution in respect of any Deposited Securities
an amount on account of taxes, the amount distributed to the Owner of the
Receipts evidencing American Depositary Shares corresponding to such Deposited
Securities shall be reduced accordingly. Any fractional amounts shall be
rounded to the nearest whole cent and distributed to Owners entitled thereto.
The Issuer or its agent or the Depositary or its agent will remit to the
appropriate governmental authority or agency in The Republic of France all
amounts withheld and owing to such authority or agency. The Depositary shall
forward to the Issuer or its agent such information from its records as the
Issuer may reasonably request to enable the Issuer or its agent to file
necessary reports with governmental authorities or agencies, and the Depositary
or the Issuer or its agent may file
<PAGE>
any such reports necessary to obtain benefits under the applicable tax treaties
for the Owners of Receipts.
SECTION 4.2 Distributions Other Than Cash, Shares or Rights.
------------------------------------------------
Subject to the provisions of Sections 4.11 and 5.9, whenever the
Depositary or the Custodian shall receive any distribution other than a
distribution described in Sections 4.1, 4.3 or 4.4, the Depositary shall cause
the securities or property received by the Depositary or the Custodian to be
distributed to the Owners entitled thereto, in proportion to the number of
American Depositary Shares corresponding to such Deposited Securities held by
them respectively, in any manner that the Depositary, after consultation with
the Company, may deem equitable and practicable for accomplishing such
distribution; provided, however, that if in the opinion of the Depositary such
distribution cannot be made proportionately among the Owners entitled thereto,
or if for any other reason (including, but not limited to, any requirement that
the Issuer or the Depositary withhold an amount on account of taxes or other
governmental charges or that such securities must be registered under the
Securities Act of 1933 in order to be distributed to Owners or holders) the
Depositary deems such distribution not to be feasible, the Depositary may adopt
such method as it may deem equitable and practicable for the purpose of
effecting such distribution, including, but not limited to, the public or
private sale of the securities or property thus received, or any part thereof,
and the net proceeds of any such sale (net of the fees of the Depositary as
provided in Section 5.9) shall be distributed by the Depositary to the Owners
entitled thereto as in the case of a distribution received in cash.
SECTION 4.3 Distributions in Shares.
------------------------
Subject to applicable U.S. and French law, and to the other terms of
this Deposit Agreement, in the event that the holders of Shares are granted the
option to receive dividends on such Shares in the form of cash or additional
Shares, Owners of Receipts shall be entitled to receive such option only with
the Issuer's prior written approval and the consent of the Depositary. If any
distribution upon any Deposited Securities consists of a dividend in, or free
distribution of, Shares, the Depositary may, upon prior consultation with and
approval of the Issuer, and shall if the Issuer shall so request, distribute to
the Owners of outstanding Receipts entitled thereto, in proportion to the number
of American Depositary Shares corresponding to such Deposited Securities held by
them respectively, additional Receipts evidencing an aggregate number of
American Depositary Shares corresponding to the amount of Shares received as
such dividend or free distribution, subject to the terms and conditions of the
Deposit Agreement with respect to the deposit of Shares and the issuance of
American Depositary Shares evidenced by Receipts, including the withholding of
any tax or other governmental charge as provided in Section 4.11 and the payment
of fees of the Depositary as provided in Section 5.9. In lieu of delivering
Receipts for fractional American Depositary Shares in
<PAGE>
any such case, the Depositary shall sell the amount of Shares corresponding to
the aggregate of such fractions and distribute the net proceeds, all in the
manner and subject to the conditions described in Section 4.1. If additional
Receipts are not so distributed, each American Depositary Share shall
thenceforth also entitle the Owner thereof to receive the additional Shares
distributed upon the Deposited Securities corresponding thereto.
SECTION 4.4 Rights.
-------
In the event that the Issuer shall offer or cause to be offered to the
holders of any Deposited Securities any rights to subscribe for additional
Shares or any rights of any other nature, the Depositary shall have discretion,
after consultation with the Issuer, as to the procedure to be followed in making
such rights available to any Owners including the distribution of warrants or
other instruments therefor as it deems appropriate or in disposing of such
rights on behalf of any Owners and making the net proceeds available to such
Owners or, if by the terms of such rights offering or for any other reason, the
Depositary may not either make such rights available to any Owners or dispose of
such rights and make the net proceeds available to such Owners, then the
Depositary shall allow the rights to lapse. If at the time of the offering of
any rights the Depositary determines in its discretion that it is lawful and
feasible to make such rights available to all Owners or to certain Owners but
not to other Owners, the Depositary may distribute to any Owner to whom it
determines the distribution to be lawful and feasible, in proportion to the
number of American Depositary Shares held by such Owner, warrants or other
instruments therefor in such form as it deems appropriate.
In circumstances in which rights would otherwise not be distributed,
if an Owner of Receipts requests the distribution of warrants or other
instruments in order to exercise the rights allocable to the American Depositary
Shares of such Owner hereunder, the Depositary will make such rights available
to such Owner upon written notice from the Issuer to the Depositary that (a) the
Issuer has elected in its sole discretion to permit such rights to be exercised
and (b) such Owner has executed such documents as the Issuer has determined in
its sole discretion are reasonably required under applicable law.
If the Depositary has distributed warrants or other instruments for
rights to all or certain Owners, then upon instruction from such an Owner
pursuant to such warrants or other instruments to the Depositary from such Owner
to exercise such rights, upon payment by such Owner to the Depositary for the
account of such Owner of an amount equal to the purchase price of the Shares to
be received upon the exercise of the rights, and upon payment of the fees of the
Depositary and any other charges as set forth in such warrants or other
instruments, the Depositary shall, on behalf of such Owner, exercise the rights
and purchase the Shares, and the Issuer shall cause the Shares so purchased to
be delivered to the Depositary on behalf of such Owner. As agent for such Owner,
the Depositary will cause the Shares so purchased to be deposited pursuant to
<PAGE>
Section 2.2 of this Deposit Agreement, and shall, pursuant to Section 2.3 of
this Deposit Agreement, execute and deliver Receipts to such Owner. In the case
of a distribution pursuant to the second paragraph of this section, such
Receipts shall be legended in accordance with applicable U.S. laws, and shall be
subject to the appropriate restrictions on sale, deposit, cancellation, and
transfer under such laws.
If the Depositary determines in its discretion that it is not lawful
and feasible to make such rights available to all or certain Owners, it shall,
if possible, sell the rights, warrants or other instruments in proportion to the
number of American Depositary Shares held by the Owners to whom it has
determined it may not lawfully or feasibly make such rights available, and
allocate the net proceeds of such sales (net of the fees of the Depositary as
provided in Section 5.9 and all taxes and governmental charges payable in
connection with such rights and subject to the terms and conditions of this
Deposit Agreement) for the account of such Owners otherwise entitled to such
rights, warrants or other instruments, upon an averaged or other practical basis
without regard to any distinctions among such Owners because of exchange
restrictions or the date of delivery of any Receipt or otherwise.
The Depositary will not offer rights to Owners unless both the rights
and the securities to which such rights relate are either exempt from
registration under the Securities Act of 1933 with respect to a distribution to
Owners or are registered under the provisions of such Act. If an Owner of
Receipts requests distribution of warrants or other instruments, notwithstanding
that there has been no such registration under such Act, the Depositary shall
not effect such distribution unless it has received an opinion from recognized
counsel in the United States for the Issuer upon which the Depositary may rely
that such distribution to such Owner is exempt from such registration, it being
understood that the Issuer shall have no obligation to furnish any such opinion.
The Depositary shall not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available to Owners in
general or any Owner in particular.
SECTION 4.5 Conversion of Foreign Currency.
-------------------------------
Whenever the Depositary shall receive foreign currency, by way of
dividends or other distributions or the net proceeds from the sale of
securities, property or rights, and if at the time of the receipt thereof the
foreign currency so received can in the judgment of the Depositary be converted
on a reasonable basis into Dollars and the resulting Dollars transferred to the
United States, the Depositary shall convert or cause to be converted, by sale or
in any other manner that it may determine, such foreign currency into Dollars,
and such Dollars shall be distributed to the Owners entitled thereto or, if the
Depositary shall have distributed any warrants or other instruments which
entitle the holders thereof to such Dollars, then to the holders of such
warrants and/or instruments
<PAGE>
upon surrender thereof for cancellation. Such distribution may be made upon an
averaged or other practicable basis without regard to any distinctions among
Owners on account of exchange restrictions, the date of delivery of any Receipt
or otherwise and shall be net of any expenses of conversion into Dollars
incurred by the Depositary as provided in Section 5.9.
If such conversion or distribution with regard to one or more Owners
can be effected only with the approval or license of any government or agency
thereof, the Depositary shall file such application for approval or license, if
any, as it may deem desirable; provided, however, that the Issuer shall not be
-------- -------
obligated to make any such filing.
If at any time the Depositary shall determine that in its judgment any
foreign currency received by the Depositary is not convertible on a reasonable
basis into Dollars transferable to the United States and/or to one or more
Owners of Receipts, or if any approval or license of any governmental authority
or agency thereof which is required for such conversion is denied or in the
opinion of the Depositary is not obtainable, or if any such approval or license
is not obtained within a reasonable period as determined by the Depositary, the
Depositary may distribute the foreign currency (or an appropriate document
evidencing the right to receive such foreign currency) received by the
Depositary to, or in its discretion may hold such foreign currency uninvested
and without liability for interest thereon for the respective accounts of, the
Owners entitled to receive the same.
If any such conversion of foreign currency, in whole or in part,
cannot be effected for distribution to some of the Owners entitled thereto, the
Depositary may in its discretion make such conversion and distribution in
Dollars to the extent permissible to the Owners entitled thereto and may
distribute the balance of the foreign currency received by the Depositary to, or
hold such balance uninvested and without liability for interest thereon for the
respective accounts of, the Owners entitled thereto for whom such conversion is
not practicable.
SECTION 4.6 Fixing of Record Date.
----------------------
Whenever any cash dividend or other cash distribution shall become
payable or any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Deposited Securities, or whenever for any
reason the Depositary gives effect to a change in the number of Shares that
correspond to each American Depositary Share, or whenever the Depositary shall
receive notice of any meeting of holders of Deposited Securities other than
Shares, or whenever for any administrative purpose the Depositary deems it
necessary to do so, the Depositary shall fix a record date, after consultation
with the Issuer, when practicable, (which shall be to the extent practicable,
the same record date fixed by the Issuer), and with the prior approval of the
<PAGE>
Issuer, when practicable, (a) for the determination of the Owners who shall be
(i) entitled to receive such dividend, distribution or rights or the net
proceeds of the sale thereof or (ii) entitled to give instructions for the
exercise of voting rights at any such meeting, (b) on or after which each
American Depositary Share will correspond to the changed number of Shares or (c)
to facilitate the administrative purpose for which the record date was set.
Subject to the provisions of Sections 4.1 through 4.5 and to the other terms and
conditions of this Deposit Agreement, the Owners on such record date shall be
entitled, as the case may be, to receive the amount distributable by the
Depositary with respect to such dividend or other distribution or such rights or
the net proceeds of sale thereof in proportion to the number of American
Depositary Shares held by them respectively and to give voting instructions and
to act in respect of any other such matter.
SECTION 4.7 Voting of Shares.
-----------------
Upon receipt of notice of any meeting of holders of Shares or other
Deposited Securities, the Depositary shall, as soon as practicable thereafter,
mail to the Owners (a) a summary in English of the notice of such meeting sent
by the Issuer to the Depositary pursuant to Section 5.6, (b) a statement that
the Owners and holders of Receipts as of the close of business on a record date
established by the Depositary pursuant to Section 4.6 herein will be entitled,
subject to any applicable provisions of French law, the statuts of the Issuer
and the Deposited Securities to exercise the voting rights, if any, pertaining
to the Shares or other Deposited Securities represented by such Owner's American
Depositary Shares, (c) summaries in English of any materials or other documents
provided by the Issuer for the purpose of enabling such Owner to exercise such
voting rights, and (d) a statement as to the manner in which voting instructions
may be given to the Depositary, including an express indication that such
instructions may be given or deemed given in accordance with the last sentence
of the following paragraph if no instruction is received or if the Depositary
receives improperly completed voting instructions or a blank proxy, and setting
forth the date established by the Depositary for the receipt of such
instructions (the "Receipt Date").
Upon receipt by the Depositary of properly completed voting
instructions, on or before the Receipt Date, the Depositary shall either, in its
discretion, vote such Deposited Securities in accordance with such instructions
or forward such instructions to the Custodian, and the Custodian shall endeavor,
insofar as practicable and permitted under any applicable provisions of French
law, the statuts of the Issuer and the Deposited Securities, to vote or cause to
be voted the Deposited Securities in accordance with any nondiscretionary
instructions set forth in such request. The Depositary shall not vote or attempt
to exercise the right to vote that attaches to the Shares or other Deposited
Securities, other than in accordance with such instructions. If the Depositary
receives improperly completed voting instructions or receives a blank proxy from
an Owner with respect to any of the Shares or other Deposited Securities on or
before the Receipt Date, the Depositary will, insofar as permitted under any
applicable provisions of French law,
<PAGE>
the statuts of the Issuer and the Deposited Securities, deem such Owner to have
instructed the Depositary to give a proxy to the President of the General
Meeting of Shareholders to vote such Deposited Securities in favor of the
resolutions presented or approved by the Board of Directors of the Company and
against any other resolution not so presented or approved. If no instructions
are received by the Depositary from an Owner with respect to any of the Shares
or other Deposited Securities on or before the Receipt Date, the Depositary
will, insofar as permitted under any applicable provisions of French law, the
statuts of the Issuer and the Deposited Securities, deem such Owner to have
instructed the Depositary to give a proxy to the President of the General
Meeting of Shareholders to vote such Deposited Securities in favor of the
resolutions presented or approved by the Board of Directors of the Company and
against any other resolution not so presented or approved.
The Depositary will take no action to impair the ability of the Custodian
to vote the number of Shares necessary to carry out the instructions of all
Owners under this Section 4.7.
SECTION 4.8 Changes Affecting Deposited Securities.
---------------------------------------
In circumstances where the provisions of Section 4.3 do not apply,
upon any change in nominal value, change in par value, split-up, consolidation
or any other reclassification of Deposited Securities, or upon any
recapitalization, reorganization, merger or consolidation or sale of assets
affecting the Issuer or to which it is a party, any securities which shall be
received by the Depositary or a Custodian in exchange for or in conversion of or
in respect of Deposited Securities, shall be treated as new Deposited Securities
under this Deposit Agreement, and American Depositary Shares shall thenceforth
entitle the Owners thereof to receive the new Deposited Securities so received
in exchange or conversion, unless additional Receipts are delivered pursuant to
the following sentence. In any such case the Depositary may with the Issuer's
approval, and shall if the Issuer shall so request, execute and deliver
additional Receipts as in the case of a dividend in Shares, or call for the
surrender of outstanding Receipts to be exchanged for new Receipts specifically
describing such new Deposited Securities.
Immediately upon the occurrence of any such change, conversion or
exchange covered by this Section in respect of the Deposited Securities, the
Issuer shall notify the Depositary in writing of such occurrence and, as soon as
practicable after receipt of such notice from the Issuer, the Depositary shall
give notice thereof in writing to all Owners of Receipts.
SECTION 4.9 Reports.
--------
The Depositary shall make available for inspection by Owners at its
Corporate Trust Office any reports and communications, including any proxy
soliciting material, received from the Issuer which are both (a) received by the
Depositary as the
<PAGE>
holder of the Deposited Securities and (b) made generally available to the
holders of such Deposited Securities by the Issuer. The Depositary shall also
send to the Owners copies of such reports when furnished by the Issuer pursuant
to Section 5.6. Any such reports and communications, including any such proxy
solicitation material furnished to the Depositary by the Issuer, will be
furnished in French, unless the Issuer determines in its discretion to furnish
such materials or any of them in English or unless such materials are required
to be furnished in English as provided in Section 5.6.
In addition, upon the express written request of the Issuer, the
Depositary shall furnish promptly to the Commission copies of all annual or
other periodic reports and other notices or communications which the Depositary
receives as the holder of the Deposited Securities from the Issuer and which are
not so furnished to or filed with the Commission pursuant to the reporting
requirements of the Securities Exchange Act of 1934 or any other requirement of
the Commission.
Upon the request of the Depositary, the Issuer shall furnish to the
Depositary the name of each dealer known to the Issuer depositing Shares against
issuance of American Depositary Shares evidenced by Receipts during the period
covered by reports required to be filed with the Commission.
SECTION 4.10 Lists of Owners.
----------------
Promptly upon request by the Issuer, the Depositary shall, at the
expense of the Issuer (unless otherwise agreed to by the Issuer and the
Depositary), furnish to it a list, as of a recent date, of the names, addresses
and holdings of American Depositary Shares by all persons in whose names
Receipts are registered on the books of the Depositary.
SECTION 4.11 Withholding.
------------
In the event that the Depositary determines that any distribution in
property (including Shares and rights to subscribe therefor) is subject to any
tax or other governmental charge which the Depositary is obligated to withhold,
the Depositary may by public or private sale dispose of all or a portion of such
property (including Shares and rights to subscribe therefor) in such amounts and
in such manner as the Depositary deems necessary and practicable to pay any such
taxes or charges and the Depositary shall distribute the net proceeds of any
such sale after deduction of such taxes or charges to the Owners entitled
thereto in proportion to the number of American Depositary Shares held by them
respectively.
The Depositary will use reasonable efforts to follow the procedures
established by the French Treasury for eligible United States Owners to benefit
from the reduced withholding tax rate of 15% upon payment of any dividend and to
receive the payment of any avoir fiscal. To effect such recovery and receipt,
----- ------
the Depositary shall
<PAGE>
provide U.S. resident Owners, and any other holders, upon request, with the
appropriate French tax forms and instructions for completing such forms, which
shall be provided by the Issuer to the Depositary, and shall advise such U.S.
resident Owners to return such forms to it properly completed and executed. Upon
receipt of such forms properly completed and executed by U.S. resident Owners,
the Depositary shall promptly cause them to be filed with the appropriate French
tax authorities, and upon receipt of any resulting remittance, the Depositary
shall distribute to the Owners entitled thereto, as soon as practicable, the
proceeds thereof in Dollars in accordance with Section 4.5.
ARTICLE 5. THE DEPOSITARY, THE CUSTODIANS AND THE ISSUER.
SECTION 5.1 Maintenance of Office and Transfer Books by the Depositary.
-----------------------------------------------------------
Until termination of this Deposit Agreement in accordance with its
terms, the Depositary shall maintain in the Borough of Manhattan, The City of
New York, facilities for the execution and delivery, registration, registration
of transfers and surrender of Receipts in accordance with the provisions of this
Deposit Agreement.
The Depositary shall keep books for the registration of Receipts and
transfers of Receipts which at all reasonable times shall be open for inspection
by the Owners and the Issuer, provided that such inspection shall not be for the
purpose of communicating with Owners in the interest of a business or object
other than the business of the Issuer or a matter related to this Deposit
Agreement or the Receipts.
The Depositary may close the transfer books, at any time or from time
to time, when deemed expedient by it in connection with the performance of its
duties hereunder or at the request of the Issuer.
If any Receipts or the American Depositary Shares evidenced thereby
are listed on one or more stock exchanges in the United States, the Depositary
shall act as Registrar or with the approval of Issuer appoint a Registrar or one
or more co-registrars for registry of such Receipts in accordance with any
requirements of such exchange or exchanges. Such Registrar or co-registrars may
be removed and a substitute or substitutes appointed by the Depositary upon the
request or with the approval of the Issuer.
SECTION 5.2 Prevention or Delay in Performance by the Depositary or the
-----------------------------------------------------------
Issuer.
- -------
Neither the Depositary nor the Issuer nor any of their directors,
employees, agents or controlling persons (as defined under the Securities Act of
1933) shall incur any liability to any Owner or holder of any Receipt, if by
reason of any provision of any present or future law or regulation of the United
States, The Republic of France or any other country, or of any governmental or
regulatory authority or stock exchange, or by
<PAGE>
reason of any provision, present or future, of the statuts of the Issuer, or the
Deposited Securities or by reason of any act of God or war or other
circumstances beyond its control, the Depositary or the Issuer nor any of their
directors, employees, agents or controlling persons (as defined under the
Securities Act of 1933) shall be prevented or forbidden from, or delayed in or
be subject to any civil or criminal penalty on account of, doing or performing
any act or thing which by the terms of this Deposit Agreement it is provided
shall be done or performed; nor shall the Depositary or the Issuer nor any of
their directors, employees, agents or controlling persons (as defined under the
Securities Act of 1933) incur any liability to any Owner or of any Receipt by
reason of any non-performance or delay, caused as aforesaid, in the performance
of any act or thing which by the terms of this Deposit Agreement it is provided
shall or may be done or performed, or by reason of any exercise of, or failure
to exercise, any discretion provided for in this Deposit Agreement. Where, by
the terms of a distribution pursuant to Sections 4.1, 4.2, or 4.3 of the Deposit
Agreement, or an offering or distribution pursuant to Section 4.4 of the Deposit
Agreement, or for any other reason, such distribution or offering may not be
made available to Owners, and the Depositary may not dispose of such
distribution or offering on behalf of such Owners and make the net proceeds
available to such Owners, then the Depositary shall not make such distribution
or offering, and shall allow any rights, if applicable, to lapse.
SECTION 5.3 Obligations of the Depositary, the Custodian and the Issuer.
------------------------------------------------------------
The Issuer and its directors, employees, agents and controlling
persons (as defined under the Securities Act of 1933) assume no obligation nor
shall they be subject to any liability under this Deposit Agreement to Owners or
holders of Receipts, except that the Issuer agrees to perform its obligations
specifically set forth in this Deposit Agreement without negligence or bad
faith.
The Depositary and its directors, employees, agents and controlling
persons (as defined under the Securities Act of 1933) assume no obligation nor
shall they be subject to any liability under this Deposit Agreement to any Owner
or holder of any Receipt (including, without limitation, liability with respect
to the validity or worth of the Deposited Securities), except that the
Depositary agrees to perform its obligations specifically set forth in this
Deposit Agreement without negligence or bad faith.
Neither the Depositary nor the Issuer nor any of their directors,
employees, agents and controlling persons (as defined under the Securities Act
of 1933) shall be under any obligation to appear in, prosecute or defend any
action, suit or other proceeding in respect of any Deposited Securities or in
respect of the Receipts, which in their opinions may involve them in expense or
liability, unless indemnity satisfactory to them against all expense and
liability shall be furnished as often as may be required, and the Custodian
shall not be under any obligation whatsoever with respect to such proceedings,
the responsibility of the Custodian being solely to the Depositary.
<PAGE>
Neither the Depositary nor the Issuer nor any of their directors,
employees, agents and controlling persons (as defined under the Securities Act
of 1933) shall be liable for any action or nonaction by them in reliance upon
the advice of or information from legal counsel, accountants, any person
presenting Shares for deposit, any Owner or any other person believed by it in
good faith to be competent to give such advice or information.
Each of the Depositary, the Issuer and their respective directors,
employees, agents and controlling persons (as defined under the Securities Act
of 1933) may rely and shall be protected in acting upon any written notice,
request, direction or other document believed by such person to be genuine and
to have been signed or presented by the proper party or parties.
The Depositary shall not be liable for any acts or omissions made by a
successor depositary whether in connection with a previous act or omission of
the Depositary or in connection with any matter arising wholly after the removal
or resignation of the Depositary, provided that in connection with the issue out
of which such potential liability arises the Depositary performed its
obligations without negligence or bad faith while it acted as Depositary.
The Depositary shall not be responsible for any failure to carry out
any instructions to vote any of the Deposited Securities, or for the manner in
which any such vote is cast or the effect of any such vote, provided that any
such action or omission to act is in good faith.
No disclaimer of liability under the Securities Act of 1933 is
intended by any provision of this Deposit Agreement.
SECTION 5.4 Resignation and Removal of the Depositary.
------------------------------------------
The Depositary may at any time resign as Depositary hereunder by
written notice of its election so to do delivered to the Issuer, such
resignation to take effect upon the appointment of a successor depositary by the
Issuer and its acceptance of such appointment as hereinafter provided.
The Depositary may at any time be removed by the Issuer by written
notice of such removal effective upon the appointment of a successor depositary
and its acceptance of such appointment as hereinafter provided.
In case at any time the Depositary acting hereunder shall resign or be
removed, the Issuer shall use its best efforts to appoint a successor
depositary, which shall be a bank or trust company having an office in the
Borough of Manhattan, The City of New York. Every successor depositary shall
execute and deliver to its predecessor and to the Issuer an instrument in
writing accepting its appointment hereunder, and thereupon
<PAGE>
such successor depositary, without any further act or deed, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor;
but such predecessor, nevertheless, upon payment of all sums due it and on the
written request of the Issuer shall execute and deliver an instrument
transferring to such successor all rights and powers of such predecessor
hereunder, shall duly assign, transfer and deliver all right, title and interest
in the Deposited Securities to such successor, and shall deliver to such
successor a list of the Owners of all outstanding Receipts. Any such successor
depositary shall promptly mail notice of its appointment to the Owners.
Any corporation into or with which the Depositary may be merged or
consolidated shall be the successor of the Depositary without the execution or
filing of any document or any further act.
SECTION 5.5 The Custodians.
---------------
The Depositary has appointed the principal Paris office of the
Custodian as agent of the Depositary for the purposes of this Deposit Agreement.
The Custodian or its successors, which shall be accredited financial
intermediaries acting through a specified office located in The Republic of
France, in acting hereunder shall be subject at all times and in all respects to
the directions of the Depositary and shall be responsible solely to it. The
Custodian may resign and be discharged from its duties hereunder by notice of
such resignation delivered to the Depositary at least 30 days prior to the date
on which such resignation is to become effective. If upon such resignation there
shall be no Custodian acting hereunder, the Depositary shall, promptly after
receiving such notice, and with the prior approval of the Issuer, appoint a
substitute custodian or custodians which shall be an accredited financial
intermediary acting through a specified office located in The Republic of
France, approved by the Issuer, such approval not to be unreasonably withheld,
each of which shall thereafter be a Custodian hereunder. Whenever the Depositary
in its discretion determines that it is in the best interest of the Owners to do
so, it may, with the prior approval of the Issuer, appoint substitute or
additional custodian or custodians, which shall be an accredited intermediary
acting through a specified office located in The Republic of France, approved by
the Issuer, such approval not to be unreasonably withheld, each of which shall
thereafter be one of the Custodians hereunder. Upon demand of the Depositary the
Custodian shall deliver such of the Deposited Securities held by it as are
requested of it to any other Custodian or such substitute or additional
custodian or custodians. Each such substitute or additional custodian shall
deliver to the Depositary, forthwith upon its appointment, an acceptance of such
appointment satisfactory in form and substance to the Depositary. Immediately
upon any such change, the Depositary shall give notice thereof in writing to all
Owners of Receipts.
Upon the appointment of any successor depositary hereunder, each
Custodian then acting hereunder shall forthwith become, without any further act
or writing, the agent hereunder of such successor depositary and the appointment
of such
<PAGE>
successor depositary shall in no way impair the authority of the Custodian
hereunder; but the successor depositary so appointed shall, nevertheless, on the
written request of the Custodian or as required by the laws of The Republic of
France, execute and deliver to such Custodian all such instruments as may be
proper to give to such Custodian full and complete power and authority as agent
hereunder of such successor depositary.
SECTION 5.6 Notices and Reports.
--------------------
On or before the first date on which the Issuer gives notice, by
publication or otherwise, of any meeting of holders of Shares or other Deposited
Securities, or of any adjourned meeting of such holders, or of the taking of any
action in respect of any cash or other distributions or the offering of any
rights, the Issuer agrees to transmit to the Depositary and the Custodian a copy
of the notice thereof in the form given or to be given to holders of Shares or
other Deposited Securities.
The Issuer shall furnish to the Depositary in English annual reports
(including audited consolidated financial statements), quarterly reports
(including certain unaudited summary financial information), summaries in
English or English versions (except as provided in Section 4.9) of notices of
shareholders' meetings and other reports and communications that are made
generally available by the Issuer to holders of Deposited Securities. Unless
otherwise instructed in writing by the Issuer, the Depositary will arrange for
the mailing of copies of such reports and summaries so furnished to the
Depositary to all Owners at the Issuer's expense. The Issuer will timely provide
the Depositary with the quantity of such notices, reports, and communications,
translated into English (except as provided in Section 4.9), as may be requested
by the Depositary from time to time in order for the Depositary to effect such
mailings.
SECTION 5.7 Distribution of Additional Shares, Rights, etc.
-----------------------------------------------
The Issuer agrees that in the event of any issuance or distribution by
the Issuer of (1) additional Shares, (2) rights to subscribe for Shares, (3)
securities convertible into Shares, or (4) rights to subscribe for such
securities, (each a "Distribution") the Issuer will promptly furnish to the
Depositary a written opinion from U.S. counsel for the Issuer, which counsel
shall be satisfactory to the Depositary, stating whether or not the Distribution
requires a Registration Statement under the Securities Act of 1933 to be in
effect prior to making such Distribution available to Owners entitled thereto.
If in the opinion of such counsel a Registration Statement is required, such
counsel shall furnish to the Depositary a written opinion as to whether or not
there is a Registration Statement in effect which will cover such Distribution.
The Issuer agrees with the Depositary that neither the Issuer nor any
company controlled by, controlling or under common control with the Issuer will
at any time deposit any Shares, either originally issued or previously issued
and reacquired by the Issuer or any such affiliate, unless a Registration
Statement is in effect as to such Shares
<PAGE>
under the Securities Act of 1933. Nothing in this Section 5.7 or elsewhere in
this Deposit Agreement shall create any obligation on the part of the Issuer or
the Depositary to file a registration statement in respect of any such
securities or rights.
SECTION 5.8 Indemnification.
----------------
The Issuer agrees to indemnify the Depositary, its directors,
employees, agents and affiliates and the Custodian against, and hold each of
them harmless from, any liability or expense (including, but not limited to, the
fees and expenses of counsel) which may arise out of acts performed or omitted,
in accordance with the provisions of this Deposit Agreement and of the Receipts,
as the same may be amended, modified or supplemented from time to time, (i) by
either the Depositary or a Custodian or their respective directors, employees,
agents and affiliates, except for any liability or expense arising out of the
negligence or bad faith of either of them, or (ii) by the Issuer or any of its
directors, employees, agents and affiliates.
The indemnities contained in the preceding paragraph shall not extend
to any liability or expense which may arise out of any Pre-Release (as defined
in Section 2.9) to the extent that any such liability or expense arises in
connection with (a) any United States Federal, state or local income tax laws,
(b) the failure of the Depositary to deliver Deposited Securities when required
under the terms of Section 2.5 hereof or (c) the non-performance by the
Depositary or the Custodian of any obligations relating to any Pre-Release under
Section 2.9 of this Deposit Agreement or any other agreement between the
Depositary and the Issuer relating to Pre-Release. However, the indemnities
contained in the preceding paragraph shall apply to any liability or expense
which may arise out of any misstatement or alleged misstatement or omission or
alleged omission in any registration statement, proxy statement, prospectus (or
placement memorandum) or preliminary prospectus (or preliminary placement
memorandum) relating to the offer or sale of American Depositary Shares, except
to the extent any such liability or expense arises out of (i) information
relating to the Depositary or the Custodian, as applicable, furnished in writing
to the Issuer by the Depositary or the Custodian, as applicable, expressly for
use in any of the foregoing documents, or, (ii) material omissions from such
information furnished by the Depositary or the Custodian.
The Depositary agrees to indemnify the Issuer, its directors,
employees, agents and affiliates and hold them harmless from any liability or
expense which may arise out of acts performed or omitted by the Depositary or
its Custodian or their respective directors, employees, agents and affiliates
due to their negligence or bad faith.
The obligations set forth in this Section 5.8 shall survive the
termination of this Deposit Agreement and the succession or substitution of any
indemnified person.
Any person seeking indemnification hereunder (an "Indemnified Person")
shall notify the person from whom it is seeking indemnification (the
"Indemnifying
<PAGE>
Person") of the commencement of any indemnifiable action or claim promptly after
such Indemnified Person becomes aware of such commencement and shall consult in
good faith with the Indemnifying Person as to the conduct of the defense of such
action or claim, which defense shall be reasonable under the circumstances. No
Indemnified Person shall compromise or settle any such action or claim without
the consent in writing of the Indemnifying Person.
SECTION 5.9 Charges of Depositary.
----------------------
The Issuer agrees to pay the fees, reasonable expenses and out-of-
pocket charges of the Depositary and those of any Registrar only in accordance
with agreements in writing entered into between the Depositary and the Issuer
from time to time. The Depositary shall present its statement for such charges
and expenses to the Issuer once every three months. The charges and expenses of
the Custodian are for the sole account of the Depositary. Any written agreement
signed by the Issuer and the Depositary relating to the Depositary's fees and
expenses under this Deposit Agreement shall be binding upon the Issuer and the
Depositary until it is expressly amended or superseded by a subsequent written
agreement, irrespective of whether such agreement was entered into prior to,
simultaneously with or subsequent to this Deposit Agreement, and notwithstanding
any provision of this Deposit Agreement that might be construed to be
inconsistent with such agreement.
The following charges shall be incurred by any party depositing or
withdrawing Shares or by any party surrendering Receipts or to whom Receipts are
issued (including, without limitation, issuance pursuant to a stock dividend or
stock split declared by the Issuer or an exchange of stock regarding the
Receipts or Deposited Securities or a distribution of Receipts pursuant to
Section 4.3 hereof), whichever applicable: (1) taxes and other governmental
charges, (2) such registration fees as may from time to time be in effect for
the registration of transfers of Shares generally on the share register of the
Issuer or Foreign Registrar and applicable to transfers of Shares to the name of
the Depositary or its nominee or the Custodian or its nominee on the making of
deposits or withdrawals hereunder, (3) such cable, telex and facsimile
transmission expenses as are expressly provided in this Deposit Agreement, (4)
such expenses as are incurred by the Depositary in the conversion of foreign
currency pursuant to Section 4.5, (5) a fee of $5.00 or less per 100 American
Depositary Shares (or portion thereof) for the execution and delivery of
Receipts pursuant to Section 2.3, the execution and delivery of Receipts
pursuant to Sections 4.3 and 4.4 and the surrender of Receipts pursuant to
Section 2.5 and (6) a fee of $1.00 or less per certificate for a Receipt or
Receipts for transfers made pursuant to Section 2.4.
The Depositary, subject to Section 2.9 hereof, may own and deal in any
class of securities of the Issuer and its affiliates and in Receipts.
<PAGE>
SECTION 5.10 Retention of Depositary Documents.
----------------------------------
The Depositary is authorized to destroy those documents, records,
bills and other data compiled during the term of this Deposit Agreement at the
times permitted by the laws or regulations governing the Depositary unless the
Issuer requests that such papers be retained for a longer period or turned over
to the Issuer or to a successor depositary.
SECTION 5.11 Exclusivity.
------------
Subject to the provisions of Section 5.4, the Issuer agrees not to
appoint any other depositary for issuance of American Depositary Receipts issued
pursuant to this Deposit Agreement so long as The Bank of New York is acting as
Depositary hereunder.
SECTION 5.12 List of Restricted Securities Owners.
-------------------------------------
From time to time, upon the written request of the Depositary, the
Issuer shall provide to the Depositary a list setting forth, to the actual
knowledge of the Issuer, those persons or entities who beneficially own
Restricted Securities and the Issuer shall update that list on a regular basis.
The Issuer agrees to advise in writing each of the persons or entities so listed
that such Restricted Securities are ineligible for deposit hereunder. The
Depositary may rely on such a list or update but shall not be liable for any
action or omission made in reliance thereon.
ARTICLE 6. AMENDMENT AND TERMINATION.
SECTION 6.1 Amendment.
----------
The form of the Receipts and any provisions of this Deposit Agreement
may at any time and from time to time be amended by agreement between the Issuer
and the Depositary in any respect which they may deem necessary or desirable.
Any amendment which shall impose or increase any fees or charges (other than
taxes and other governmental charges, registration fees, cable, telex or
facsimile transmission costs, delivery costs or other such expenses), or which
shall otherwise prejudice any substantial existing right of Owners, shall,
however, not become effective as to outstanding Receipts until the expiration of
ninety days after notice of such amendment shall have been given to the Owners
of outstanding Receipts. Every Owner at the time any amendment so becomes
effective shall be deemed, by continuing to hold such Receipt, to consent and
agree to such amendment and to be bound by the Deposit Agreement or Receipts as
amended thereby. In no event shall any amendment impair the right of the Owner
of any Receipt to surrender such Receipt and receive therefor the Deposited
Securities corresponding thereto, except in order to comply with mandatory
provisions of applicable law.
<PAGE>
SECTION 6.2 Termination.
------------
The Depositary shall at any time at the direction of the Issuer
terminate this Deposit Agreement by mailing notice of such termination to the
Owners of all Receipts then outstanding at least 90 days prior to the date fixed
in such notice for such termination. The Depositary may likewise terminate this
Deposit Agreement by mailing notice of such termination to the Issuer and the
Owners of all Receipts then outstanding if at any time 90 days shall have
expired after the Depositary shall have delivered to the Issuer a written notice
of its election to resign and a successor depositary shall not have been
appointed and accepted its appointment as provided in Section 5.4. On and after
the date of termination, the Owner of a Receipt will, upon (a) surrender of such
Receipt at the Corporate Trust Office of the Depositary, (b) payment of the fee
of the Depositary for the surrender of Receipts referred to in Section 2.5, and
(c) payment of any applicable taxes or governmental charges, be entitled to
delivery, to him or upon his order, of the amount of Deposited Securities
corresponding to the American Depositary Shares evidenced by such Receipt. If
any Receipts shall remain outstanding after the date of termination, the
Depositary thereafter shall discontinue the registration of transfers of
Receipts, shall suspend the distribution of dividends to the Owners thereof, and
shall not give any further notices or perform any further acts under this
Deposit Agreement, except that the Depositary shall continue to collect
dividends and other distributions pertaining to Deposited Securities, shall sell
rights as provided in this Deposit Agreement, and shall continue to deliver
Deposited Securities, together with any dividends or other distributions
received with respect thereto and the net proceeds of the sale of any rights or
other property, in exchange for Receipts surrendered to the Depositary (after
deducting, in each case, the fee of the Depositary for the surrender of a
Receipt, any expenses for the account of the Owner of such Receipt in accordance
with the terms and conditions of this Deposit Agreement, and any applicable
taxes or governmental charges). At any time after the expiration of one year
from the date of termination, the Depositary may sell the Deposited Securities
then held hereunder and may thereafter hold uninvested the net proceeds of any
such sale, together with any other cash then held by it hereunder, unsegregated
and without liability for interest, for the pro rata benefit of the Owners of
Receipts which have not theretofore been surrendered, such Owners thereupon
becoming general creditors of the Depositary with respect to such net proceeds.
After making such sale, the Depositary shall be discharged from all obligations
under this Deposit Agreement, except to account for claims of Owners as
Creditors of the Depositary for such net proceeds and other cash (after
deducting, in each case, the fee of the Depositary for the surrender of a
Receipt, any expenses for the account of the Owner of such Receipt in accordance
with the terms and conditions of this Deposit Agreement, and any applicable
taxes or governmental charges). Upon the termination of this Deposit Agreement,
the Issuer shall be discharged from all obligations under this Deposit Agreement
except for its obligations to the Depositary under Sections 5.8 and 5.9 hereof
which shall survive the termination of this Deposit Agreement.
<PAGE>
ARTICLE 7. MISCELLANEOUS.
SECTION 7.1 Counterparts.
-------------
This Deposit Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of such counterparts shall
constitute one and the same instrument. Copies of this Deposit Agreement shall
be filed with the Depositary and the Custodians and shall be open to inspection
by any holder or Owner of a Receipt during business hours at the principal
office of the Depositary and the principal Paris office of the Custodian.
SECTION 7.2 No Third Party Beneficiaries.
-----------------------------
This Deposit Agreement is for the exclusive benefit of the parties
hereto and shall not be deemed to give any legal or equitable right, remedy or
claim whatsoever to any other person.
SECTION 7.3 Severability.
-------------
In case any one or more of the provisions contained in this Deposit
Agreement or in the Receipts should be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall in no way be affected,
prejudiced or disturbed thereby.
SECTION 7.4 Holders and Owners as Parties; Binding Effect.
----------------------------------------------
The holders and Owners of Receipts from time to time shall be parties
to this Deposit Agreement and shall be bound by all of the terms and conditions
hereof and of the Receipts by acceptance thereof.
SECTION 7.5 Notices.
--------
Any and all notices to be given to the Issuer shall be deemed to have
been duly given if personally delivered or sent by mail or cable, telex or
facsimile transmission confirmed by letter, addressed to Business Objects S.A.,
Tour Chantecoq, 5, rue Chantecoq, 92800 Puteaux, France, Attention to President,
or any other place to which the Issuer may have transferred its principal
office.
Any and all notices to be given to the Depositary shall be deemed to
have been duly given if in English and personally delivered or sent by mail or
cable, telex or facsimile transmission confirmed by letter, addressed to The
Bank of New York, 101 Barclay Street, New York, New York 10286, Attention:
American Depositary Receipt Administration, or any other place to which the
Depositary may have transferred its Corporate Trust Office.
<PAGE>
Any and all notices to be given to any Owner shall be deemed to have
been duly given if personally delivered or sent by mail or cable, telex or
facsimile transmission confirmed by letter, addressed to such Owner at the
address of such Owner as it appears on the transfer books for Receipts of the
Depositary, or, if such Owner shall have filed with the Depositary a written
request that notices intended for such Owner be mailed to some other address, at
the address designated in such request.
Delivery of a notice sent by mail or cable, telex or facsimile
transmission shall be deemed to be effected at the time when a duly addressed
letter containing the same (or a confirmation thereof in the case of a cable,
telex or facsimile transmission) is deposited, postage prepaid, in a post-office
letter box. The Depositary or the Issuer may, however, act upon any cable, telex
or facsimile transmission received by it, notwithstanding that such cable, telex
or facsimile transmission shall not subsequently be confirmed by letter as
aforesaid.
SECTION 7.6 Governing Law.
--------------
This Deposit Agreement and the Receipts shall be interpreted and all
rights hereunder and thereunder and provisions hereof and thereof shall be
governed by the laws of the State of New York. The terms of any Shares held
hereunder, however, shall be governed by the laws of The Republic of France.
SECTION 7.7 Compliance with U.S. Securities Laws.
-------------------------------------
Notwithstanding anything in this Deposit Agreement to the contrary,
the Issuer and the Depositary each agrees that it will not exercise any rights
it has under this Deposit Agreement to prevent the withdrawal or delivery of
Deposited Securities in a manner which would violate the U.S. securities laws,
including, but not limited to, Section I.A.(1) of the General Instructions to
the Form F-6 Registration Statement, as amended from time to time, under the
Securities Act of 1933.
<PAGE>
IN WITNESS WHEREOF, BUSINESS OBJECTS S.A. and THE BANK OF NEW YORK have
duly executed this agreement as of the day and year first set forth above and
all Owners shall become parties hereto upon acceptance by them of Receipts
issued in accordance with the terms hereof.
BUSINESS OBJECTS S.A.
By: _______________________
Name:
Title:
THE BANK OF NEW YORK,
as Depositary
By: _______________________
Name:
Title:
<PAGE>
Exhibit A to Deposit Agreement
NO. ____________________________
AMERICAN DEPOSITARY SHARES
(EACH AMERICAN DEPOSITARY SHARE ENTITLES
THE OWNER TO RECEIVE ONE DEPOSITED SHARE)
THE BANK OF NEW YORK
AMERICAN DEPOSITARY RECEIPT
FOR ORDINARY SHARES OF THE
NOMINAL VALUE OF ONE FRENCH FRANC EACH OF
BUSINESS OBJECTS S.A.
(INCORPORATED UNDER THE LAWS THE REPUBLIC OF FRANCE)
The Bank of New York as depositary (hereinafter called the "Depositary"),
hereby certifies that _________________________________________________, or
registered assigns IS THE OWNER OF______________________________________________
AMERICAN DEPOSITARY SHARES
entitling the Owner to receive deposited ordinary shares, nominal value one
French Franc each (herein called "Shares"), of Business Objects S.A.,
incorporated under the laws The Republic of France (herein called the "Issuer").
At the date hereof, each American Depositary Share entitles the Owner thereof to
receive one Share which is either deposited or subject to deposit under the
deposit agreement at the designated Paris offices of Banque Nationale De Paris,
14, Rue Bergere, 75009 Paris, France; Banque Paribas, 12
<PAGE>
BD de la Madeleine, 75009 Paris, France; Banque Worms, 45 Boulevard Haussmann,
75009 Paris, France; Credit Lyonnais, 19 Boulevard des Italiens BC, 75002 Paris,
France; Banque Indosuez, 44 Rue de Courcelles, 75008 Paris, France; and at the
designated Nantes Cedex office of Societe Generale, France, 32, rue du Champ de
Tir, Department Titres ET Bourse, BP 1135-44024 Nantes Cedex, France (herein
collectively called the "Custodian"). The Depositary's Corporate Trust Office is
located at a different address than its principal executive office. Its
Corporate Trust Office is located at 101 Barclay Street, New York, N.Y. 10286,
and its principal executive office is located at One Wall Street, New York, N.Y.
10286.
THE DEPOSITARY'S CORPORATE TRUST OFFICE ADDRESS IS
101 BARCLAY STREET, NEW YORK, N.Y. 10286
1. THE DEPOSIT AGREEMENT.
---------------------
This American Depositary Receipt is one of an issue (herein called
"Receipts"), all issued and to be issued upon the terms and conditions set forth
in the Amended and Restated Deposit Agreement, dated as of May 8, 1996, as
amended and restated as of December 30, 1998 (herein called the "Deposit
Agreement"), by and among the Issuer, the Depositary, and all Owners and holders
from time to time of Receipts issued thereunder, each of whom by accepting a
Receipt agrees to become a party thereto and become bound by all the terms and
conditions thereof. The Deposit Agreement sets forth the rights of Owners and
holders of the Receipts and the rights and duties of the Depositary in respect
of the Shares deposited thereunder and any and all other securities, property
and cash from time to time received in respect of such Shares and held
thereunder (such Shares, securities, property, and cash are herein called
"Deposited Securities"). Copies of the Deposit Agreement are on file at the
Depositary's Corporate Trust Office in New York City and at the office of the
Custodian.
The statements made on the face and reverse of this Receipt are summaries
of certain provisions of the Deposit Agreement and are qualified by and subject
to the detailed provisions of the Deposit Agreement, to which reference is
hereby made.
<PAGE>
Capitalized terms not defined herein shall have the meanings set forth in the
Deposit Agreement.
2. SURRENDER OF RECEIPTS AND WITHDRAWAL OF SHARES.
----------------------------------------------
Upon surrender at the Corporate Trust Office of the Depositary of this
Receipt, and upon payment of the fee of the Depositary provided in this Receipt,
and subject to the terms and conditions of the Deposit Agreement, the Issuer's
statuts and the Deposited Securities, the Owner hereof is entitled to the
transfer of the Deposited Securities to an account registered in the Issuer's
shareholders' accounts and which is managed by the Custodian, as an accredited
financial intermediary, acting as agent on behalf of and in the name of such
Owner or such name as shall be designated by such Owner, of the amount of the
Deposited Securities at the time corresponding to such Receipt. Such transfer
shall be made, as hereinafter provided, without unreasonable delay.
In the event any delivery of Deposited Securities under Section 2.5 of the
Deposit Agreement would otherwise require delivery of fractional Deposited
Securities, the Depositary may sell the amount of Deposited Securities
corresponding to the aggregate of such fractions and distribute the net
proceeds, all in the manner and subject to the conditions described in Section
4.1 of the Deposit Agreement.
3. TRANSFERS, SPLIT-UPS, AND COMBINATIONS OF RECEIPTS.
--------------------------------------------------
The transfer of this Receipt is promptly registrable on the books of the
Depositary at its Corporate Trust Office by the Owner hereof in person or by a
duly authorized attorney, upon any surrender of this Receipt properly endorsed
for transfer or accompanied by proper instruments of transfer and funds
sufficient to pay any applicable transfer taxes and the expenses of the
Depositary, and duly stamped as may be required by the laws of the State of New
York and of the United States of America, and upon compliance with such
regulations, if any, as the Depositary may establish for such
<PAGE>
purpose. This Receipt may be split into other such Receipts, or may be combined
with other such Receipts into one Receipt, evidencing the same aggregate number
of American Depositary Shares as the Receipt or Receipts surrendered. The
Depositary shall ensure that it has on hand at all times a sufficient supply of
Receipts to meet the demands for transfer. As a condition precedent to the
execution and delivery, registration of transfer, split-up, combination, or
surrender of any Receipt or withdrawal of any Deposited Securities, the
Depositary, the Custodian, or Registrar may require payment from the depositor
of Shares or the presentor of the Receipt of a sum sufficient to reimburse it
for any tax or other governmental charge and any stock transfer or registration
fee with respect thereto (including any such tax or charge and fee with respect
to Shares being deposited or withdrawn) and payment of any applicable fees as
provided in this Receipt, may require the production of proof satisfactory to it
as to the identity and genuineness of any signature and may also require
compliance with any regulations the Depositary may establish consistent with the
provisions of the Deposit Agreement or this Receipt, including, without
limitation, paragraph 24 of this Receipt.
The delivery of Receipts against deposits of Shares generally or against
deposits of particular Shares may be suspended, registration of or the transfer
of Receipts in particular instances may be refused, or the registration of
transfer of outstanding Receipts generally may be suspended, during any period
when the transfer books of the Depositary are closed, or if any such action is
deemed necessary or advisable by the Depositary or the Issuer at any time or
from time to time because of any requirement of law or of any government or
governmental body or commission, or under any provision of the Deposit
Agreement, the statuts of the Issuer or this Receipt, or for any other reason,
subject to the provisions of the following sentence. The surrender of
outstanding Receipts and withdrawal of Deposited Securities may not be suspended
except as permitted in General Instruction I(A)1 to Form F-6 (as may be amended
from time to time) under the Securities Act of 1933, which currently permits
suspension only in connection with (i) temporary delays caused by closing the
transfer books of the Depositary or the Issuer or the
<PAGE>
appointed agent for the Issuer for the registration of transfer of such Shares
or the deposit of Shares in connection with voting at a shareholders' meeting,
or the payment of dividends, (ii) the payment of fees, taxes and similar
charges, and (iii) compliance with any U.S. or foreign laws or governmental
regulations relating to the Receipts or to the withdrawal of the Deposited
Securities. Without limitation of the foregoing, the Depositary shall not
knowingly accept for deposit under the Deposit Agreement any Shares required to
be registered under the provisions of the Securities Act of 1933, unless a
registration statement is in effect as to such Shares.
4. LIABILITY OF OWNER FOR TAXES.
----------------------------
If any tax or other governmental charge shall become payable with respect
to any Receipt or any Deposited Securities corresponding hereto, such tax or
other governmental charge shall be payable by the Owner hereof to the
Depositary. The Depositary may refuse to effect any transfer of this Receipt or
any withdrawal of Deposited Securities corresponding to American Depositary
Shares evidenced by such Receipt until such payment is made, and may withhold
any dividends or other distributions, or may sell for the account of the Owner
hereof any part or all of the Deposited Securities corresponding to the American
Depositary Shares evidenced by this Receipt, and may apply such dividends or
other distributions or the proceeds of any such sale in payment of such tax or
other governmental charge and the Owner hereof shall remain liable for any
deficiency.
5. WARRANTIES OF DEPOSITORS.
------------------------
Every person depositing Shares under the Deposit Agreement shall be deemed
thereby to represent and warrant that such Shares and each certificate therefor
are validly issued, fully paid, nonassessable, and free of any pre-emptive
rights of the holders of outstanding Shares and that the person making such
deposit is duly authorized so to do. Every such person shall also be deemed to
represent that the deposit of such Shares and
<PAGE>
the sale of Receipts evidencing American Depositary Shares corresponding to such
Shares by that person are not restricted under the Securities Act of 1933 or
under the laws of the Republic of France. Such representations and warranties
shall survive the deposit of Shares and issuance of Receipts.
6. FILING PROOFS, CERTIFICATES, AND OTHER INFORMATION.
--------------------------------------------------
Any person presenting Shares for deposit or any Owner of a Receipt may be
required from time to time to file with the Depositary or the Custodian such
proof of citizenship or residence, exchange control approval, payment of
applicable French or other taxes or governmental charges or legal or beneficial
ownership or such information relating to the registration of the Shares on the
books of the Issuer or the Foreign Registrar, if applicable, to execute such
certificates and to make such representations and warranties, as the Depositary
may deem necessary or proper or the Issuer may reasonably require upon written
request to the Depositary or the Custodian. The Depositary may withhold the
delivery or registration of transfer of any Receipt or the distribution of any
dividend or sale or distribution of rights or of the proceeds thereof or the
delivery of any Deposited Securities until such proof or other information is
filed or such certificates are executed or such representations and warranties
are made pertaining to the Receipt. No Shares shall be accepted for deposit
unless accompanied by evidence satisfactory to the Depositary that any necessary
approval has been granted by the governmental body in The Republic of France, if
any, which is then performing the function of the regulation of currency
exchange or which has jurisdiction over foreign investment.
7. CHARGES OF DEPOSITARY.
---------------------
The Issuer agrees to pay the fees, reasonable expenses and out-of-pocket
charges of the Depositary and those of any Registrar only in accordance with
agreements in writing entered into between the Depositary and the Issuer from
time to time. The
<PAGE>
Depositary shall present its statement for such charges and expenses to the
Issuer once every three months. The charges and expenses of the Custodian are
for the sole account of the Depositary. Any written agreement signed by the
Issuer and the Depositary relating to the Depositary's fees and expenses under
the Deposit Agreement shall be binding upon the Issuer and the Depositary until
it is expressly amended or superseded by a subsequent written agreement,
irrespective of whether such agreement was entered into prior to, simultaneously
with or subsequent to the Deposit Agreement, and notwithstanding any provision
of the Deposit Agreement that might be construed to be inconsistent with such
agreement.
The following charges shall be incurred by any party depositing or
withdrawing Shares or by any party surrendering Receipts or to whom Receipts are
issued (including, without limitation, issuance pursuant to a stock dividend or
stock split declared by the Issuer or an exchange of stock regarding the
Receipts or Deposited Securities or a distribution of Receipts pursuant to
Section 4.3 of the Deposit Agreement), whichever applicable: (1) taxes and other
governmental charges, (2) such registration fees as may from time to time be in
effect for the registration of transfers of Shares generally on the share
register of the Issuer or Foreign Registrar and applicable to transfers of
Shares to the name of the Depositary or its nominee or the Custodian or its
nominee on the making of deposits or withdrawals under the Deposit Agreement,
(3) such cable, telex and facsimile transmission expenses as are expressly
provided in the Deposit Agreement, (4) such expenses as are incurred by the
Depositary in the conversion of foreign currency pursuant to Section 4.5 of the
Deposit Agreement, (5) a fee of $5.00 or less per 100 American Depositary Shares
(or portion thereof) for the execution and delivery of Receipts pursuant to
Section 2.3 of the Deposit Agreement, the execution and delivery of Receipts
pursuant to Section 4.3 of the Deposit Agreement and 4.4 of the Deposit
Agreement and the surrender of Receipts pursuant to Section 2.5 of the Deposit
Agreement and (6) a fee of $1.00 or less per certificate for a Receipt or
Receipts for transfers made pursuant to Section 2.4 of the Deposit Agreement.
<PAGE>
The Depositary, subject to Section 2.9 of the Deposit Agreement, may own
and deal in any class of securities of the Issuer and its affiliates and in
Receipts.
8. LOANS AND PRE-RELEASE OF SHARES AND RECEIPTS.
--------------------------------------------
Notwithstanding Section 2.3 of the Deposit Agreement, the Depositary
may execute and deliver Receipts prior to the receipt of Shares pursuant to
Section 2.2 of the Deposit Agreement ("Pre-Release"). The Depositary may,
pursuant to Section 2.5 of the Deposit Agreement, deliver Shares upon the
receipt and cancellation of Receipts which have been Pre-Released, whether or
not such cancellation is prior to the termination of such Pre-Release or the
Depositary knows that such Receipt has been Pre-Released. The Depositary may
receive Receipts in lieu of Shares in satisfaction of a Pre-Release. Each Pre-
Release shall be (a) preceded or accompanied by a written representation from
the person to whom Receipts are to be delivered that such person, or its
customer, owns the Shares or Receipts to be remitted, as the case may be, (b) at
all times fully collateralized with cash or such other collateral as the
Depositary deems appropriate, (c) terminable by the Depositary on not more than
five (5) business days notice, and (d) subject to such further indemnities and
credit regulations as the Depositary deems appropriate. The number of American
Depositary Shares which are outstanding at any time as a result of Pre-Releases
will not normally exceed thirty percent (30%) of the Shares deposited under the
Deposit Agreement; provided, however, that the Depositary reserves the right to
disregard such limit from time to time as it deems appropriate and may, with the
prior written consent of the Issuer, change such limit for purposes of general
application.
The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
With respect to any Pre-Release (as defined in Section 2.9 of the
Deposit Agreement), neither the Issuer nor the Custodian shall be responsible to
any Owners or holders of Receipts for any liabilities or expenses (a) which may
be imposed under any
<PAGE>
United States Federal, state or local income tax laws, (b) which may arise out
of the failure of the Depositary to deliver Deposited Securities when required
under the terms of Section 2.5 of the Deposit Agreement, or (c) the non-
performance by the Depositary or the Custodian of any obligations relating to
any Pre-Release under Section 2.9 of the Deposit Agreement or any other
agreement between the Depositary and the Issuer relating to Pre-Release. The
preceding sentence shall not apply to any liability or expense which may arise
out of any misstatement or alleged misstatement or omission or alleged omission
in any registration statement, proxy statement, prospectus (or placement
memorandum), or preliminary prospectus (or preliminary placement memorandum)
relating to the offer of sale of American Depositary Shares, except to the
extent any such liability or expense arises out of (i) information relating to
the Depositary or the Custodian, as applicable, furnished in writing expressly
for use in any of the foregoing documents, or, (ii) material omissions from such
information furnished by the Depositary or the Custodian.
9. TITLE TO RECEIPTS.
-----------------
It is a condition of this Receipt and every successive holder and
Owner of this Receipt by accepting or holding the same consents and agrees, that
title to this Receipt (and to the American Depositary Shares evidenced thereby),
when properly endorsed or accompanied by proper instruments of transfer, is
transferable by delivery with the same effect as in the case of a negotiable
instrument, provided, however, that the Depositary, notwithstanding any notice
to the contrary, may treat the person in whose name this Receipt is registered
on the books of the Depositary as the absolute owner hereof for the purpose of
determining the person entitled to distribution of dividends or other
distributions or to any notice provided for in the Deposit Agreement or for all
other purposes.
<PAGE>
10. VALIDITY OF RECEIPT.
-------------------
This Receipt shall not be entitled to any benefits under the Deposit
Agreement or be valid or obligatory for any purpose, unless this Receipt shall
have been executed by the Depositary by the manual or facsimile signature of a
duly authorized signatory of the Depositary and, if a Registrar for the Receipts
shall have been appointed, countersigned by the manual or facsimile signature of
a duly authorized officer of the Registrar.
11. REPORTS; INSPECTION OF TRANSFER BOOKS.
-------------------------------------
The Issuer currently is subject to the periodic reporting requirements
of the Securities Exchange Act of 1934 and, accordingly, files certain reports
with the Securities and Exchange Commission (hereinafter called the
"Commission"). Such reports will be available for inspection and copying by
holders and Owners at the public reference facilities maintained by the
Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Depositary will make available for inspection by Owners of
Receipts at its Corporate Trust Office any reports and communications, including
any proxy soliciting material, received from the Issuer which are both (a)
received by the Depositary as the holder of the Deposited Securities and (b)
made generally available to the holders of such Deposited Securities by the
Issuer. The Depositary will also send to Owners of Receipts copies of such
reports when furnished by the Issuer pursuant to Section 5.6 of the Deposit
Agreement. Any such reports and communications, including any such proxy
solicitation material furnished to the Depositary by the Issuer, will be
furnished in French, unless the Issuer determines in its discretion to furnish
such materials or any of them in English or unless such materials are required
to be furnished in English as provided in Section 5.6 of the Deposit Agreement.
<PAGE>
In addition, upon the express written request of the Issuer, the
Depositary shall furnish promptly to the Commission copies of all annual or
other periodic reports and other notices or communications which the Depositary
receives as the holder of the Deposited Securities from the Issuer and which are
not so furnished to or filed with the Commission pursuant to the reporting
requirements of the Securities Exchange Act of 1934 or any other requirement of
the Commission.
The Depositary shall keep books for the registration of Receipts and
transfers of Receipts which at all reasonable times shall be open for inspection
by the Owners of Receipts and the Issuer provided that such inspection shall not
be for the purpose of communicating with Owners of Receipts in the interest of a
business or object other than the business of the Issuer or a matter related to
the Deposit Agreement or the Receipts.
12. DIVIDENDS AND DISTRIBUTIONS.
---------------------------
Whenever the Depositary or the Custodian receives any cash dividend or
other cash distribution on any Deposited Securities, the Depositary shall,
subject to the terms of the Deposit Agreement, convert such dividend or
distribution into Dollars and shall distribute the amount thus received (net of
the fees of the Depositary as provided in Section 5.9 of the Deposit Agreement,
if applicable) to the Owners of Receipts entitled thereto, in proportion to the
number of American Depositary Shares corresponding to such Deposited Securities
held by them respectively; provided, however, that in the event that the Issuer,
the Custodian or the Depositary shall be required to withhold and does withhold
from such cash dividend or such other cash distribution in respect of any
Deposited Securities an amount on account of taxes, the amount distributed to
the Owners of the Receipts evidencing American Depositary Shares corresponding
to such Deposited Securities shall be reduced accordingly.
Subject to the provisions of Sections 4.11 and 5.9 of the Deposit
Agreement, whenever the Depositary or the Custodian receives any distribution
other than a
<PAGE>
distribution described in Sections 4.1, 4.3 or 4.4 of the Deposit Agreement, the
Depositary shall cause the securities or property received by the Depositary or
the Custodian to be distributed to the Owners of Receipts entitled thereto, in
proportion to the number of American Depositary Shares corresponding to such
Deposited Securities held by them respectively, in any manner that the
Depositary, after consultation with the Issuer, may deem equitable and
practicable for accomplishing such distribution; provided, however, that if in
the opinion of the Depositary such distribution cannot be made proportionately
among the Owners of Receipts entitled thereto, or if for any other reason
(including, but not limited to, any requirement that the Issuer or the
Depositary withhold an amount on account of taxes or other governmental charges
or that such securities must be registered under the Securities Act of 1933 in
order to be distributed to Owners or holders) the Depositary deems such
distribution not to be feasible, the Depositary may adopt such method as it may
deem equitable and practicable for the purpose of effecting such distribution,
including, but not limited to, the public or private sale of the securities or
property thus received, or any part thereof, and the net proceeds of any such
sale (net of the fees of the Depositary as provided in Section 5.9 of the
Deposit Agreement) shall be distributed by the Depositary to the Owners of
Receipts entitled thereto as in the case of a distribution received in cash.
Subject to applicable U.S. and French law, and to the other terms of
the Deposit Agreement, in the event that the holders of Shares are granted the
option to receive dividends on such Shares in the form of cash or additional
Shares, Owners of Receipts shall be entitled to receive such option only with
the Issuer's prior written approval and the consent of the Depositary. If any
distribution upon any Deposited Securities consists of a dividend in, or free
distribution of, Shares, the Depositary may, upon prior consultation with and
approval of the Issuer, and shall if the Issuer shall so request, distribute to
the Owners of outstanding Receipts entitled thereto, in proportion to the number
of American Depositary Shares corresponding to such Deposited Securities held by
them respectively, additional Receipts evidencing an aggregate number of
American Depositary Shares
<PAGE>
entitling the Owner thereof to receive the amount of Shares received as such
dividend or free distribution, subject to the terms and conditions of the
Deposit Agreement with respect to the deposit of Shares and the issuance of
American Depositary Shares evidenced by Receipts, including the withholding of
any tax or other governmental charge as provided in Section 4.11 of the Deposit
Agreement and the payment of the fees of the Depositary as provided in Section
5.9 of the Deposit Agreement. In lieu of delivering Receipts for fractional
American Depositary Shares in any such case, the Depositary shall sell the
amount of Shares corresponding to the aggregate of such fractions and distribute
the net proceeds, all in the manner and subject to the conditions set forth in
Section 4.1 of the Deposit Agreement. If additional Receipts are not so
distributed, each American Depositary Share shall thenceforth also entitle the
Owner thereof to receive the additional Shares distributed upon the Deposited
Securities corresponding thereto.
In the event that the Depositary determines that any distribution in
property (including Shares and rights to subscribe therefor) is subject to any
tax or other governmental charge which the Depositary is obligated to withhold,
the Depositary may by public or private sale dispose of all or a portion of such
property (including Shares and rights to subscribe therefor) in such amounts and
in such manner as the Depositary deems necessary and practicable to pay any such
taxes or charges, and the Depositary shall distribute the net proceeds of any
such sale after deduction of such taxes or charges to the Owners of Receipts
entitled thereto.
The Depositary will use reasonable efforts to follow the procedures
established by the French Treasury for eligible United States Owners to benefit
from the reduced withholding tax rate of 15% upon payment of any dividend and to
receive the payment of any avoir fiscal. To effect such recovery and receipt,
----- ------
the Depositary shall provide U.S. resident Owners, and any other holders, upon
request, with the appropriate French tax forms and instructions for completing
such forms, which shall be provided by the Issuer to the Depositary, and shall
advise such U.S. resident Owners to return such forms to it
<PAGE>
properly completed and executed. Upon receipt of such forms properly completed
and executed by U.S. resident Owners, the Depositary shall promptly cause them
to be filed with the appropriate French tax authorities, and upon receipt of any
resulting remittance, the Depositary shall distribute to the Owners entitled
thereto, as soon as practicable, the proceeds thereof in Dollars in accordance
with Section 4.5. of the Deposit Agreement.
13. CONVERSION OF FOREIGN CURRENCY.
------------------------------
Whenever the Depositary shall receive foreign currency, by way of
dividends or other distributions or the net proceeds from the sale of
securities, property or rights, and if at the time of the receipt thereof the
foreign currency so received can in the judgment of the Depositary be converted
on a reasonable basis into Dollars and the resulting Dollars transferred to the
United States, the Depositary shall convert or cause to be converted, by sale or
in any other manner that it may determine, such foreign currency into Dollars,
and such Dollars shall be distributed to the Owners entitled thereto or, if the
Depositary shall have distributed any warrants or other instruments which
entitle the holders thereof to such Dollars, then to the holders of such
warrants and/or instruments upon surrender thereof for cancellation. Such
distribution may be made upon an averaged or other practicable basis without
regard to any distinctions among Owners on account of exchange restrictions, the
date of delivery of any Receipt or otherwise and shall be net of any expenses of
conversion into Dollars incurred by the Depositary as provided in Section 5.9 of
the Deposit Agreement.
If such conversion or distribution with regard to one or more Owners
can be effected only with the approval or license of any government or agency
thereof, the Depositary shall file such application for approval or license, if
any, as it may deem desirable; provided, however, that the Issuer shall not be
-------- -------
obligated to make any such filing.
<PAGE>
If at any time the Depositary shall determine that in its judgment any
foreign currency received by the Depositary is not convertible on a reasonable
basis into Dollars transferable to the United States and/or to one or more
Owners of Receipts, or if any approval or license of any governmental authority
or agency thereof which is required for such conversion is denied or in the
opinion of the Depositary is not obtainable, or if any such approval or license
is not obtained within a reasonable period as determined by the Depositary, the
Depositary may distribute the foreign currency (or an appropriate document
evidencing the right to receive such foreign currency) received by the
Depositary to, or in its discretion may hold such foreign currency uninvested
and without liability for interest thereon for the respective accounts of, the
Owners entitled to receive the same.
If any such conversion of foreign currency, in whole or in part, cannot be
effected for distribution to some of the Owners entitled thereto, the Depositary
may in its discretion make such conversion and distribution in Dollars to the
extent permissible to the Owners entitled thereto and may distribute the balance
of the foreign currency received by the Depositary to, or hold such balance
uninvested and without liability for interest thereon for the respective
accounts of, the Owners entitled thereto for whom such conversion is not
practicable.
14. RIGHTS.
------
In the event that the Issuer shall offer or cause to be offered to the
holders of any Deposited Securities any rights to subscribe for additional
Shares or any rights of any other nature, the Depositary shall have discretion,
after consultation with the Issuer, as to the procedure to be followed in making
such rights available to any Owners including the distribution of warrants or
other instruments thereof as it deems appropriate or in disposing of such rights
on behalf of any Owners and making the net proceeds available to such Owners or,
if by the terms of such rights offering or, for any other reason, the
<PAGE>
Depositary may not either make such rights available to any Owners or dispose of
such rights and make the net proceeds available to such Owners, then the
Depositary shall allow the rights to lapse. If at the time of the offering of
any rights the Depositary determines in its discretion that it is lawful and
feasible to make such rights available to all Owners or to certain Owners but
not to other Owners, the Depositary may distribute, to any Owner to whom it
determines the distribution to be lawful and feasible, in proportion to the
number of American Depositary Shares held by such Owner, warrants or other
instruments therefor in such form as it deems appropriate.
In circumstances in which rights would otherwise not be distributed, if an
Owner of Receipts requests the distribution of warrants or other instruments in
order to exercise the rights allocable to the American Depositary Shares of such
Owner under the Deposit Agreement, the Depositary will make such rights
available to such Owner upon written notice from the Issuer to the Depositary
that (a) the Issuer has elected in its sole discretion to permit such rights to
be exercised and (b) such Owner has executed such documents as the Issuer has
determined in its sole discretion are reasonably required under applicable law.
If the Depositary has distributed warrants or other instruments for rights
to all or certain Owners, then upon instruction from such an Owner pursuant to
such warrants or other instruments to the Depositary from such Owner to exercise
such rights, upon payment by such Owner to the Depositary for the account of
such Owner of an amount equal to the purchase price of the Shares to be received
upon the exercise of the rights, and upon payment of the fees of the Depositary
and any other charges as set forth in such warrants or other instruments, the
Depositary shall, on behalf of such Owner, exercise the rights and purchase the
Shares, and the Issuer shall cause the Shares so purchased to be delivered to
the Depositary on behalf of such Owner. As agent for such Owner, the Depositary
will cause the Shares so purchased to be deposited pursuant to Section 2.2 of
the Deposit Agreement, and shall, pursuant to Section 2.3 of the Deposit
Agreement,
<PAGE>
execute and deliver Receipts to such Owner. In the case of a distribution
pursuant to this paragraph, such Receipts shall be legended in accordance with
applicable U.S. laws, and shall be subject to the appropriate restrictions on
sale, deposit, cancellation, and transfer under such laws.
If the Depositary determines in its discretion that it is not lawful and
feasible to make such rights available to all or certain Owners, it shall, if
possible, sell the rights, warrants or other instruments in proportion to the
number of American Depositary Shares held by the Owners to whom it has
determined it may not lawfully or feasibly make such rights available, and
allocate the net proceeds of such sales (net of the fees of the Depositary as
provided in Section 5.9 of the Deposit Agreement and all taxes and governmental
charges payable in connection with such rights and subject to the terms and
conditions of the Deposit Agreement) for the account of such Owners otherwise
entitled to such rights, warrants or other instruments, upon an averaged or
other practical basis without regard to any distinctions among such Owners
because of exchange restrictions or the date of delivery of any Receipt or
otherwise.
The Depositary will not offer rights to Owners unless both the rights and
the securities to which such rights relate are either exempt from registration
under the Securities Act of 1933 with respect to a distribution to Owners or are
registered under the provisions of such Act. If an Owner of Receipts requests
distribution of warrants or other instruments, notwithstanding that there has
been no such registration under such Act, the Depositary shall not effect such
distribution unless it has received an opinion from recognized counsel in the
United States for the Issuer upon which the Depositary may rely that such
distribution to such Owner is exempt from such registration, it being understood
that this Issuer shall have no obligation to furnish any such opinion.
The Depositary shall not be responsible for any failure to determine that
it may be lawful or feasible to make such rights available to Owners in general
or any Owner in particular.
<PAGE>
15. RECORD DATES.
------------
Whenever any cash dividend or other cash distribution shall become payable
or any distribution other than cash shall be made, or whenever rights shall be
issued with respect to the Deposited Securities, or whenever for any reason the
Depositary gives effect to a change in the number of Shares that correspond to
each American Depositary Share, or whenever the Depositary shall receive notice
of any meeting of holders of Deposited Securities other than Shares, or whenever
for any administrative purpose the Depositary deems it necessary to do so, the
Depositary shall fix a record date, after consultation with the Issuer, when
practicable, (which shall be to the extent practicable, the same record date
fixed by the Issuer), and with the prior approval of the Issuer, when
practicable, (a) for the determination of the Owners of Receipts who shall be
(i) entitled to receive such dividend, distribution or rights or the net
proceeds of the sale thereof or (ii) entitled to give instructions for the
exercise of voting rights at any such meeting, (b) on or after which each
American Depositary Share will correspond to the changed number of Shares or (c)
to facilitate the administrative purpose for which the record date was set.
Subject to the provisions of Sections 4.1 through 4.5 of the Deposit Agreement
and to the other terms and conditions of the Deposit Agreement, the Owners on
such record date shall be entitled, as the case may be, to receive the amount
distributable by the Depositary with respect to such dividend or other
distribution or such rights or the net proceeds of sale thereof in proportion to
the number of American Depositary Shares held by them respectively and to give
voting instructions and to act in respect of any other such matter.
16. VOTING OF SHARES.
----------------
Upon receipt of notice of any meeting of holders of Shares or other
Deposited Securities, the Depositary shall, as soon as practicable thereafter,
mail to the Owners (a) a summary in English of the notice of such meeting sent
by the Issuer to the Depositary pursuant to Section 5.6 of the Deposit
Agreement, (b) a statement that the Owners and
<PAGE>
holders of Receipts as of the close of business on a record date established by
the Depositary pursuant to Section 4.6 of the Deposit Agreement will be
entitled, subject to any applicable provisions of French law, the statuts of the
Issuer and the Deposited Securities to exercise the voting rights, if any,
pertaining to the Shares or other Deposited Securities represented by such
Owner's American Depositary Shares, (c) summaries in English of any materials or
other documents provided by the Issuer for the purpose of enabling such Owner to
exercise such voting rights, and (d) a statement as to the manner in which
voting instructions may be given to the Depositary, including an express
indication that such instructions may be given or deemed given in accordance
with the last sentence of the following paragraph if no instruction is received,
or if the Depositary receives improperly completed voting instructions or a
blank proxy and setting forth the date established by the Depositary for the
receipt of such instructions (the "Receipt Date").
Upon receipt by the Depositary of properly completed voting
instructions, on or before the Receipt Date, the Depositary shall either, in its
discretion, vote such Deposited Securities in accordance with such instructions
or forward such instructions to the Custodian, and the Custodian shall endeavor,
insofar as practicable and permitted under any applicable provisions of French
law, the statuts of the Issuer and the Deposited Securities, to vote or cause to
be voted the Deposited Securities in accordance with any nondiscretionary
instructions set forth in such request. . The Depositary shall not vote or
attempt to exercise the right to vote that attaches to the Shares or other
Deposited Securities, other than in accordance with such instructions. If the
Depositary receives improperly completed voting instructions or receives a blank
proxy from an Owner with respect to any of the Shares or other Deposited
Securities on or before the Receipt Date, the Depositary will, insofar as
permitted under any applicable provisions of French law, the statuts of the
Issuer and the Deposited Securities, deem such Owner to have instructed the
Depositary to give a proxy to the President of the General Meeting of
Shareholders to vote such Deposited Securities in favor of the resolutions
presented or approved by the
<PAGE>
Board of Directors of the Company and against any other resolution not so
presented or approved. If no instructions are received by the Depositary from an
Owner with respect to any of the Shares or other Deposited Securities on or
before the Receipt Date, the Depositary will, insofar as permitted under any
applicable provisions of French law, the statuts of the Issuer and the Deposited
Securities, deem such Owner to have instructed the Depositary to give a proxy to
the President of the General Meeting of Shareholders to vote such Deposited
Securities in favor of the resolutions presented or approved by the Board of
Directors of the Company and against any other resolution not so presented or
approved.
The Depositary will take no action to impair the ability of the Custodian
to vote the number of Shares necessary to carry out the instructions of all
Owners under Section 4.7 of the Deposit Agreement.
17. CHANGES AFFECTING DEPOSITED SECURITIES.
--------------------------------------
In circumstances where the provisions of Section 4.3 of the Deposit
Agreement do not apply, upon any change in nominal value, change in par value,
split-up, consolidation, or any other reclassification of Deposited Securities,
or upon any recapitalization, reorganization, merger or consolidation, or sale
of assets affecting the Issuer or to which it is a party, any securities which
shall be received by the Depositary or a Custodian in exchange for or in
conversion of or in respect of Deposited Securities shall be treated as new
Deposited Securities under the Deposit Agreement, and American Depositary Shares
shall thenceforth entitle the Owner thereof to receive the new Deposited
Securities so received in exchange or conversion, unless additional Receipts are
delivered pursuant to the following sentence. In any such case the Depositary
may with the Issuer's approval, and shall if the Issuer shall so request,
execute and deliver additional Receipts as in the case of a dividend in Shares,
or call for the surrender of outstanding Receipts to be exchanged for new
Receipts specifically describing such new Deposited Securities.
<PAGE>
Immediately upon the occurrence of any such change, conversion or
exchange covered by this Section in respect of the Deposited Securities, the
Issuer shall notify the Depositary in writing of such occurrence and, as soon as
practicable after receipt of such notice from the Issuer, the Depositary shall
give notice thereof in writing to all Owners of Receipts.
18. LIABILITY OF THE ISSUER AND DEPOSITARY.
--------------------------------------
Neither the Depositary nor the Issuer nor any of their directors,
employees, agents or controlling persons (as defined under the Securities Act of
1933) shall incur any liability to any Owner or holder of any Receipt, if by
reason of any provision of any present or future law of the United States, The
Republic of France, or any other country, or of any other governmental or
regulatory authority or stock exchange, or by reason of any provision, present
or future, of the statuts of the Issuer, or the Deposited Securities or by
reason of any act of God or war or other circumstances beyond its control, the
Depositary or the Issuer nor any of their directors, employees, agents or
controlling persons (as defined under the Securities Act of 1933) shall be
prevented or forbidden from or be subject to any civil or criminal penalty on
account of doing or performing any act or thing which by the terms of the
Deposit Agreement it is provided shall be done or performed; nor shall the
Depositary or the Issuer incur any liability to any Owner or holder of a Receipt
by reason of any non-performance or delay, caused as aforesaid, in the
performance of any act or thing which by the terms of the Deposit Agreement it
is provided shall or may be done or performed, or by reason of any exercise of,
or failure to exercise, any discretion provided for in the Deposit Agreement.
Where, by the terms of a distribution pursuant to Sections 4.1, 4.2, or 4.3 of
the Deposit Agreement, or an offering or distribution pursuant to Section 4.4 of
the Deposit Agreement, or for any other reason, such distribution or offering
may not be made available to Owners of Receipts, and the
<PAGE>
Depositary may not dispose of such distribution or offering on behalf of such
Owners and make the net proceeds available to such Owners, then the Depositary
shall not make such distribution or offering, and shall allow any rights, if
applicable, to lapse. Neither the Issuer nor the Depositary nor any of their
directors, employees, agents or controlling persons (as defined under the
Securities Act of 1933) assumes any obligation or shall be subject to any
liability under the Deposit Agreement to Owners or holders of Receipts, except
that they agree to perform their obligations specifically set forth in the
Deposit Agreement without negligence or bad faith. The Depositary shall not be
subject to any liability with respect to the validity or worth of the Deposited
Securities. Neither the Depositary nor the Issuer nor any of their directors,
employees, agents or controlling persons (as defined under the Securities Act of
1933) shall be under any obligation to appear in, prosecute or defend any
action, suit, or other proceeding in respect of any Deposited Securities or in
respect of the Receipts, which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all expense and liability
shall be furnished as often as may be required, and the Custodian shall not be
under any obligation whatsoever with respect to such proceedings, the
responsibility of the Custodian being solely to the Depositary. Neither the
Depositary nor the Issuer nor any of their directors, employees, agents or
controlling persons (as defined under the Securities Act of 1933) shall be
liable for any action or nonaction by it in reliance upon the advice of or
information from legal counsel, accountants, any person presenting Shares for
deposit, any Owner or holder of a Receipt, or any other person believed by it in
good faith to be competent to give such advice or information. Each of the
Depositary, the Issuer and their respective directors, employees, agents and
controlling persons (as defined under the Securities Act of 1933) may rely and
shall be protected in acting upon any written notice, request, direction or
other document believed by such person to be genuine and to have been signed or
presented by the proper party or parties.
The Depositary shall not be liable for any acts or omissions made by a
successor depositary whether in connection with a previous act or omission of
the
<PAGE>
Depositary or in connection with a matter arising wholly after the removal or
resignation of the Depositary, provided that in connection with the issue out of
which such potential liability arises the Depositary performed its obligations
without negligence or bad faith while it acted as Depositary. The Depositary
shall not be responsible for any failure to carry out any instructions to vote
any of the Deposited Securities, or for the manner in which any such vote is
cast or the effect of any such vote, provided that any such action or omission
to act is in good faith. The Issuer agrees to indemnify the Depositary, its
directors, employees, agents and affiliates and the Custodian against, and hold
each of them harmless from, any liability or expense (including, but not limited
to, the fees and expenses of counsel) which may arise out of acts performed or
omitted, in accordance with the provisions of the Deposit Agreement and of the
Receipts, as the same may be amended, modified, or supplemented from time to
time, (i) by either the Depositary or a Custodian or their respective directors,
employees, agents and affiliates, except for any liability or expense arising
out of the negligence or bad faith of either of them, or (ii) by the Issuer or
any of its directors, employees, agents and affiliates. The indemnities
contained in the preceding sentence shall not extend to any liability or expense
which may arise out of any Pre-Release (as defined in Section 2.9 of the Deposit
Agreement) to the extent that any such liability or expense arises in connection
with (a) any United States Federal, state or local income tax laws, (b) the
failure of the Depositary to deliver Deposited Securities when required under
the terms of Section 2.5 of the Deposit Agreement or (c) the non-performance by
the Depositary or the Custodian of any obligations relating to any Pre-Release
under Section 2.9 of the Deposit Agreement or any other agreement between the
Depositary and the Issuer relating to Pre-Release. However, the indemnities
contained in such preceding sentence shall apply to any liability or expense
which may arise out of any misstatement or alleged misstatement or omission or
alleged omission in any registration statement, proxy statement, prospectus (or
placement memorandum) or preliminary prospectus (or preliminary placement
memorandum) relating to the offer or sale of American Depositary Shares, except
to the extent any such liability
<PAGE>
or expense arises out of (i) information relating to the Depositary or the
Custodian, as applicable, furnished in writing to the Issuer by the Depositary
or the Custodian, as applicable, expressly for use in any of the foregoing
documents, or, (ii) material omissions from such information furnished by the
Depositary or the Custodian. No disclaimer of liability under the Securities Act
of 1933 is intended by any provision of the Deposit Agreement.
19. RESIGNATION AND REMOVAL OF THE DEPOSITARY.
-----------------------------------------
The Depositary may at any time resign as Depositary under the Deposit
Agreement by written notice of its election so to do delivered to the Issuer,
such resignation to take effect upon the appointment of a successor depositary
by the Issuer and its acceptance of such appointment as provided in the Deposit
Agreement. The Depositary may at any time be removed by the Issuer by written
notice of such removal, effective upon the appointment of a successor depositary
and its acceptance of such appointment as provided in the Deposit Agreement.
Whenever the Depositary in its discretion determines that it is in the best
interest of the Owners of Receipts to do so, it may, with the prior approval of
the Issuer, appoint a substitute or additional custodian or custodians which
shall be an accredited financial intermediary acting through a specified office
located in The Republic of France, approved by the Issuer, such approval not to
be unreasonably withheld.
20. AMENDMENT.
---------
The form of the Receipts and any provisions of the Deposit Agreement may at
any time and from time to time be amended by agreement between the Issuer and
the Depositary in any respect which they may deem necessary or desirable. Any
amendment which shall impose or increase any fees or charges (other than taxes
and other governmental charges, registration fees, cable, telex or facsimile
transmission costs,
<PAGE>
delivery costs or other such expenses), or which shall otherwise prejudice any
substantial existing right of Owners of Receipts, shall, however, not become
effective as to outstanding Receipts until the expiration of ninety days after
notice of such amendment shall have been given to the Owners of outstanding
Receipts. Every Owner of a Receipt at the time any amendment so becomes
effective shall be deemed, by continuing to hold such Receipt, to consent and
agree to such amendment and to be bound by the Deposit Agreement or Receipts as
amended thereby. In no event shall any amendment impair the right of the Owner
of any Receipt to surrender such Receipt and receive therefor the Deposited
Securities corresponding thereto except in order to comply with mandatory
provisions of applicable law.
21. TERMINATION OF DEPOSIT AGREEMENT.
--------------------------------
The Depositary shall at any time at the direction of the Issuer terminate
the Deposit Agreement by mailing notice of such termination to the Owners of all
Receipts then outstanding at least 90 days prior to the date fixed in such
notice for such termination. The Depositary may likewise terminate the Deposit
Agreement by mailing notice of such termination to the Issuer and the Owners of
all Receipts then outstanding if at any time 90 days shall have expired after
the Depositary shall have delivered to the Issuer a written notice of its
election to resign and a successor depositary shall not have been appointed and
accepted its appointment as provided in the Deposit Agreement. On and after the
date of termination, the Owner of a Receipt, will upon (a) surrender of such
Receipt at the Corporate Trust Office of the Depositary, (b) payment of the fee
of the Depositary for the surrender of Receipts referred to in Section 2.5 of
the Deposit Agreement, and (c) payment of any applicable taxes or governmental
charges, will be entitled to delivery, to him or upon his order, of the amount
of Deposited Securities corresponding to the American Depositary Shares
evidenced by such Receipt. If any Receipts shall remain outstanding after the
date of termination, the Depositary thereafter shall discontinue the
registration of transfers of Receipts, shall suspend the distribution of
<PAGE>
dividends to the Owners thereof, and shall not give any further notices or
perform any further acts under the Deposit Agreement, except that the Depositary
shall continue to collect dividends and other distributions pertaining to
Deposited Securities, shall sell rights as provided in the Deposit Agreement,
and shall continue to deliver Deposited Securities, together with any dividends
or other distributions received with respect thereto and the net proceeds of the
sale of any rights or other property, in exchange for Receipts surrendered to
the Depositary (after deducting, in each case, the fee of the Depositary for the
surrender of a Receipt, any expenses for the account of the Owner of such
Receipt in accordance with the terms and conditions of the Deposit Agreement,
and any applicable taxes or governmental charges). At any time after the
expiration of one year from the date of termination, the Depositary may sell the
Deposited Securities then held under the Deposit Agreement and may thereafter
hold uninvested the net proceeds of any such sale, together with any other cash
then held by it thereunder, unsegregated and without liability for interest, for
the pro rata benefit of the Owners of Receipts which have not theretofore been
surrendered, such Owners thereupon becoming general creditors of the Depositary
with respect to such net proceeds. After making such sale, the Depositary shall
be discharged from all obligations under the Deposit Agreement, except to
account for claims of Owners as Creditors of the Depositary for such net
proceeds and other cash (after deducting, in each case, the fee of the
Depositary for the surrender of a Receipt, any expenses for the account of the
Owner of such Receipt in accordance with the terms and conditions of the Deposit
Agreement, and any applicable taxes or governmental charges). Upon the
termination of the Deposit Agreement, the Issuer shall be discharged from all
obligations under the Deposit Agreement except for its obligations to the
Depositary under Sections 5.8 and 5.9 of the Deposit Agreement which shall
survive the termination of the Deposit Agreement.
<PAGE>
22. INFORMATION REQUESTS.
--------------------
The Issuer may from time to time request Owners of Receipts to provide
information as to the capacity in which such Owners own or owned Receipts and
regarding the identity of any other persons then or previously interested in
such Receipts as to the nature of such interest and various other matters. The
Depositary agrees to use reasonable efforts to comply with written instructions
received from the Issuer requesting that the Depositary forward any such
requests to the Owner and to forward to the Issuer any responses to such
requests received by the Depositary.
23. DISCLOSURE OF INTEREST.
-----------------------
Notwithstanding any other provisions of the Deposit Agreement, each Owner
and holder of Receipts agrees to comply with the Issuer's statuts, as they may
-------
be amended from time to time, and the laws of The Republic of France, if
applicable, with respect to the disclosure requirements regarding ownership of
Shares, all as if such Receipts were, for this purpose, the Shares corresponding
thereto.
In order to facilitate compliance with the notification requirements, an
Owner or holder of Receipts may deliver any notification to the Depositary with
respect to Shares corresponding to American Depositary Shares, and the
Depositary shall, as soon as practicable, forward such notification to the
Issuer and, if applicable the Societe des Bourses Francaises, or any other
------------------------------
authorities in The Republic of France.
On the date of the Deposit Agreement, the Issuer's statuts provide that any
individual or entity, acting alone or in concert with others, that acquires 5%
or more of the outstanding voting rights of the Issuer, or that increases or
decreases its voting rights by 5%, must notify the Issuer by registered letter
within ten calendar days of the date that such acquisition is recorded in the
share register of the Issuer. In the event of failure to comply with such
notification requirement, upon the request of one or more shareholders
<PAGE>
holding 5% or more of the Issuer's share capital, the Shares (including Shares
corresponding to American Depositary Shares) in excess of the relevant threshold
will be deprived of voting rights for all shareholder meetings until the end of
a two-year period following the date on which the Owner or holder thereof has
complied with such notification requirements.
24. COMPLIANCE WITH U.S. SECURITIES LAWS.
------------------------------------
Notwithstanding any terms of the Deposit Agreement to the contrary, the
Issuer and the Depositary each agrees that it will not exercise any rights it
has under the Deposit Agreement to prevent the withdrawal or delivery of
Deposited Securities in a manner which would violate the United States
securities laws, including, but not limited to, Section I A(1) of the General
Instructions to the Form F-6 Registration Statement, as amended from time to
time, under the Securities Act of 1933.
<PAGE>
EXHIBIT 10.21
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO OMITTED PORTIONS.
Authorized Representative: MYSTIC RIVER SOFTWARE, INC.
--------------------------
MICROSOFT LICENSE, DISTRIBUTION AND MARKETING AGREEMENT
THIS LICENSE, DISTRIBUTION AND MARKETING AGREEMENT (the "Agreement") is
entered into this 23rd day of June, 1998 (the "Effective Date"), by and between
MICROSOFT CORPORATION ("Microsoft"), a Washington corporation having its
principal place of business at One Microsoft Way, Redmond, Washington 98052-
6399, and Business Objects S.A., a French corporation having its principal place
of business at 1, square Chaptal, 92309 Levallois-Perret cedex, France
("Company").
The parties agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following terms shall
-----------
have the following meanings:
1.1 "DOCUMENTATION" shall mean the End User Documentation, VBA 5.0 Host
Integration Guide, VBA 5.0 Host Interface Reference and Repository Help, which
are described in Exhibit A hereto.
---------
1.2 "END USER" shall mean an individual or legal entity that acquires
directly or indirectly from Company, one or more Products for its own use and
not for distribution or resale to third parties.
1.3 "END USER DOCUMENTATION" means the Microsoft documentation for End
Users, which is described in Exhibit A attached hereto.
---------
1.4 "TO INTEGRATE," "INTEGRATION" or "INTEGRATED" shall mean the inclusion
of one or more Redistributable Components as part of a Product copied onto
Company's installation media along with Company's software comprising the
Product.
1.5 "LICENSED SOFTWARE" means the computer software programs that are
listed and described on Exhibit A attached hereto, including all Upgrades
---------
thereto which are commercially released by Microsoft during the term of this
Agreement.
1.6 "LOGO" means the Designed for Visual Basic logo which is described in
the logo agreement that is attached hereto as Exhibit D.
---------
1.7 "MASTER COPY" shall mean a diskette(s) or CD-ROM(s) containing the
software portion of the Licensed Software that are delivered by Microsoft to the
Company.
1.8 "MS PLATFORMS" shall mean Microsoft Windows 95, Microsoft Windows NT,
and all future Microsoft operating system products on which the Licensed
Software is commercially released by Microsoft during the term of this
Agreement.
1.9 "PRODUCT(S)" shall mean Company's software products which are described
in Exhibit B hereto, regardless of the product name(s) actually used for such
---------
software products, and which: (i) Integrate the Licensed Software; (ii) operate
on the MS Platforms, and (iii) adds significant and primary functionality to the
Licensed Software. The parties may amend the list of Products described in
Exhibit B hereto upon their mutual written consent, provided, however, that in
- ---------
the event that Company assigns this Agreement pursuant to Section 10, at all
times subsequent to the effective date of such assignment
<PAGE>
Microsoft shall have the right, in its sole discretion, to approve or disapprove
any proposed amendments to the list of Products described or Exhibit B
1.10 "REDISTRIBUTABLE COMPONENTS" means the components of the Licensed
Software that are redistributable by the Company in Products and are identified
as "redistributable" in Exhibit A hereto.
---------
1.11 "UPGRADES" shall mean upgrades, maintenance releases and enhancements
of the Licensed Software.
2. INTEGRATION AND DISTRIBUTION OF LICENSED SOFTWARE.
--------------------------------------------------
2.1 REPRODUCTION AND INTEGRATION OF THE LICENSED SOFTWARE. Microsoft
hereby grants the Company a non-exclusive, worldwide, perpetual (subject to the
terms of Section 8) license to reproduce and have reproduced the Licensed
Software and Documentation from the Master Copy as well as any Upgrades for
internal use at the Company solely in connection with the development of
Products and Integration of the Redistributable Components into such Products.
2.2 DISTRIBUTION RIGHTS TO LICENSED SOFTWARE. Upon completion of the
Integration of Licensed Software into Products, Microsoft grants Company a non-
exclusive, worldwide, perpetual (subject to the terms of Section 8) license to
reproduce, sublicense and otherwise distribute the Licensed Software as
incorporated in the Products to End Users. The rights granted in Sections 2.1
and 2.2 may be sublicensed by the Company to the Company's contractors,
distributors and original equipment manufacturers, provided that such parties
adhere to the provisions of this Agreement.
2.3 LICENSE TO END USER DOCUMENTATION. Microsoft hereby grants the Company
a non-exclusive, worldwide, perpetual (subject to the terms of Section 8)
license to (a) make, use, modify, adapt, translate and make technically accurate
derivative works of the End User Documentation; and (b) to reproduce, sublicense
and otherwise distribute, and have reproduced, sublicensed and otherwise
distributed by third parties, the End User Documentation and any Company-
authored derivative works thereof (which shall include all relevant Microsoft
copyrights, notices, and marks) via any digital electronic (e.g., the Internet)
or print medium in connection with the distribution of the Products. The Company
also may use a pointer on its Worldwide Web site to the End User Documentation
on the Internet in connection with the distribution of the Products.
Notwithstanding the foregoing, the Company shall not distribute the
Documentation as part of any book or other publication for sale separate from
the Products without the written approval of Microsoft and shall not modify,
adapt, or create derivative works of the compiled "*.HLP" files for use on the
Internet. The Company shall deliver to Microsoft a copy of all Company-authored
derivative works of the End User Documentation (the "Derivative Documents") for
the sole purpose of allowing Microsoft to verify the accuracy of such Derivative
Documents.
2.4 END USER LICENSE AGREEMENTS. The Company shall have the right to grant
sublicenses to End Users to use the Licensed Software as incorporated in the
Products in object code form only and to use the Documentation on MS Platforms.
For each copy or unit of a Product, Company shall distribute an End User license
agreement which includes terms that are in accordance with applicable law and
are at least as restrictive as the terms set forth in this Agreement with
respect to the use of the Licensed Software. In particular, the Company shall
include provisions in its End User license agreements for Products preventing
further redistribution of the Redistributable Components or export of the
Products to any country to which such export or transmission is restricted by
applicable U.S. regulation or statute.
2.5 RESTRICTIONS. The rights granted in this Section 2 are subject to the
following restrictions:
(I) Company shall ship at least one full copy of the End User
Documentation, whether in the form of printed manuals or online help, as
modified by the Company pursuant to the terms of Section 2.3, to the End
User per unit of the Product or include a pointer to the End User
Documentation on the Internet in the Company's documentation for the
Product;
<PAGE>
(II) Company shall employ in its Licensed Software Integration,
reproduction and installation process state-of the-art tests for virus
infections to ensure that no Licensed Software will be shipped that has
been infected with a virus;
(III) Company shall not reverse engineer, decompile or disassemble
the Licensed Software except as otherwise specifically permitted by law;
(IV) Company shall not license or distribute the Licensed Software
as part of any product or bundle of products that compete with Microsoft
Visual Basic ;
(V) Company shall only access documented function calls when
Integrating the Licensed Software with the Products and shall follow the
installation procedures required to comply with the Logo Agreement
attached hereto as Exhibit D;
---------
(VI) Company's Integration of the Licensed Software included in the
Products must not adversely affect the full functionality of the Licensed
Software. For instance, the Company shall not disable any features of the
Licensed Software included in Products. Company shall insure that quality
of reproduced Licensed Software included in the Products is equivalent to
the quality of Licensed Software and meets or exceeds the then current
applicable ISO, IEC or ANSI standards for media and replication quality for
Disk or CD-ROM media. Microsoft shall be entitled to periodically, upon
reasonable notice, inspect the quality of reproduction. Should Microsoft be
dissatisfied with the quality of the reproduced Licensed Software, it shall
so notify Company in writing and Company shall have ten (10) days to
correct such deficiencies.
(VII) The Company shall include the following acknowledgment in the
credit screen of the Products and in the Product Documentation: "Portions
Copyright 1996, Microsoft Corporation. All rights reserved."
3. [*] AND REPORTS; AUDIT RIGHTS
------------------------------
3.1 [*]. No later than [*], the Company shall pay Microsoft [*] by bank
wire transfer to the account listed in [*]. On [*] the Company shall pay
Microsoft [*] until the latter of (a) the date that the Company ceases licensing
and distributing any Products to third parties (the parties acknowledge and
agree that such date may occur after expiration or termination of this
Agreement), and (b) the date of the expiration or termination of this Agreement.
[*] REPORTING; FINANCE CHARGE. At the same time that the Company pays
Microsoft pursuant to [*], it shall fax a copy of all remittance information
(i.e., name of company, date of wire transfer, amount of wire transfer, and
number of pages faxed), to Microsoft Special Agreements, Dept. 551 at 425-936-
5401, or to any other fax number which is provided to Company by Microsoft in
writing. The Company shall remit payment for all amounts due by bank wire
transfer to the following account, unless Microsoft notifies the Company in
writing of a change in such account:
Microsoft North American Collections #844505
Account #3750771767
ABA #11100001-2
NationsBank of Texas, N.A.
A finance charge of one percent (1%) per month shall be assessed on all amounts
that are past due.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPERATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO OMITTED PORTIONS.
<PAGE>
3.4 PRODUCT BUNDLES. Subject to prior written approval from Microsoft,
which approval shall not be unreasonably withheld, the Company may license or
distribute Products as part of a package or bundle with other products or
services. Notwithstanding the foregoing, subsequent to any assignment of this
Agreement pursuant to Section 10, Microsoft shall have the right, in its sole
discretion to approve or disapprove of any package or bundles containing the
Products.
3.5 FEES FOLLOWING ASSIGNMENT. The parties acknowledge and agree that the
assignment clause as set forth in Section 10 and the fee provisions of this
Section 3 are personal to the Company. In the event that Company assigns this
agreement pursuant to Section 10, the parties acknowledge and agree that the fee
schedule contained herein shall be revised to reflect the then current market
rates for VBA license agreements to be paid by the assignee company to Microsoft
under this Agreement, provided, however, that in no event shall such revised fee
schedule be less than the fee schedule contained herein.
3.6 INTERNAL USE. No royalty shall be due Microsoft in connection with the
use of the Products, Licensed Software and Documentation by the Company or its
contractors for internal purposes authorized under the terms of this Agreement
or for use of the Products by the Company, its contractors, or prospective End
Users, analysts or developers for developmental use, test, evaluation, market
development, education or other promotional or non-production purposes in the
usual course of the business of the Company.
3.7 AUDIT RIGHTS. During the term of this Agreement and for two (2) years
thereafter, Company agrees to keep all usual and proper records and books of
account and all usual and proper entries relating to the Products and the
Licensed Software. Records and books of account include, but are not limited to,
information regarding the number of Product units distributed. Microsoft may, at
its own expense, cause an audit and/or inspection to be made of the applicable
Company records and facilities in order to verify statements issued by Company
and Company's compliance with the terms of this Agreement. Any such audit shall
be conducted upon five (5) days written notice by an independent certified
public accountant selected by Microsoft (other than on a contingent fee basis).
Such independent certified public accountant shall provide a summary of its
findings regarding its verification of the statements issued by the Company and
the Company's compliance with the terms of this Agreement, but shall not provide
Microsoft with any other information produced from the audit and/or inspection
of such Company records. Any audit and/or inspection shall be conducted during
regular business hours at Company's facilities. Company agrees to provide
Microsoft's designated audit or inspection team access to the relevant Company
records and facilities. The Company shall pay Microsoft the full amount of any
underpayment revealed by the audit plus interest from the date such payments
were due under the terms of this Section at the then applicable prime rate, as
announced by Seattle First National Bank of Seattle, Washington (the "Prime
Rate"). Notwithstanding the foregoing, if such audit reveals an underpayment by
the Company of more than five percent (5%) for the period covered by the audit
report, the Company shall pay all of the fees and costs associated with such
audit and the amount underpaid with interest at the rate of five percent (5%)
above the Prime Rate from the date such payment was due pursuant to this
Section.
3.8 TAXES. Company will be responsible for the billing, collecting and
remitting of sales, use, value added, and other comparable taxes determined by
Company to be due with respect to the collection of the Net Receipts, or any
portion thereof. Microsoft is not liable for any taxes, including without
limitation income taxes, withholdings, value added, franchise, gross receipts,
sales, use property or similar taxes, duties, levies, fees, excises or tariffs
incurred in connection with the Net Receipts or related to the sale of Company's
Products. Company takes full responsibility for all such taxes, including
penalties, interest and other additions thereon.
3.9 WITHHOLDING TAXES. If, after a determination by foreign tax
authorities, any taxes are required to be withheld on payments made by Company
to Microsoft, Company may deduct such taxes from the amount owed Microsoft and
pay them to the appropriate taxing authority; provided however, that Company
shall promptly secure and deliver to Microsoft an official receipt for any such
taxes withheld or other documents necessary to enable Microsoft to claim a U.S.
Foreign Tax Credit. Company will make certain that any taxes withheld are
minimized to the extent possible under applicable law.
<PAGE>
4. DELIVERY AND ACCEPTANCE; UPGRADES
---------------------------------
4.1 DELIVERY OF MASTER COPY. Microsoft or its authorized representative
shall deliver the Company a Master Copy of the Licensed Software within five (5)
days after the Effective Date of this Agreement. The Master Copy shall be
deemed accepted upon receipt unless the Company notifies Microsoft or its
authorized representative within five (5) days after it receives such Master
Copy that it does not include all of the components described in Exhibit A
---------
hereto. In such event, the Company shall give Microsoft or its authorized
representative prompt written notice and, no later than five (5) days after
receipt of such notice, Microsoft or its authorized representative shall deliver
the Company another Master Copy which includes all such components.
4.2 DELIVERY OF UPGRADES; COMPANY RESPONSE. During the term of this
Agreement, Microsoft or its authorized representative shall deliver all Upgrades
to the Company at the earliest date that Microsoft or its authorized
representative makes such Upgrades available to any third party. No later than
twenty (20) days after the date that the Company receives an Upgrade, it shall
inform Microsoft or its authorized representative whether the Upgrade contains
any programming errors that severely impair the performance of any major
functions in the Products.
5. PRODUCT MARKETING AND SUPPORT; DEMONSTRATION OF PRODUCTS
--------------------------------------------------------
5.1 VISUAL BASIC LOGO. The Company shall include a copy of the Logo on the
outside of all retail boxes of Products. In order to be eligible to display
such Logo, the Company must sign a Logo Agreement in substantially the form of
Exhibit D attached hereto. This Agreement shall not be effective unless and
- ---------
until the Company executes such an agreement and delivers the same to Microsoft.
In the event that Microsoft terminates the Logo Agreement for any reason, the
obligation to include the Logo on all Products shall terminate at the same time.
5.2 PRODUCT SUPPORT. Company acknowledges and agrees that Microsoft shall
not provide the Company with any support, other than as described in Section 4,
for Integration of the Licensed Software into the Products, but that the Company
is free to enter into a separate maintenance and support agreement with one of
Microsoft's authorized sales representatives for the Licensed Software on terms
to be negotiated between the Company and such authorized sales representative.
Company further acknowledges that it shall either (i) inform End User that
Company is the support contact for the Product, and that Microsoft will not
support the Product, or (ii) inform the End User that there will be no support
for the Product. Company shall use best efforts to insert a message to that
effect in the start-up or help screen of the Product. The parties agree that
Microsoft shall not provide any End User support for Products.
5.3 MICROSOFT MARKETING TERMS. Microsoft shall initiate a marketing
program for the Licensed Software to make certain benefits of the program
available to the Company at no cost. Such benefits may include the following:
5.3.1 Microsoft "DevWire" announcement of Company launch of a product
that includes VBA to up to 70,000 email subscribers;
5.3.2 headline on microsoft.com and/or vba site and/or officedev site
announcing Company Product launch;
5.3.3 Company-created case study posted on microsoft.com/vba and/or
microsoft.com/officedev Web site;
5.3.4 Company-created demo of Office 97 with product presented at MS
press events, tradeshows, and/or seminars by Microsoft employees;
5.3.5 Microsoft supplies quote for Company press release announcing
availability of Company product that includes VBA;
5.3.6 public relations help in press releases and press tours;
5.3.7 Microsoft product giveaways at Company launch events;
5.3.8 creative assistance and funding in vertical advertising that
highlights VBA; and
<PAGE>
5.3.9 cooperative channel advertising.
5.4 COMPANY MARKETING TERMS. Company shall exercise best efforts to
participate in marketing activities related to the Licensed Software, which
shall include the following:
5.4.1 include the three (3) core benefits of VBA as articulated by
Microsoft from time to time, in every relevant press release issued by or
on behalf of Company related to Products;
5.4.2 issue a minimum of two (2) press releases: one issued on or
near the Effective Date announcing Company's licensing of VBA and detailed
plans for inclusion in the Products, and one issued at the time of initial
Product shipment announcing the details of the use of VBA in the Products;
5.4.3 include VBA materials as provided by Microsoft from time to time
on Company web site(s);
5.4.4 include Product object model on Company web site(s); and
5.4.5 include VBA content as provided by Microsoft from time to time
in relevant press kits issued by Company.
6. INTELLECTUAL PROPERTY NOTICES. Company will not remove any copyright,
------------------------------
trademark or patent notices that appear on the Licensed Software as delivered to
Company. Company shall state in all its advertising, marketing materials, and
packaging related to the Products, that Products contain or are provided with
the Licensed Software. Company agrees to use the appropriate trademark, product
descriptor and trademark symbol (either "" or "" in a superscript), and clearly
indicate Microsoft's ownership of its trademark(s) whenever the Licensed
Software name is first mentioned in any advertisement, brochure or in any other
manner in connection with Licensed Software and/or a Product. Company shall
undertake no action that will interfere with or diminish Microsoft's right,
title and/or interest in Microsoft Corporation's or licensed third parties'
trademark(s) or trade name(s). Company shall, upon request, provide Microsoft
with samples of all of Company's promotional, packaging and other written
materials which use Licensed Software name(s). Company shall not adopt or use a
product name, trademark or service mark in conjunction with the advertising,
packaging, promotion or sale of Product(s) which includes all or part of any
Microsoft trademark or service mark or any term which is confusingly similar to
a Microsoft trademark or service mark. Company shall not reproduce or imitate
all or part of the packaging or trade dress of any Licensed Software on or in
the packaging of any Product(s) or any related promotional material without
prior written approval of Microsoft.
7. WARRANTY/LIABILITY/INDEMNITY.
-----------------------------
7.1 MICROSOFT.
7.1.1 NO WARRANTIES. The Licensed Software is provided "AS IS" without
warranty of any kind. TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY AND ALL
EXPRESS AND IMPLIED WARRANTIES OF ANY KIND WHATSOEVER, INCLUDING BUT NOT
LIMITED TO THOSE OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE,
OF ACCURACY OR COMPLETENESS OF RESPONSES, OF RESULTS, OF REASONABLE CARE OR
WORKMANLIKE EFFORT, OF LACK OF NEGLIGENCE, AND/OR OF A LACK OF VIRUSES, ALL
WITH REGARD TO THE LICENSED SOFTWARE, ARE EXPRESSLY EXCLUDED. MICROSOFT
MAKES NO WARRANTY THAT THE LICENSED SOFTWARE WILL OPERATE PROPERLY AS
INTEGRATED IN THE COMPANY'S PRODUCT(S) OR ON ANY CUSTOMER SYSTEM(S). EXCEPT
AS SET FORTH IN SECTION 7.1.3 BELOW, THERE IS NO WARRANTY OF TITLE OR
NONINFRINGEMENT IN THE LICENSED SOFTWARE.
7.1.2 EXCLUSION OF INCIDENTAL AND CONSEQUENTIAL DAMAGES. COMPANY
AGREES MICROSOFT SHALL NOT BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL,
INDIRECT, ECONOMIC OR PUNITIVE DAMAGES WHATSOEVER (INCLUDING BUT NOT
LIMITED TO DAMAGES FOR LOSS OF BUSINESS OR PERSONAL PROFITS,
<PAGE>
BUSINESS INTERRUPTION, LOSS OF BUSINESS OR PERSONAL OR CONFIDENTIAL
INFORMATION, OR ANY OTHER PECUNIARY LOSS, DAMAGES FOR LOSS OF PRIVACY, OR
FOR FAILURE TO MEET ANY DUTY, INCLUDING ANY DUTY OF GOOD FAITH, OR TO
EXERCISE COMMERCIALLY REASONABLE CARE OR FOR NEGLIGENCE) ARISING OUT OF OR
IN ANY WAY RELATED TO THE USE OF OR INABILITY TO USE THE LICENSED SOFTWARE,
EVEN IF MICROSOFT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7.1.3 INDEMNITY FOR INFRINGEMENT. Microsoft hereby agrees to defend,
indemnify and hold Company harmless from and against any and all claims
arising as a result of any claim by a third party that the Licensed
Software infringes any trade secret or copyright of such third party.
7.2 COMPANY.
7.2.1 COVENANT. Company and any of its manufacturer's representatives
shall not make to any End User any representation with respect to the
Licensed Software or the use thereof except as is explicitly set forth in
documentation, if any, provided by Microsoft accompanying the Licensed
Software.
7.2.2 INDEMNITY. Company hereby agrees to defend, indemnify and hold
Microsoft harmless from and against any and all claims arising as a result
of: (i) Company's improper installation of the Licensed Software; (ii) any
computer software virus introduced by Company; (iii) any claim by an End
User regarding its use or inability to use a Product if such claim would
not have occurred solely from use of the Licensed Software; (iv) any claim
by a third party that the Product infringes any proprietary right of such
third party if such claim would have been avoided by the exclusive use of
the Licensed Software; (v) Company's or its agents' breach of any of the
provisions of Section 2 of this Agreement; or (vi) breach of the covenant
in Section 7.2.1 of this Agreement.
7.3 ESSENTIAL ELEMENT. THE PARTIES ACKNOWLEDGE THAT ALL OTHER PARTS OF
THIS AGREEMENT RELY UPON THE INCLUSION OF THIS SECTION 7.
8. TERM AND TERMINATION.
---------------------
8.1 TERM. Unless terminated earlier pursuant to this Section, this
Agreement shall be for a period beginning on the Effective Date and ending three
(3) years after the earlier of (a) the date that the Company licenses any
Products to third parties or (b) nine (9) months from the Effective Date.
8.2 TERMINATION.
8.2.1 Either party shall have the right to terminate this Agreement in
the event of a material breach of this Agreement or the logo agreement
attached hereto as Exhibit D after notice thereof and an opportunity to
---------
cure within thirty (30) days from the date of such notice. In addition,
Microsoft shall have a right to terminate this Agreement immediately in the
event of an assignment in breach of Section 10.
8.2.2 In no event shall Microsoft be responsible to Company for any
costs or damages resulting from the termination of this Agreement.
8.3 EFFECT OF EXPIRATION OR TERMINATION.
8.3.1 Sections 1, 2 (with respect to the then current version of the
Licensed Software), 3, 5.2, 6, 7, 8, 9, 10, and 11 shall survive any
expiration of this Agreement pursuant to Section 8.1 or termination of this
Agreement by the Company pursuant to Section 8.2.1. Without limiting
<PAGE>
the foregoing, the parties understand and agree that the Company shall be
obligated to continue paying Microsoft the [*] fees set forth in Section
[*] of this Agreement for so long as the Company licenses or distributes
Products after termination or expiration of this Agreement; provided,
however, that in the event that Company assigns this Agreement pursuant to
Section 10, Company's assignee shall be obligated to continue paying the
fees as revised to reflect then-current market rates for VBA licenses, as
provided for in Section 3.5. In the event that Company has not assigned
this Agreement and upon expiration of this Agreement at the end of the
term, the parties agree to negotiate in good faith the terms and conditions
of a new agreement or the extension of the terms and conditions of this
Agreement consistent with and subject to the then-current market rates for
VBA licenses.
8.3.2 Sections 3, 5, 6, 7, 8, 9, 10, and 11 shall survive any
termination of this Agreement by Microsoft pursuant to Section 8.2.1.
8.3.3 Termination of this Agreement shall not affect existing end user
license agreements for the Products, which shall continue in full force and
effect in accordance with their terms. Company shall continue to pay the
[*] fees as specified in Section 3 of this Agreement for so long as the
Company licenses or distributes Products after termination of this
Agreement.
9. CONFIDENTIALITY.
----------------
9.1 Each party expressly undertakes to retain in confidence and to require
its distributors, resellers and all other contractors to retain in confidence
all information and know-how transmitted to such party that the disclosing party
has identified as being proprietary and/or confidential or which, by the nature
of the circumstances surrounding the disclosure, ought in good faith to be
treated as proprietary and/or confidential. Without limiting the foregoing, all
terms and conditions of this Agreement shall be considered confidential and
shall not be disclosed (except to either party's attorneys and accountants on a
need-to-know basis, or as required by the order of a court of competent
jurisdiction) without the prior written consent of the other party. In
accordance with the provisions of applicable federal or state securities laws
and only to the extent as reasonably required thereunder, Company may disclose
the existence of this Agreement and the terms thereof after prior consultation
with Microsoft and subject to appropriate requests for confidential treatment
for all commercially sensitive information. The receiving party's obligation
hereunder shall extend for five (5) years following the disclosure of the
Confidential Information.
9.2. EXCLUSIONS. Confidential information shall not include any
----------
information that: (i) is at the time of disclosure or subsequently becomes
publicly available without the receiving party's breach of any obligations owed
the disclosing party; (ii) became known to the receiving party prior to the
disclosing party's disclosure of such information to the receiving party; (iii)
became known to the receiving party from a source other than the disclosing
party other than by the breach of an obligation of confidentiality owed to the
disclosing party; or (iv) is independently developed by the receiving party.
10. PROHIBITION AGAINST ASSIGNMENT. This Agreement, and any rights or
-------------------------------
obligations in this Agreement, shall not be assigned by Company without the
prior, written consent of Microsoft, which shall not be unreasonably withheld.
For purposes of this Section, the term "assignment" shall include, without
limitation, a merger of Company with another party, whether or not the Company
is the surviving entity, or the acquisition of more than twenty percent (20%) of
any class of the Company's voting stock by another person or entity, or the sale
of more than fifty percent (50%) of the Company's assets. Notwithstanding the
foregoing, Company may assign this Agreement to any third party that agrees in
writing reasonably satisfactory to Microsoft to be bound to all terms and
conditions of this Agreement (including, without limitation, the revised [*] fee
described in Section 3.5) by providing Microsoft with
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPERATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO OMITTED PORTIONS.
<PAGE>
prior written notice of such intended assignment and a copy of such third
party's written agreement. Company's failure to comply with the foregoing
requirements shall constitute a material breach of this Agreement. Subsequent
to any such assignment, such third party assignee shall be bound by the original
assignment provisions as set forth in the first two sentences of this Section
10.
11. GENERAL.
--------
11.1 CONTROLLING LAW. This Agreement shall be construed and controlled
by the laws of the State of Washington, and Company consents to jurisdiction and
venue in the state and federal courts sitting in the State of Washington.
Neither this Agreement, nor any terms and conditions contained herein, shall be
construed as creating a partnership, joint venture, agency, or franchise
relationship.
11.2 ATTORNEYS' FEES. If either Microsoft or Company employs attorneys
to enforce any rights arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys' fees,
costs and other expenses.
11.3 NOTICES AND REQUESTS. All notices, authorizations, and requests
given by Company or Microsoft in connection with this Agreement shall be deemed
given on the day they are (i) deposited in the mail, postage prepaid, certified
or registered, return receipt requested; or (ii) sent by air express courier,
charges prepaid; to the address listed in this Agreement.
11.4 COMPANY'S GOVERNMENTAL APPROVAL OBLIGATIONS. Company shall, at its
own expense, obtain and arrange for the maintenance in full force and effect of
all governmental approvals, consents, licenses, authorizations, declarations,
filings, and registrations as may be necessary or advisable for the performance
of all of the terms and conditions of this Agreement including, but not limited
to, foreign exchange approvals, import and offer agent licenses, fair trade
approvals and all approvals which may be required to realize the purposes of
this Agreement.
11.5 RESTRICTED RIGHTS. Any Licensed Software which Company distributes
to or on behalf of the United States of America, its agencies and/or
instrumentalities (the "Government'), are provided to Company with RESTRICTED
RIGHTS. Use, duplication or disclosure by the Government is subject to
restriction as set forth in subparagraph (c)(1)(ii) of the rights in Technical
Data and Computer Software clause at DFAR 252.227-7013, or as set forth in the
particular department or agency regulations or rules which provide Microsoft
protection equivalent to or greater than the above-cited clause. Company shall
comply with any requirements of the Government to obtain such RESTRICTED RIGHTS
protection, including without limitation, the placement of any restrictive
legends on the Licensed Software, Licensed Software documentation, and any
license agreement used in connection with the distribution of the Licensed
Software. Manufacturer is Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399. Under no circumstances shall Microsoft be obligated to
comply with any Governmental requirements regarding the submission of or the
request for exemption from submission of cost or pricing data or cost accounting
requirements. For any distribution of the Licensed Software that would require
compliance by Microsoft with Governmental requirements relating to cost or
pricing data or cost accounting requirements, Company must obtain an appropriate
waiver or exemption from such requirements for the benefit of Microsoft from the
appropriate Governmental authority before the distribution and/or license of the
Licensed Software to the Government.
11.6 EXPORT CONTROLS. Company acknowledges that the license and
distribution of the Products are subject to the export control laws and
regulations of the United States of America, and any amendments thereof, which
restrict exports and re-exports of software, technical data, and direct products
of technical data, including services derived from use of the Products (the
"Direct Products"). Company agrees that it will not export or re-export any
Products or Direct Products, or any information and documentation related
thereto, directly or indirectly, without first obtaining permission to do so as
required from the United States of America Department of Commerce's Bureau of
Export Administration, or other appropriate governmental agencies, to any
countries, end-users, or for any end-uses that are
<PAGE>
restricted by U.S. export laws and regulations, and any amendments thereof,
which include, but are not limited to, the following:
Restricted Countries: Cuba, Iran, Iraq, Libya, North Korea, Sudan, Syria and
Vietnam.
Restricted End-Users: Any End-User whom Company knows or has reason to know
will use Products or Direct Products in the design, development, or
production of missiles and missile technology, nuclear weapons and weapons
technology, or chemical and biological weapons.
Restricted End-Uses: Any use of Products and Direct Products related to the
design, development, or production of missiles and missile technology,
nuclear weapons and weapons technology, or chemical and biological weapons.
These restrictions change from time to time. If Company has any questions
regarding its obligations under United States of America export regulations,
Company should contact the Bureau of Export Administration, United States
Department of Commerce, Exporter Counseling Division, Washington DC., U.S.A.
(202) 482-4811.
11.7 ENTIRE AGREEMENT. This Agreement, including Exhibits A-D attached
------------
hereto, shall constitute the entire agreement between the parties with respect
to its subject matter and merges all prior and contemporaneous communications,
both written and oral. This Agreement shall not be modified except by a written
agreement signed on behalf of Company and Microsoft by their respective duly
authorized representatives.
11.8 SEVERABILITY. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be illegal, invalid or unenforceable, the
remaining provisions shall remain in full force and effect. If this Agreement
as it relates to any Licensed Software shall be held by a court of competent
jurisdiction to be invalid, illegal or unenforceable or if this Agreement is
terminated as to a particular Licensed Software, then it shall remain in full
force and effect as to the remaining Licensed Software.
11.9 WAIVER. No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving party.
11.10 SECTION HEADINGS. The Section headings used in this Agreement are
intended for convenience only and shall not be deemed to supersede or modify any
provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date. All signed copies of this Agreement shall be deemed originals.
MICROSOFT CORPORATION BUSINESS OBJECTS S.A.
__________________________ __________________________
(Signature) (Signature)
__________________________ __________________________
(Name - Please Print) (Name - Please Print)
__________________________ __________________________
(Title) (Title)
<PAGE>
EXHIBIT 21.0
BUSINESS OBJECTS S.A.
SUBSIDIARIES OF THE COMPANY
NAME JURISDICTION OF INCORPORATION
---------------------------------------------------------------------------
Business Objects Australia Pty Ltd Australia
Business Objects BeLux S.A./N.V. Belgium
Business Objects Canada Inc. Canada
Business Objects Deutschland GmbH Germany
Business Objects Italia S.p.A. Italy
Business Objects Nihon B.V. Netherlands
Business Objects Nederland B.V. Netherlands
Business Objects Asia Pacific Pte Ltd Singapore
Business Objects Espana S.L. Spain
Business Objects Nordic AB Sweden
Business Objects Switzerland SA/AG Switzerland
Business Objects (U.K.), Ltd United Kingdom
Business Objects of Americas Delaware, United States
Business Objects Holding BV Netherlands
<PAGE>
EXHIBIT 23.0
CONSENT OF ERNST AND YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-65549, 333-65551 and 333-65571) pertaining to Stock
Subscription Warrants, 1994 Stock Option Plan, 1995 International Employee Stock
Purchase Plan and French Employee Savings Plan of Business Objects, S.A. of our
report dated January 29, 1999 with respect to the consolidated financial
statements and schedule of Business Objects, S.A. included in the Annual Report
(Form 10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
San Jose, California
March 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUSINESS
OBJECTS 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 71,713
<SECURITIES> 0
<RECEIVABLES> 42,236
<ALLOWANCES> 0
<INVENTORY> 393
<CURRENT-ASSETS> 121,942
<PP&E> 13,804
<DEPRECIATION> 0
<TOTAL-ASSETS> 138,085
<CURRENT-LIABILITIES> 70,838
<BONDS> 0
0
0
<COMMON> 3,166
<OTHER-SE> 64,081
<TOTAL-LIABILITY-AND-EQUITY> 138,085
<SALES> 166,894
<TOTAL-REVENUES> 166,894
<CGS> 27,171
<TOTAL-COSTS> 27,171
<OTHER-EXPENSES> 123,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,855
<INCOME-TAX> (7,316)
<INCOME-CONTINUING> 10,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,287
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.58
</TABLE>
