<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d OF THE
SECURITIES EXCHANGE ACT OF 1934
dated May 1, 1997
BAAN COMPANY N.V.
Vanenburgerallee 13
3882 RH Putten
The Netherlands
and
4600 Bohannon Drive
Menlo Park, California USA
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b):
82- N.A.
-----
<PAGE> 2
BAAN COMPANY N.V.
FORM 6-K
TABLE OF CONTENTS
Print advertisement in the national edition of The Wall Street Journal on May
1, 1997.
Invitation to attend the Annual General Meeting of Shareholders of Baan
Company N.V.
Agenda of the Annual General Meeting of Shareholders.
Explanatory Notes to the Agenda (including Exhibit 1).
Annual Report and Statutory Annual Accounts 1996 (prepared as required by
Netherlands law).
Annual Report "1996 Year in Review."
Notice of Annual General Shareholders' Meeting and 1997 Proxy Card for New York
Registry Shares.
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.*
- - -------------------
* Incorporated by reference to the Annual Report (Commission File No. 0-26052)
on Form 20-F filed on April 29, 1997.
-2-
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BAAN COMPANY N.V.
By: /s/Wim H. Heijting
---------------------------------------------------
Wim H. Heijting
General Counsel and Secretary to the Board of Directors
Date: May 1, 1997
-3-
<PAGE> 4
BAAN COMPANY N.V.
ANNUAL GENERAL MEETING OF SHAREHOLDERS
Shareholders of Baan Company N.V. (the "Company") and usufructuaries and
pledgees that may exercise voting rights on shares of the Company, are hereby
invited to attend the Annual General Meeting of Shareholders of the Company
(the "Meeting") to be held at the Company's Conference Center "De Kamphorst",
Apeldoornestraat 131, Voorthuizen, The Netherlands, on Tuesday, May 20, 1997 at
2.00 p.m., local time.
AGENDA
A. Opening
B. Items of Business:
1. Approval of the Annual Report of the Board of Managing
Directors for the year ended December 31, 1996.
2. Adoption of the Company's Statutory Annual Accounts for the
year ended December 31, 1996.
3. Approval of the addition of the Company's net income for the
year ended December 31, 1996 to the retained earnings.
4. Amendment of Article 37 of the Company's Articles of Association
so as to extend the list of places and municipalities where a
shareholders' meeting may be held.
5. (Re-)appointment of members of the Board of Managing Directors
and the Board of Supervisory Directors.
6. Ratification of amendment to the Company's 1993 Stock Option
Plan to increase the number of shares authorized for issuance
thereunder.
7. Renewal of the power of the Board of Managing Directors to issue
shares pursuant to Article 8, paragraph 1 of the Articles of
Association of the Company.
8. Renewal of the power of the Board of Managing Directors to
exclude or limit preemptive rights pursuant to Article 8,
paragraph 5 of the Articles of Association of the Company.
9. Renewal of the authorization of the Board of Managing Directors
to have the Company acquire shares in its own capital pursuant
to Article 10, paragraph 4 of the Articles of Association of the
Company.
10. Any other business as may properly come before the Meeting or
any adjournment thereof.
C. Closing
The Agenda for the Meeting and Explanatory Notes thereto, including the draft
Notarial Deed of Amendment of the Articles of Association of the Company, are
available free of charge for inspection and obtainable by the shareholders,
usufructuaries and pledgees that may exercise voting rights, at the offices of
the Company in Baron van Nagellstraat 89, Barneveld, The Netherlands, and in
4600 Bohannon Drive, Menlo Park, California 94025, United States of America, at
the offices of ABN AMRO Bank N.V. and Citibank referred to below and at the
Public Reference Facilities maintained by the Securities and Exchange
Commission in Washington, DC. Copies of such material can be obtained from the
Public Reference Section of the Commission, Washington, DC 20549, United States
of America, at prescribed rates.
In order to attend and to exercise their rights at the Meeting, holders of
bearer shares and usufructuaries and pledgees that may exercise voting rights on
bearer shares, are required to deposit no later than Tuesday, May 13, 1997
(before 4.00 p.m. local time) until after closing of the Meeting their share
certificates or a deposit certificate issued in respect of such shares by a
banking institution, against issuance of a receipt, at the offices of ABN AMRO
Bank N.V., Herengracht 595, Amsterdam, The Netherlands, or at the offices of
Citibank - WWSS Investor Services, c/o Citicorp Data Distribution, Inc., P.O.
Box 1429, Paramus, New Jersey 07653, United States of America. Only such receipt
shall entitle the shareholder, usufructuary or pledgee with voting rights, to
attend the Meeting.
In order to attend and to exercise their rights at the Meeting, holders of
registered shares and usufructuaries and pledgees that may exercise voting
rights on registered shares, are required to notify the Company in writing of
their intention to attend the Meeting no later than Tuesday, May 13, 1997
(before 4.00 p.m. local time) by delivering such notification to offices of the
Company in Barneveld, ABN AMRO Bank N.V. or Citibank, together with a
specification of the numbers of the share certificates which may have been
issued in respect of such shares. Upon timely receipt of such notification, the
shareholder, usufructuary or pledgee with voting rights, shall be provided with
an admission ticket for the Meeting. A shareholder, usufructuary or pledgee
with voting rights may only exercise his rights at the Meeting in respect of
the shares which are registered in his name on both the time of such
notification and the date of the Meeting.
The right of a shareholder, usufructuary or pledgee with voting rights to
attend and vote at the Meeting can be exercised on his behalf by a person who is
authorized in writing to do so. The written proxy must be deposited no later
than at the time, and at the place, indicated above for bearer shares (or a
deposit certificate). Holders of registered shares will be sent a proxy card
which can be used for such purpose; proper completion and timely return of the
proxy card by holders of registered shares, together with a specification of
the numbers of any share certificates issued in respect of their shares,
constitutes proper notice of intent to attend by proxy for the purposes hereof.
Management Board of Baan Company N.V.
Barneveld, The Netherlands
May 1, 1997
<PAGE> 5
LOGO
BAAN COMPANY N.V.
May 1, 1997
To the Shareholders of Baan Company N.V.
You are hereby invited to attend the Annual General Meeting of Shareholders
of Baan Company N.V., a Netherlands corporation (the "Company"), on Tuesday, May
20, 1997, at 2:00 p.m., local time, at the Company's Conference Center "De
Kamphorst", Apeldoornsestraat 131, Voorthuizen, The Netherlands.
Included herewith are (i) the Agenda for the Annual General Meeting of
Shareholders and Explanatory Notes thereto, (ii) the Company's Annual Report and
Statutory Annual Accounts for the year ended December 31, 1996, each prepared as
required by Netherlands law, (iii) the Annual Report "1996 Year In Review", (iv)
the draft notarial Deed of Amendment of the Articles of Association of the
Company, (v) the Company's Annual Report on Form 20-F as filed with the U.S.
Securities and Exchange Commission, including audited financial statements as of
December 31, 1995 and 1996 and for the years ending December 31, 1994, 1995 and
1996 prepared in accordance with U.S. generally accepted accounting principles,
and (vi) a proxy card for use in connection with the Annual General Meeting of
Shareholders.
Yours sincerely,
Baan Company N.V.,
on behalf of the Board of Managing
Directors
/s/ Jan Baan
Jan Baan
Chairman of the Board of Managing
Directors and Chief Executive Officer
<PAGE> 6
BAAN COMPANY N.V.
AGENDA
ANNUAL GENERAL MEETING OF SHAREHOLDERS
Annual General Meeting of Shareholders (the "Meeting") of Baan Company N.V.
(the "Company") to be held at the Company's Conference Center "De Kamphorst",
Apeldoornsestraat 131, Voorthuizen, The Netherlands, on Tuesday, May 20, 1997 at
2:00 p.m. local time.
A. Opening
B. Items of business:
1. Approval of the Annual Report of the Board of Managing Directors for
the year ended December 31, 1996.
2. Adoption of the Company's Statutory Annual Accounts for the year
ended December 31, 1996.
3. Approval of the addition of the Company's net income for the year
ended December 31, 1996 to the retained earnings.
4. Amendment of Article 37 of the Company's Articles of Association so
as to extend the list of places and municipalities where a
shareholders' meeting may be held.
5. (Re-)appointment of members of the Board of Managing Directors and
the Board of Supervisory Directors.
6. Ratification of amendment to the Company's 1993 Stock Option Plan to
increase the number of shares authorized for issuance thereunder.
7. Renewal of the power of the Board of Managing Directors to issue
shares pursuant to Article 8, paragraph 1 of the Articles of
Association of the Company.
8. Renewal of the power of the Board of Managing Directors to exclude
or limit preemptive rights pursuant to Article 8, paragraph 5 of the
Articles of Association of the Company.
9. Renewal of the authorization of the Board of Managing Directors to
have the Company acquire shares in its own capital pursuant to
Article 10, paragraph 4 of the Articles of Association of the
Company.
10. Any other business as may properly come before the Meeting or any
adjournment thereof.
C. Closing
The foregoing items of business are more fully described in the Explanatory
Notes to the Agenda.
1
<PAGE> 7
BAAN COMPANY N.V.
1997 ANNUAL GENERAL MEETING OF SHAREHOLDERS
------------------------
EXPLANATORY NOTES TO AGENDA
I. GENERAL
The enclosed Proxy is solicited on behalf of Baan Company N.V., a
Netherlands corporation (the "Company"), for use at the Annual General Meeting
of Shareholders (the "Meeting") to be held on Tuesday, May 20, 1997, at 2.00
p.m. local time, or at any adjournment thereof, for the purposes set forth
herein, and in the accompanying Agenda. The Meeting will be held at the
Company's Conference Center "De Kamphorst", Apeldoornsestraat 131, Voorthuizen,
The Netherlands. The Company's telephone number is 011-31-342-428 888.
The proxy solicitation materials were mailed on or about May 1, 1997, to
all holders of registered shares as of April 18, 1997.
II. VOTING AND ATTENDANCE
In order to attend the Meeting and exercise their rights at the Meeting (in
person or by proxy):
(i) Holders of bearer shares and usufructuaries and pledgees that may
exercise voting rights on bearer shares, are required to deposit on or
prior to Tuesday, May 13, 1997 (before 4:00 p.m. local time) until after
closing of the Meeting their share certificates or a deposit certificate
issued in respect of such shares by a banking institution, against issuance
of a receipt, at the offices of ABN AMRO Bank N.V., Herengracht 595,
Amsterdam, The Netherlands or at the offices of Citibank - WWSS Investor
Services, c/o Citicorp Data Distribution, Inc., P.O. Box 1429, Paramus, New
Jersey 07653, United States of America. Only such receipt shall entitle the
shareholder, usufructuary or pledgee with voting rights, to attend the
Meeting.
(ii) Holders of registered shares and usufructuaries and pledgees that
may exercise voting rights on registered shares, are required to notify the
Company in writing of their intention to attend the Meeting on or prior to
Tuesday, May 13, 1997 (before 4:00 p.m. local time) by delivering such
notification to the offices of the Company at Baron van Nagellstraat 89,
Barneveld, The Netherlands or at 4600 Bohannon Drive, Menlo Park,
California 94025, United States of America or to one of the abovementioned
offices of ABN AMRO Bank N.V. or Citibank, together with a specification of
the numbers of any share certificates which have been issued in respect of
such shares. Upon timely receipt of such notification, the shareholder,
usufructuary or pledgee with voting rights, shall be provided with an
admission ticket for the Meeting. A shareholder, usufructuary or pledgee
with voting rights may only exercise his rights at the Meeting in respect
of the shares which are registered in his name at both the time of
notification and the date of the Meeting.
The Meeting decides whether other persons than the ones indicated above can
attend the Meeting.
The right of a shareholder, usufructuary or pledgee with voting rights to
attend and vote at the Meeting can be exercised on his behalf by a person who is
authorized in writing to do so. The written proxy must be deposited no later
than at the time, and at the place, indicated above for bearer shares (or a
deposit certificate). Holders of registered shares will be sent a proxy card
which can be used for such purpose; proper completion and timely return of the
proxy card by holders of registered shares, together with a specification of the
numbers of any share certificates issued in respect of their shares (see above),
constitutes proper notice of intent to attend by proxy for the purposes hereof.
All holders of voting rights or their representatives will have to sign an
attendance list at the Meeting.
2
<PAGE> 8
Each proposal requires the approval of the majority of the votes cast, with
the exception of the proposal to extend the appointment of the Board of Managing
Directors as the corporate body authorized to exclude or restrict preemptive
rights, which proposal requires a majority of at least two/thirds of the votes
cast in the event that less than one half of the outstanding shares is
represented at the Meeting. Each share entitles to one vote.
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Skinner & Co., a proxy solicitation firm, to aid in
the solicitation of proxies from brokers, bank nominees and other institutional
owners, on terms customary for such services, for a fee not expected to exceed
$2,500. In addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone or telegram.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the Meeting and voting in person.
III. EXPLANATORY NOTES TO AGENDA ITEMS
Explanatory Note to Items 1, 2 and 3 -- Approval of Annual Report, Adoption of
Statutory Annual Accounts and Approval of Addition of the Company's Net Income
to Retained Earnings.
The shareholders are being asked (i) to approve the Company's Annual Report
for the year ended December 31, 1996 (ii) to adopt the Company's Statutory
Annual Accounts for the year ended December 31, 1996 (each of the Annual Report
and the Statutory Annual Accounts having been prepared in accordance with
Netherlands law), and (iii) to approve the addition of the Company's net income
for the year ended December 31, 1996 to the retained earnings, as is reflected
in the Statutory Annual Accounts.
The Annual Report and the Statutory Annual Accounts have been previously
approved by the Board of Managing Directors and the Board of Supervisory
Directors of the Company. Copies of the Annual Report and of the Statutory
Annual Accounts have been deposited for inspection by the shareholders at the
Company's offices at Baron van Nagellstraat 89, Barneveld, the Netherlands and
at the offices of ABN Amro Bank N.V., Herengracht 595, Amsterdam, The
Netherlands. Copies are also included herewith. Included in the Statutory Annual
Accounts is the report of Moret Ernst & Young Accountants, the Company's
independent auditors.
Explanatory Note to Item 4 -- Amendment of Article 37 of the Company's Articles
of Association so as to extend the list of places and municipalities where a
shareholders' meeting may be held.
At the proposal of the Board of Managing Directors, approved by the
Supervisory Board, the shareholders are requested in this Meeting to approve the
amendment of Article 37 of the Company's Articles of Association substantially
in accordance with the draft Notarial Deed of Amendment attached to these
Explanatory Notes as Exhibit 1, to allow the Board of Managing Directors more
flexibility in choosing a location for a shareholders' meeting.
In connection herewith, the shareholders are requested in this Meeting to
authorize each member of the Board of Managing Directors, as well as Mr. W.H.
Heijting, Secretary to the Board, to have the Notarial Deed of Amendment passed,
to incorporate any changes in the proposed amendment of the Company's Articles
of Association which will be required to obtain the necessary "statement of
no-objections" (verklaring van geen bezwaar) from the Dutch Ministry of Justice
and/or in connection with the consultation with the Amsterdam Stock Exchange
(AEX Effectenbeurs), and furthermore to take any other action that is necessary
in order to effectuate the amendment of the Company's Articles of Association
including, but not limited to, the passing by a Dutch civil law notary of the
necessary notarial deed.
3
<PAGE> 9
Explanatory Note to Item 5 -- (Re-)appointment of members of the Board of
Managing Directors and Board of Supervisory Directors
The shareholders are asked to (re-)appoint:
(i) a Board of Managing Directors (the "Management Board") consisting
of:
(a) Jan Baan, with the titles of Chairman and Chief Executive
Officer of the Company;
(b) Tom C. Tinsley, with the titles of President and Chief
Operating Officer; and
(c) Amal M. Johnson, with the title of Executive Vice President,
Baan Affiliates & Marketing;
(ii) a Board of Supervisory Directors (the "Supervisory Board")
consisting of:
(a) J.G. Paul Baan, Chairman;
(b) William O. Grabe;
(c) David C. Hodgson;
(d) Graham J. Sharman; and
(e) J.C. (Hans) Wortmann.
The (re-)appointment of these persons for the respective positions will be
valid until the next annual general meeting of shareholders or until a successor
has been appointed.
Certain information regarding the nominees is set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE PRINCIPAL OCCUPATION AGE SINCE
- - ---------------------- -------------------------------------------------- ---- --------
<S> <C> <C> <C>
BOARD OF MANAGING
DIRECTORS
Jan Baan Managing Director, Chairman of the Board of 51 1978
Managing Directors, Chief Executive Officer.
Amal M. Johnson Nominee as Managing Director, Executive Vice 44 N/A
President, Baan Affiliates & Marketing.
Tom C. Tinsley Managing Director, President, Chief Operating 43 1996
Officer
BOARD OF SUPERVISORY
DIRECTORS
J.G. Paul Baan Chairman of the Board of Supervisory Directors of 46 1982
the Company; President of Baan Investment B.V.
William O. Grabe Supervisory Director of the Company; Managing 59 1995
Member, General Atlantic Partners, LLC.
David C. Hodgson Supervisory Director of the Company; Managing 40 1995
Member, General Atlantic Partners, LLC.
Graham J. Sharman Supervisory Director of the Company; Professor of 58 1995
International Distribution Logistics at the
Technical University of Eindhoven in The
Netherlands.
J.C. (Hans) Wortmann Supervisory Director of the Company; Professor at 46 1995
the School of Technology Management of the
Technical University of Eindhoven in The
Netherlands.
</TABLE>
JAN BAAN founded the Company's business in May 1978 and has been its
Chairman of the Board of Managing Directors and Chief Executive Officer since
the Company's inception.
AMAL M. JOHNSON joined the Company as President of Baan USA, Inc., a
subsidiary of the Company, in October 1994. In February 1995, Ms. Johnson was
additionally named Vice President, Americas Operations of the Company and in
January 1996 she was promoted to Executive Vice President, Americas Operations.
In January 1997, Ms. Johnson was appointed as acting Managing Director and
Executive Vice President, Baan Affiliates & Marketing, pending approval of such
appointment at this Meeting. Ms. Johnson
4
<PAGE> 10
was President of ASK Computer Systems, a division of the ASK Group, Inc., a
provider of ERP systems, from August 1993 to June 1994. From February 1977 to
June 1993, Ms. Johnson held a number of management positions at IBM, most
recently as Trading Area General Manager.
TOM C. TINSLEY joined the Company in November 1995 acting as Managing
Director, President and Chief Operating Officer. This appointment as Managing
Director was approved at the Annual General Meeting of Shareholders in April
1996. Previously Mr Tinsley was a director of McKinsey & Co., a management
consulting firm, for eighteen years, where he headed the firm's global
information technology practice. While with McKinsey & Co., Mr Tinsley served
key clients in the electronics and information technology sectors in the United
States of America, Scandinavia and The Netherlands.
J.G. PAUL BAAN joined the Company's business in January 1982 and was named
Managing Director of the Company's Netherlands operating subsidiary in January
1986. In January 1994 he was named Chief Operating Officer, in January 1995 he
was appointed Vice Chairman and Managing Director and in October 1995 he was
appointed President. In April 1996 he resigned as Managing Director of the
Company and was appointed Chairman of the Board of Supervisory Directors.
WILLIAM O. GRABE became a Supervisory Director of the Company in May 1995
and served as Chairman of the Board of Supervisory Directors until April 1996.
Mr Grabe is a Managing Member of General Atlantic Partners, LLC. and has been
affiliated with General Atlantic Partners, LLC. since April 1992. From 1984
until March 1993, Mr Grabe was a Corporate Vice President at IBM. Mr Grabe is
also a director of Integrated Systems Solutions Corp., a wholly owned subsidiary
of IBM; Gartner Group, Inc. a provider of information technology research and
analysis; Centura Corporation, a client/server software company; the Coda Group,
plc, a financial applications software company; Marcam Corporation, a process
manufacturing application software company; and several other companies in the
computer software and services industry, including companies in which General
Atlantic Partners or one of its affiliates is an investor.
DAVID C. HODGSON became a Supervisory Director of the Company in May 1995.
Mr Hodgson has been a Managing Member of General Atlantic Partners, LLC. since
its formation in 1989. Mr Hodgson also serves as a director of Walker
Interactive, a financial applications software company; and several other
companies in the computer software and services industry, including companies in
which General Atlantic Partners, LLC. or one of its affiliates is an investor.
GRAHAM J. SHARMAN became a Supervisory Director of the Company in May 1995.
Mr Sharman has been a director of McKinsey & Co. since 1984, and since July 1994
has been Professor of International Distribution Logistics at the Technical
University of Eindhoven in The Netherlands.
J.C. (HANS) WORTMANN became a Supervisory Director of the Company in May
1995. Mr Wortmann has been a Professor at the School of Technology Management of
the Technical University of Eindhoven in The Netherlands. Mr Wortmann is a
member of the Board of Directors of the Foundation of Mental Health, Eindhoven,
The Netherlands.
Principal Share Ownership. On the record date, April 18, 1997, an aggregate
of 90,921,365 shares of the Company's Common Shares were issued and outstanding.
The following table sets forth the beneficial ownership of the Company's Common
Shares as of April 18, 1997, as to (i) each person who is known by the Company
to own beneficially more than 10% of the outstanding Common Shares, (ii) each
member of the Board of Managing Directors, each member of the Board of
Supervisory Directors and each nominee for election to the Board of Managing
Directors or Board of Supervisory Directors and (iii) the listed principal
shareholders together with all directors and executive officers of the Company
as a group:
5
<PAGE> 11
<TABLE>
<CAPTION>
APPROXIMATE
SHARES BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OWNED
---------------------------------------------------------- ------------------- -----------
<S> <C> <C>
Baan Investment B.V.(2)................................... 38,788,980 42,66%
Baron van Nagellstraat 89
3771 LK Barneveld
The Netherlands
General Atlantic Partners(3).............................. 7,828,645 8,61%
Jan Baan(4)............................................... 227,323 *
J.G. Paul Baan(4)......................................... 227,323 *
Tom C. Tinsley(5)......................................... 446,503 *
William O. Grabe(6)....................................... 261,818 *
David C. Hodgson(7)....................................... 253,818 *
Amal M. Johnson(8)........................................ 39,557 *
Graham J. Sharman(9)...................................... 26,347 *
J.C. (Hans) Wortmann(10).................................. 9,826 *
All named principal shareholders, and directors and
executive officers as a group (22 persons)(11).......... 49,509,312 54,45%
</TABLE>
- - ---------------
* Less than one percent
(1) Applicable percentage of ownership is based on 90,921,365 Common Shares
outstanding as of April 18, 1997, together with applicable options and
warrants for such shareholder. Beneficial ownership is determined in
accordance with the rules of the U.S. Securities and Exchange Commission,
and includes voting and investment power with respect to shares. Shares
subject to options and warrants currently exercisable or exercisable within
60 days after April 18, 1997, are deemed outstanding for computing the
percentage ownership of the person holding such options and warrants, but
are not deemed outstanding for computing the percentage of any other person.
(2) See note (4).
(3) Includes 7,443,188 shares held by General Atlantic Partners V, L.P.; 385,457
shares held by GAP Coinvestment Partners, L.P. The general partner of
General Atlantic Partners V, L.P. is General Atlantic Partners, LLC, a
Delaware limited liability company. Includes 750,000 shares subject to an
option granted by General Atlantic Partners V, L.P. and GAP Coinvestment
Partners, L.P. to third parties unaffiliated with the Company. The managing
members of General Atlantic Partners, LLC, are Steven A. Denning, David C.
Hodgson, Stephen P. Reynolds, J. Michael Cline, William O. Grabe and William
E. Ford. The same individuals are the general members of GAP Coinvestment
Partners, L.P. Messrs Hodgson and Grabe, directors of the Company, are
managing members of General Atlantic Partners, LLC and general partners of
GAP Coinvestment Partners, L.P. Messrs. Hodgson and Grabe disclaim
beneficial ownership of shares owned by General Atlantic Partners V, L.P.
and GAP Coinvestment Partners, L.P. except to the extent of their respective
pecuniary interests therein.
(4) Does not include 38,788,980 shares held by Baan Investment B.V. Jan Baan
and J.G. Paul Baan are the managing directors of Baan Investment B.V. On
that basis, Jan Baan and J.G. Paul Baan may be deemed to own beneficially
the shares held by Baan Investment B.V., although they hold no pecuniary
interest in such shares and disclaim beneficial ownership. Includes 227,323
shares issuable upon exercise of options to purchase common shares which
are exercisable within 60 days following April 18, 1997 by each of Jan Baan
and J.G. Paul Baan.
(5) Includes 439,503 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days of April 18,
1997.
(6) Does not include 7,443,188 shares held by General Atlantic Partners V,
L.P.; 385,457 shares held by GAP Coinvestment Partners, L.P. Mr. Grabe
disclaims beneficial ownership of shares owned by
6
<PAGE> 12
General Atlantic Partners V, L.P. and GAP Coinvestment Partners, L.P.
except to the extent of his respective pecuniary interests therein.
(7) Does not include 7,443,188 shares held by General Atlantic Partners V,
L.P.; 385,457 shares held by GAP Coinvestment Partners, L.P. Mr Hodgson
disclaims beneficial ownership of shares owned by General Atlantic Partners
V, L.P. General Atlantic Partners, LLC and GAP Coinvestment Partners, L.P.
except to the extent of his pecuniary interests therein. Includes 24,000
shares held by family members of Mr Hodgson.
(8) Includes 15,557 shares issuable upon exercise of options to purchase shares
of Common Stock which are exercisable within 60 days of April 18, 1997.
(9) Includes 16,347 shares issuable upon exercise of options to purchase Common
Shares which are exercisable within 60 days of April 18, 1997.
(10) Includes 9,826 shares issuable upon exercise of options to purchase Common
Shares which are exercisable within 60 days of April 18, 1997.
(11) Includes 1,547,688 shares issuable upon exercise of options to purchase
Common Shares granted to executive officers and directors of the Company
which are exercisable within 60 days after April 18, 1997.
Explanatory Note to Item 6 -- Ratification of Amendment to the Company's 1993
Stock Option Plan to Increase the Number of Shares Authorized for Issuance
Thereunder
The shareholders are being asked to ratify at the Meeting an increase in
the number of shares authorized for issuance under the Company's 1993 Stock
Option Plan, from a total of 16,000,000 Common Shares to a total of 18,000,000
Common Shares. As of December 31, 1996 options to purchase an aggregate of
9,410,591 Common Shares were outstanding under the 1993 Stock Option Plan and an
aggregate of 2,227,945 Common Shares remained available for future grant. Such
ratification is sought in order to ensure that options issued under the plan to
U.S. optionees may qualify as "incentive stock options" entitled to favourable
tax treatment under U.S. tax laws.
The 1993 Stock Option Plan was initially adopted by the Management Board
and approved by the shareholders of Baan Holding B.V. as of December 1993, and
subsequent amendments increasing the aggregate number of shares reserved for
issuance thereunder to 16,000,000 were approved in December 1994, May 1995 and
April 1996. The 1993 Stock Option Plan will terminate in December 2003 unless
terminated earlier by the Management Board upon the authority of the Supervisory
Board. The 1993 Stock Option Plan provides for grants of options to employees
and consultants (including officers and directors) of the Company and its
affiliates. The 1993 Stock Option Plan may be administered by the Management
Board or Supervisory Board of the Company, or both, or by a committee appointed
by either or both such Boards in a manner that satisfies the legal requirements
relating to the administration of stock plans under all applicable laws. The
1993 Stock Option Plan is currently administered by the Management Board of the
Company.
Explanatory Note to Item 7 -- Renewal of the Power of the Board of Managing
Directors to Issue Shares Pursuant to Article 8, Paragraph 1 of the Articles of
Association of the Company
Pursuant to Article 8, paragraph 1 of the Articles of Association of the
Company, shares in the capital of the Company may be issued by the general
meeting of shareholders, upon the proposal thereto by the Management Board
(subject to prior approval by the Supervisory Board) unless the general meeting
of shareholders, upon the proposal thereto by the Management Board (subject to
prior approval by the Supervisory Board) has authorized another corporate body
to issue shares subject to prior approval of the Supervisory Board. The same
applies to the granting of options or other rights to subscribe for shares in
the capital of the Company. The aforementioned authorization may be given for a
maximum period of five years.
On April 11, 1996, the Management Board was authorized to issue (subject to
prior approval by the Supervisory Board) any amount of authorized but unissued
shares in the authorized capital of the Company, which authorization is valid up
to and including March 31, 2001.
7
<PAGE> 13
At the Meeting, the shareholders are being asked, upon the proposal of the
Management Board (which proposal has been approved by the Supervisory Board) to
renew the power of the Management Board to issue at any time and from time to
time, upon such terms and conditions as shall be determined by the Management
Board in respect of each such issue, any amount of authorized but unissued
shares in the authorized capital of the Company at any time and from time to
time existing pursuant to the Company's Articles of Association as amended or
restated from time to time, each resolution of the Management Board pursuant to
this authorization being subject to the prior approval by the Supervisory Board.
Such renewed power shall be valid up to and including April 30, 2002.
The renewal shall apply mutatis mutandis to the power to grant any options
or other rights to subscribe for shares in the capital of the Company for a
period ending on April 30, 2002, but shall not apply to the issue of shares to a
person who exercises a previously acquired right to subscribe for shares.
Explanatory Note to Item 8 -- Renewal of the Power of the Board of Managing
Directors to Exclude or Limit Preemptive Rights pursuant to Article 8, Paragraph
5 of the Articles of Association of the Company
Pursuant to Article 8, paragraph 5 of the Articles of Association of the
Company, the general meeting of shareholders may, upon the proposal thereto by
the Management Board (subject to the prior approval by the Supervisory Board),
exclude or limit any or all preemptive rights of shareholders of the Company
with respect to: (i) any issue of authorized but unissued shares in the capital
of the Company; and (ii) any granting of options or other rights to subscribe
for any such shares unless the general meeting of shareholders, upon the
proposal thereto by the Management Board (subject to the prior approval by the
Supervisory Board) has authorized another corporate body to exclude or limit
such preemptive rights. The aforementioned authorization may be given for a
maximum period of five years.
On April 11, 1996, the Management Board was authorized (subject to the
prior approval by the Supervisory Board) to exclude or limit the preemptive
rights of the Company, which authorization is valid up to and including March
31, 2001.
At the Meeting, the shareholders are being asked, upon the proposal of the
Management Board (which proposal has been approved by the Supervisory Board), to
renew the power of the Management Board to exclude or limit any or all
preemptive rights of shareholders of the Company with respect to: (i) any issue
of authorized but unissued shares in the capital of the Company at any time and
from time to time existing pursuant to the Company's Articles of Association as
amended or restated from time to time; and (ii) any granting of options or other
rights to subscribe at any time for any such shares in the capital of the
Company, each resolution of the Management Board pursuant to this authorization
subject to the prior approval by the Supervisory Board. Such renewed power shall
be valid up to and including April 30, 2002.
In case less than half of the issued share capital is represented during
the Meeting, the aforementioned resolution shall require a majority of two
thirds of the votes cast.
Explanatory Note to Item 9 -- Renewal of the Authorization of the Board of
Managing Directors to have the Company acquire the Shares in its own Capital
pursuant to Article 10, Paragraph 4 of the Articles of Association of the
Company
Pursuant to Article 10, paragraph 4 of the Articles of Association of the
Company, the acquisition by the Company of shares in its own capital may only
take place if the Meeting has authorized the Management Board to do so. The
aforementioned authorization is valid for 18 months.
On April 11, 1996, the Management Board was authorized to have the Company
acquire shares in its own capital. At the Meeting, the shareholders are being
asked to renew the authorization of the Management Board to have the Company
acquire at any time any amount of issued shares in its own capital other than
for no value, subject to the following conditions: (i) each resolution of the
Management Board pursuant to this authorization shall be subject to the prior
approval by the Supervisory Board; (ii) the amount of such issued shares in the
capital of the Company to be acquired shall not exceed the limitations under
Netherlands law; and (iii) the price to be paid for the aforementioned shares
shall be equal to the price listed in the quotation of NASDAQ National
Market/the Official Market of the Amsterdam Stock Exchange, or shall be
determined
8
<PAGE> 14
by the Management Board. The manner in which the issued shares shall be acquired
shall be in accordance with the Company's Articles of Association and shall
further be determined by the Management Board. Such authorization shall be valid
up to and including September 30, 1998.
Explanatory Note to Item 10 -- Other Business
If any matters not listed on the Agenda properly come before the Meeting,
it is the intention of the persons named in the enclosed proxy to vote the
shares they represent as the Board of Managing Directors may recommend. Under
the Company's Articles of Association, however, no proposal not included in the
agenda may be approved at the Meeting unless the entire issued capital of the
Company is represented at the Meeting, in person or by proxy, and the proposal
is unanimously approved.
9
<PAGE> 15
EXHIBIT 1
DRAFT NOTARIAL DEED
OF AMENDMENT OF THE ARTICLES OF ASSOCIATION
OF BAAN COMPANY N.V.
<PAGE> 16
DEED OF AMENDMENT OF THE
ARTICLES OF ASSOCIATION
BAAN COMPANY N.V.
WITH CORPORATE SEAT IN BARNEVELD
On this day, the ** day of ** nineteen hundred and ninety-seven appears
before me, Martin van Olffen, notaris (civil law notary) in Amsterdam: ** , ** ,
who resides at ** ** who was born in ** on ** nineteen hundred and ** whose
identity has been established by means of / Dutch / ** / passport / driving
license, number ** who has the ** nationality and who is married / single. The
person appearing declares that on ** nineteen hundred and ninety-seven on the
proposal of the management board, which proposal has been approved by the
supervisory board, the general meeting of shareholders of Baan Company N.V., a
limited liability company with corporate seat in Barneveld, and address at: 3771
LK Barneveld, Baron van Nagelstraat 89, resolved to amend the articles of
association of this company and to authorize the person appearing to execute
this deed. Pursuant to those resolutions the person appearing declares that he /
she amends the company's articles of association as follows:
ARTICLE 37 shall read as follows:
The general meeting of shareholders shall be held in Amersfoort,
Amsterdam, Apeldoorn, Arnhem, Barneveld, De Bilt, Ede, Ermelo,
's-Gravenhage, Hilversum, Hoevelaken, Leusden, Nijkerk, Nijmegen, Nunspeet,
Putten, Renkum, Rotterdam, Scherpenzeel, Schiphol-Airport (municipality
Haarlemmermeer), Utrecht, Veenendaal, Wageningen, Woudenberg, Zeist or
Zwolle.
The required ministerial declaration of no-objection was granted on **
nineteen hundred and ninety-seven, number N.V. **
The draft of this deed, on which the ministerial declaration of
no-objection was endorsed and a document in evidence of the resolutions,
referred to in the head of this deed are attached to this deed. In witness
whereof the original of this deed, which shall be retained by me, is executed in
Amsterdam, on the date first given in the head of this deed. Having conveyed the
substance of this deed to the person appearing he / she has declared that he /
she has taken cognizance of the contents of the deed and does not require it to
be read out to him / her in full. Immediately after the reading of those parts
of the deed which the law prescribes to be read out, this deed is signed by the
person appearing, who is known to me, notaris, and by myself, notaris.
<PAGE> 17
LOGO
BAAN COMPANY N.V.
BARNEVELD
ANNUAL REPORT AND STATUTORY ANNUAL ACCOUNTS 1996
CONTENTS
MANAGING DIRECTORS' REPORT
- - - Managing Directors' Report / 1
FINANCIAL STATEMENTS
- - - Consolidated Balance Sheets / 3
- - - Consolidated Statements of Operations / 4
- - - Consolidated Statements of Cash Flows / 5
- - - Notes to Consolidated Financial Statements / 7
- - - Balance Sheets / 24
- - - Statements of Operations / 25
- - - Notes to Financial Statements / 26
OTHER INFORMATION
- - - Report of the Auditors / 30
- - - Appropriation of Net Income / 31
<PAGE> 18
BAAN COMPANY N.V.
DIRECTORS' REPORT
DECEMBER 31, 1996
1 REVIEW OF OPERATIONS
The Company's business was founded in 1978 to provide financial and
administrative consulting services and, in 1981, undertook the objective of
providing broadly applicable, enterprise-wide information systems that are
readily adaptable to changing technologies and end user needs. The Company
commenced shipment of its first information systems in the Netherlands in 1982,
and since that time has introduced several new generations of products and
expanded its operations to encompass most major markets around the world.
In April 1995, the management board of Baan Holding B.V. approved a change
in the Company's corporate legal status from a B.V. to a N.V., a change in the
Company's name to Baan Company N.V., and a four-for-one stock split. These
changes are reflected in the accompanying financial statements.
In May 1995, the Company completed a successful public offering of its
common shares on both the NASDAQ exchange and Amsterdamse Effectenbeurs. A
listing on the exchanges allows the Company to draw capital which can be
invested in products, services and markets, without having to draw on our own
financial resources.
In connection with the NASDAQ listing, the Company elected to present its
financial statements in US dollars. Accordingly, the accompanying financial
statements are now also presented in US dollars.
Net revenues increased 79% to $388 million in 1996 from $216.2 million in
1995 primarily due to increased license revenues and associated maintenance and
service revenues. The increase in license revenue resulted from both an increase
in the number of software licenses and an increase in the average revenue from
individual licenses, and reflected the broader market trend toward client/server
computing, acceptance of the Company's products, and expansion of the Company's
operations.
2 OUTLOOK
Capital expenditures
In 1996 the Company increased activities by realizing several acquisitions
(Baan Iberica, Berclain Group and Antalys) and by founding new subsidiaries
(Poland, Italy and Hong Kong). Property and equipment purchased during 1995 and
1996 totaled $17.1 million and $21,3 million, respectively. While the Company
has no other significant capital commitments, it currently anticipates that
additions to property and equipment in 1997 will be at a similar level to 1996.
Financing
The Company has funded its operations since inception primarily through
cash generated from operations, long-term debt, bank lines of credit and loans
from the principal shareholders. In 1996 the Company issued $175,000,000 of 4.5%
unsecured convertible subordinated notes.
The Company believes that existing cash and credit facilities, together
with the net proceeds from the offering and cash to be generated by operations
will be sufficient to meet the Company's working capital needs and currently
planned capital expenditure requirements for the next twelve months.
Staffing
As of December 31, 1995, the Company had 1,525 full time employees. As of
December 31, 1996, the Company had 2,389 full time employees, including 622
employees engaged in research and development, 569 in sales and marketing, 959
in billable services including product support, and 239 in finance and general
administration. Consistent with the Company's continued expansion, the number of
employees will continue to grow in 1997.
1
<PAGE> 19
BAAN COMPANY N.V.
DIRECTORS' REPORT (CONTINUED)
DECEMBER 31, 1996
Factors on which sales and profitability developments depend
The Company's future profitability depends on several factors. The
principal factors include developing successful operations in North America,
establishing a reputation in a highly competitive market, continually enhancing
its current product line, developing new products that keep pace with
technological developments, and effectively managing foreign currency risk. For
a complete discussion on such factors, we refer to the Company's Registration
Statement.
3 RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has adopted a strategy of reinventing its products in order to
maintain a leading edge solution to end user information system needs. The
recent generations of the BAAN software represented a substantially rewritten
code that in each case permitted higher performance, greater functionality and
seamless data compatibility. The increase in research and development expenses
each year, primarily due to the hiring of additional research and development
personnel, reflects the Company's continuing investment in the development of
new and enhanced products and new technologies.
Barneveld, January 24, 1997
2
<PAGE> 20
BAAN COMPANY N.V.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
(AFTER PROPOSED APPROPRIATION OF NET INCOME)
>ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
FIXED ASSETS
Intangible fixed assets........................................ $ 26,524 $ 24,269
Tangible fixed assets.......................................... 28,381 45,430
Financial fixed assets......................................... 649 4,105
-------- --------
Total fixed assets............................................... 55,554 73,804
CURRENT ASSETS
Trade debtors (net of allowance)............................... 87,226 150,337
Other current assets........................................... 8,114 14,653
Marketable securities.......................................... 23,562 3,867
Cash and cash equivalents...................................... 12,165 198,031
-------- --------
TOTAL CURRENT ASSETS............................................. 131,067 366,888
-------- --------
TOTAL ASSETS..................................................... $186,621 $440,692
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
GROUP EQUITY
Shareholders' equity............................................. $114,120 $156,007
Minority interest in consolidated subsidiaries................... -- --
------------ ------------
114,120 156,007
PROVISIONS
Deferred income taxes............................................ 8,005 72
Other, principally warranty...................................... 1,199 2,172
------------ ------------
9,204 2,244
LONG TERM DEBT
Convertible subordinated notes................................... -- 175,000
Credit institutions.............................................. 1,714 1,223
Other............................................................ 2,256 2,676
------------ ------------
3,970 178,899
CURRENT LIABILITIES (DUE WITHIN ONE YEAR)
Credit institutions.............................................. 3,779 870
Accounts payable................................................. 23,292 35,446
Accrued liabilities.............................................. 10,728 25,013
Payroll taxes.................................................... 3,422 6,133
Income taxes payable............................................. 5,031 19,664
Other current liabilities........................................ 3,684 4,679
Deferred revenue................................................. 8,890 11,098
Current portion of long-term debt................................ 501 639
------------ ------------
TOTAL CURRENT LIABILITIES........................................ 59,327 103,542
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................... $186,621 $440,692
========== ==========
</TABLE>
3
<PAGE> 21
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
License revenue.......................................... $ 60,348 $112,966 $224,237
Maintenance and service revenue.......................... 46,206 79,887 152,426
Hardware and other revenue............................... 16,370 23,357 11,295
------- -------- --------
NET REVENUE.............................................. 122,924 216,210 387,958
COSTS OF REVENUES:
Cost of license revenue................................ 3,032 5,699 13,074
Cost of maintenance and service revenue................ 35,116 64,255 125,257
Cost of hardware revenue............................... 13,229 18,714 8,895
------- -------- --------
COSTS OF REVENUES........................................ 51,377 88,668 147,226
GROSS MARGIN............................................. 71,547 127,542 240,732
Selling costs............................................ 41,770 57,052 99,932
General and administrative............................... 20,269 47,009 81,300
Non recurring operating expenses......................... 4,172 -- --
------- -------- --------
TOTAL COSTS AND EXPENSES................................. 66,211 104,061 181,232
------- -------- --------
INCOME (LOSS) FROM OPERATIONS............................ 5,336 23,481 59,500
Interest income.......................................... -- 1,391 1,137
Interest expense......................................... (1,109) (775) (1,074)
Other income (expense), net.............................. 118 1,071 --
------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY 4,345 25,168 59,563
INTEREST...............................................
Provision for income taxes............................... (2,171) (9,817) (23,230)
------- -------- --------
2,174 15,351 36,333
Minority interest........................................ (976) (72) --
------- -------- --------
Net income (loss)........................................ $ 1,198 $ 15,279 $ 36,333
======= ======== ========
Net income (loss) per share.............................. $ .02 $ .17 $ .38
======= ======== ========
Share used in computing per share amounts................ 79,388 89,044 94,707
======= ======== ========
</TABLE>
4
<PAGE> 22
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income.......................................... $ 1,198 $ 15,279 $ 36,333
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization............................ 7,286 12,977 18,539
Purchased in-process research and development............ 486 -- --
Minority interest........................................ 976 72 --
Provision (benefit) for deferred income taxes............ (1,575) 2,165 (7,187)
Foreign exchange (gains) and losses...................... 1,877 253 170
Changes in operating assets and liabilities, net of
acquisitions:
Trade debtors......................................... (13,235) (49,449) (63,893)
Other current assets.................................. (219) (1,759) (5,546)
Accounts payable...................................... 4,663 10,666 12,200
Accrued liabilities................................... 2,111 5,188 12,205
Payroll taxes......................................... 352 713 2,899
Income taxes payable.................................. 3,419 2,052 14,023
Other current liabilities............................. (1,565) (1,376) 746
Deferred revenue...................................... 6,644 (1,340) 1,227
-------- -------- --------
Net cash (used in) provided by operating activities........ 12,418 (4,559) 21,716
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment purchased........................... (6,858) (17,101) (21,273)
Property and equipment sold................................ 810 3,152 3,893
Increase in capitalized software development costs......... (1,721) (3,932) (10,705)
Payment for acquisitions, net of cash acquired............. (4,122) (9,652) (3,806)
Purchase of marketable securities.......................... -- (33,862) (14,286)
Proceeds from marketable securities........................ -- 10,300 33,982
Other...................................................... 131 1,217 967
-------- -------- --------
Net cash used in investing activities...................... (11,760) (49,878) (11,228)
</TABLE>
5
<PAGE> 23
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under short-term credit
facilities................................................. $ 570 $ (767) $ (3,249)
Payments on long-term borrowings............................. (3,889) (687) (757)
Issuance costs of convertible notes.......................... -- -- (4,375)
Proceeds from issuance of convertible subordinated notes..... -- -- 175,000
Proceeds from issuance of common shares...................... 8,071 61,101 9,142
------- ------- --------
Net cash provided by financing activities.................... 4,752 59,647 175,761
Effect of foreign currency exchange rates on cash and cash
equivalents ............................................... 1,071 70 (383)
------- ------- --------
Increase (decrease) in cash and cash equivalents............. 6,481 5,280 185,866
Cash and cash equivalents at beginning of year............... 404 6,885 12,165
------- ------- --------
Cash and cash equivalents at end of year..................... $ 6,885 $12,165 $198,031
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest................................................... $ 936 $ 649 $ 445
======= ======= ========
Taxes...................................................... -- 5,661 12,869
======= ======= ========
Tax benefit related to issuance of common shares............. -- 3,065 797
======= ======= ========
</TABLE>
6
<PAGE> 24
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements are stated in United States dollars
and are prepared under generally accepted accounting principles. As permitted by
Section 402, Book 2 of the Netherlands Civil Code, a condensed statement of
operations is presented for the Company itself.
If not stated otherwise, assets and liabilities are stated at the amounts
at which they were acquired or incurred. Financial fixed assets are stated at
the Company's share in their net asset value.
Business
Baan Company N.V. (the Company or Baan) is incorporated in The Netherlands.
The Company provides open systems, client/server-based Enterprise Resource
Planning (ERP) software. ERP systems permit the enterprise-wide management of
resources, and the integration of sales forecasting, component procurement,
inventory management, manufacturing control, project management, distribution,
transportation, finance and other functions across an organization. The
Company's BAAN family of software products has been designed for rapid
implementation, flexibility and scaleability.
The Company sells and supports its products through corporate headquarters
in Putten, The Netherlands and Menlo Park, California, USA, Business Support
Centers in The Netherlands, the United States and India, and direct and indirect
distribution channels.
Principles of consolidation
The accompanying financial statements consolidate the accounts of the
Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Foreign exchange
Assets and liabilities of the Company and its foreign subsidiaries are
translated from their respective functional currencies to United States dollars
at year-end exchange rates. Income and expense items are translated on a
quarterly basis at the average rates of exchange prevailing during the quarter.
The adjustment resulting from translating the financial statements of the
Company's foreign subsidiaries is reflected as an accumulated translation
adjustment in shareholders' equity. Net foreign currency transaction losses are
included in results of operations and were approximately $1,877,000, $253,000
and $170,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
Exchange results from foreign currency translation of the share capital of
the Company are included as a separate component in shareholders' equity.
Derivative financial instruments
Derivative financial instruments are used by the Company in the management
of its foreign currency exposures. Realized and unrealized gains and losses on
foreign currency forward contracts are normally marked to market and recognized
in results of operations. Any realized and unrealized gains and losses on
contracts used to hedge intracompany transactions of a long-term investment
nature are included in the accumulated translation adjustment in shareholders'
equity.
7
<PAGE> 25
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Revenue recognition
License revenue is derived from software licensing fees. Maintenance and
service revenue is derived from maintenance support services, training and
consulting. Hardware revenue is derived from resales of third party hardware in
connection with licenses of the Company's software. License and hardware revenue
is recognized upon delivery if no significant vendor obligations remain, amounts
are due within one year and collection of the resulting receivables is deemed
probable. Delivery is further defined in certain contracts as delivery of the
product master or first copy for noncancelable product licensing arrangements
under which the customer has certain software reproduction rights. The Company
accrues for any remaining insignificant vendor obligations and post contract
support obligations at the point that revenue from the software license is
recognized. Returns and allowances (which have not been significant through
December 31, 1996) are estimated and provided for at the time of sale. Service
revenue from customer maintenance fees for ongoing customer support and product
updates is recognized ratably over the term of the maintenance, which is
typically twelve months. Payments for maintenance fees are generally made in
advance and are nonrefundable. Service revenue from consulting and training is
billed separately and is recognized when the services are performed. Costs of
third party implementation services are accrued by the Company as incurred.
Software development costs
Costs related to research, design and development of computer software are
expensed as incurred. Certain software development costs related to completion
of internally developed products are capitalized at the point that technological
feasibility is established, normally at the completion of a detail program
design. Capitalized amounts are reported at the lower of unamortized cost or net
realizable value. These costs are amortized on a product-by-product basis. The
annual amortization expense is the greater of the amount computed using the
ratio of current revenue to the total anticipated revenue for the product or the
straight line method over the estimated life of the product (generally three
years), starting when the product is available for general release to customers.
Amortization of software development costs was approximately $962,000,
$2,138,000 and $2,464,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Such amortization is included in cost of license revenue.
Software development costs are included in tangible fixed assets. Aggregate
research and development expenditures, including both research and development
expenses and capitalized software costs, were $9.7 million, $22.7 million and
$52,8 million in 1994, 1995 and 1996 respectively.
Depreciation and amortization
Property and equipment and intangible assets are stated at cost.
Depreciation and amortization of such assets is provided on the straight-line
method over the following estimated useful lives:
<TABLE>
<S> <C>
- - - Computer equipment 3-5 years
- - - Automobiles 5 years
- - - Furniture 5-7 years
- - - Leasehold improvements lesser of lease term or estimated useful life
- - - Goodwill 8 years
- - - Customer lists 5 years
- - - Assembled workforce 7 years
</TABLE>
Property and equipment are included in tangible fixed assets.
8
<PAGE> 26
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Per share information
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of shares issuable upon the exercise
of stock options (using the treasury stock method). Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletins and Staff policy, for the
periods prior to the Company's May 1995 initial public offering (IPO),
computations include all common and common equivalent shares issued or granted
within twelve months of the IPO as if they were outstanding for all periods
presented using the treasury stock method.
Cash and cash equivalents
The Company considers investments in highly liquid debt instruments with
maturities of 90 days or less at the date of purchase to be cash equivalents.
The carrying amount reported in the balance sheets for cash and cash equivalents
approximates their fair value.
Marketable securities
Debt securities that the Company has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities that the
Company does not have the positive intent and ability to hold to maturity and
all marketable equity securities are classified as securities available-for-sale
and are carried at fair value.
Management determines the proper classifications of debt and marketable
equity securities at the time of purchase and reevaluates such designations as
of each balance sheet date. By policy, the Company's investments are primarily
in short term notes. As of December 31, 1996, all such securities were
designated as available-for-sale. Accordingly, these securities are carried at
fair value. As the difference between cost and fair value at December 31, 1996
was immaterial, no adjustments have been made to the historical carrying value
of the investments and no unrealized gains or losses have been recorded as a
separate component of shareholders' equity.
Asset impairment
The Company recognizes impairment losses on its long-lived assets held for
use when its estimate of the undiscounted future cash flows expected to be
generated by such assets is less than their carrying amount. Measurement of the
impairment loss is based on the fair value of the asset. Generally, fair value
will be determined using valuation techniques such as the present value of the
expected future cash flows. The carrying value of long-lived assets is reviewed
on a regular basis for the existence of facts or circumstances both internally
and externally that may suggest impairment. The Company has not recognized any
impairment losses for the years ended December 31, 1994, 1995 and 1996.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
9
<PAGE> 27
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2 TANGIBLE FIXED ASSETS
Tangible fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------------- -------------------
<S> <C> <C> <C> <C>
Buildings and leasehold
improvements...................... $ 862 $ 3,307
Computer equipment.................. $20,143 $35,622
Automobiles......................... 4,578 402
Furniture and other................. 9,805 10,204
------- -------
34,526 46,228
Software development costs.......... 11,681 24,306
------- -------
Total............................... $47,069 $73,841
======= =======
</TABLE>
Depreciation and amortization expense related to tangible fixed assets was
$5,114,000, $7,978,000 and $12,299,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
The ending balances and the movement in tangible fixed assets can be broken
down as follows (in thousands):
<TABLE>
<CAPTION>
OTHER SOFTWARE
LEASEHOLD OPERATING DEVELOPMENT
IMPROVEMENTS ASSETS COSTS TOTAL
------------ --------- ----------- --------
<S> <C> <C> <C> <C>
Book value December 31,
1995........................ $ 586 $ 20,812 $ 6,983 $ 28,381
Reclassification.............. 1,169 (1,169) -- --
Purchases and investments..... 1,404 21,366 2,955 25,725
Disposals..................... (77) (3,775) -- (3,852)
Capitalization................ -- -- 8,712 8,712
Depreciation.................. (302) (9,533) (2,464) (12,299)
Foreign exchange difference... (51) (1,147) (39) (1,237)
------ ------- ------- --------
Book value December 31,
1996........................ 2,729 26,554 16,147 45,430
====== ======= ======= ========
Total accumulated
depreciation................ 578 19,674 8,159 28,411
====== ======= ======= ========
</TABLE>
3 INTANGIBLE FIXED ASSETS
The cost of purchased intangible fixed assets is amortized on a
straight-line basis over periods from five to eight years based on the expected
useful lives of the assets. The carrying value of intangible fixed assets is
reviewed on a regular basis for the existence of facts or circumstances both
internally and externally that may suggest impairment.
In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). SFAS
121 requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
During 1996 the Company purchased the operations of its distributors in
Spain. The combined excess purchase consideration over net assets acquired was
approximately $5,200,000.
10
<PAGE> 28
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Intangible fixed assets, net of accumulated amortization consist of the
following (in thousands):
<TABLE>
<CAPTION>
LIFE IN YEARS 1995 1996
------------- -------- --------
<S> <C> <C> <C>
Goodwill.................................... 8 $ 11,278 $ 12,136
Customer list............................... 5 12,145 9,267
Assembled workforce......................... 7 3,101 2,866
------- -------
$ 26,524 $ 24,269
======= =======
</TABLE>
Amortization expense was approximately, $2,172,000, $4,701,000 and
$6,125,000 for the years ended December 31, 1994, 1995 and 1996 respectively.
For 1996 the movement in intangible fixed assets can be broken down as
follows (in thousands):
<TABLE>
<S> <C>
Book value January 1....................................... $26,524
Purchases and additions.................................... 5,882
Amortization............................................... (6,125)
Foreign exchange difference................................ (2,012)
-------
Book value December 31..................................... $24,269
=======
Total accumulated amortization............................. $13,025
=======
</TABLE>
4 FINANCIAL FIXED ASSETS
The financial fixed assets relate to the long term part of the commission
regarding the convertible subordinated notes ($3,477,000) and the not
consolidated participating interests ($628,000).
5 MARKETABLE SECURITIES
The following is a summary of marketable securities as of December 31, 1996
(in thousands):
<TABLE>
<S> <C>
Corporate notes............................................. $3,867
======
</TABLE>
All securities were due within one year. The related gross realized gains
were immaterial. For the purpose of determining realized gains and losses, the
cost of securities sold is based on specific identification.
6 BORROWING ARRANGEMENTS
Credit agreements
The Company has a credit facility with a Dutch bank which allows the
Company to borrow up to NLG 40,000,000 ($22,929,000 based on the exchange rate
at December 31, 1996). Certain of the Company's subsidiaries may borrow up to
$10,000,000 under this credit facility. Interest on borrowings under the credit
facility accrues at the Dutch Central Bank's promissory note rate plus 1.5% (a
total of 4% at December 31, 1996) with a minimum interest rate of 4% and is
payable quarterly. Outstanding borrowings under the credit facility at December
31, 1995 and 1996 amounted to $2,884,000 and $0, respectively.
The Company, its Netherlands subsidiaries, and Baan U.S.A., Inc. have
pledged their accounts receivable as collateral for the credit facility.
Furthermore, these entities may not transfer title to any of their assets
outside the normal course of business without the express written consent of the
bank.
Certain of the Company's subsidiaries have agreements with their credit
institutions which allow them to carry deficit balances in their demand deposit
accounts. Borrowings under such agreements amounted to $895,000 and $948,000 at
December 31, 1995 and 1996, respectively.
11
<PAGE> 29
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Two of the short term borrowings by the Company's subsidiaries at December
31, 1996 are guaranteed by a standby letter of credit, thereby reducing the
availability of funds to the Company under its NLG 40,000,000 credit facility.
As of December 31, 1996, $899,000 of such borrowings were guaranteed by the
Company. As these borrowings effectively reduce the availability of cash to the
Company from its Dutch bank, they have been presented as a reduction in cash and
cash equivalents in the accompanying financial statements.
The Company's most recent US acquisition (Antalys) has a $2,000,000
revolving line of credit (Line) which matures May 4, 1997. Advances on the Line
are limited to the lesser of $2,000,000 or 60% of Antalys' accounts receivable
that are less than 90 days old. Interest on the Line accrues at the lender's
announced prime rate plus 1% (a total of 9.25% at December 31, 1996) and is due
monthly. The Line is secured by Antalys' accounts receivable. Borrowings under
the Line amounted to $821,000 at December 31, 1996.
The weighted average interest rates on the short-term borrowings were 8.6%
and 19.4% at December 31, 1995 and 1996, respectively.
Long-term debt
The Company's long-term debt obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ --------
<S> <C> <C>
Convertible subordinated notes, 4,5% due December 15,
2001................................................... $ -- $175,000
Guilder denominated loan, 8.00%, due December 31, 2001... 748 573
Guilder denominated loan, 8.125%, due September 30,
2000................................................... 1,371 1,003
Other.................................................... 2,352 2,962
------ --------
4,471 179,538
Less current portion..................................... 501 639
------ --------
$3,970 $178,899
====== ========
</TABLE>
In December 1996, the Company issued $175,000,000 of 4.5% unsecured
convertible subordinated notes (Notes) pursuant to an indenture dated as of
December 15, 1996 (Indenture). The Notes are convertible into the Company's
common shares at any time after the 90th day following the last original issue
date of the Notes at a conversion price of $44.00 per share. The Notes are
redeemable by the Company under certain conditions after December 16, 1998 and
at any time after December 16, 1999. Until the Notes are converted or redeemed,
the Company will pay interest semi-annually, commencing June 15, 1997. In
January 1997, the Company issued another $25,000,000 of Notes under the same
terms and conditions. The Notes are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in the Indenture) of the
Company.
Costs of $4,375,000 incurred in connection with issuing the Notes have been
capitalized and are being amortized to interest expense over the term of the
Notes. Such costs are included in other non current assets in the accompanying
financial statements.
In 1987 and 1988, the Company obtained loans of NLG 2,000,000 and NLG
4,000,000 (Loans), respectively. The Loans collectively require semi-annual
principal payments of NLG 325,000 ($186,000 based on the exchange rate at
December 31, 1996) which began in 1992. The interest rates on the Loans will be
adjusted in 1998 to interest rates which will be comparable to interest rates
offered to similar borrowers as determined by the lender.
All long-term debt have a date of maturity within five years.
12
<PAGE> 30
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7 SHAREHOLDERS' EQUITY
Common shares
In June 1994, the Company issued 9,600,000 common shares at $0.85 to
existing shareholders for approximately $8,071,000. Issuance costs and expenses
were not material. The proceeds of the issuance were used for working capital
requirements.
In May 1995, the Company's shareholders approved an increase in the number
of authorized shares from 10,000,000 to 175,000,000. In connection with this
increase, the shareholders authorized a four-for-one stock split which first
increased the par value to NLG .08 and then split it to NLG .02 per share.
In May 1995, the Company completed its initial public offering (IPO) of
14,600,000 common shares at $8.00 a share, of which 8,000,000 shares were sold
by the Company and 6,600,000 shares were sold by selling shareholders. The
Company received proceeds of approximately $58,402,000 from the IPO, net of
issuance costs of $7,807,000 and included a related tax benefit of $2,209,000.
In May 1996, the shareholders of the Company approved a two-for-one stock
split distributed on May 29, 1996 to shareholders of record on May 15, 1996.
Accordingly, the authorized number of common shares increased from 175 million
to 350 million. The par value of the common shares decreased from NLG.02 to
NLG.01. All references in the accompanying financial statements to number of
shares, per share amounts, stock option data and market prices of the Company's
common stock have been retroactively restated to reflect the stock split.
The Company is able to declare or pay dividends in any currency or multiple
currencies as deemed appropriate by management, although the Company has no
present intent to declare any dividend.
Stock plans
In December 1993, shareholders approved the 1993 Stock Plan (Plan). Through
this Plan and subsequent amendments, the Company has reserved a total of
16,000,000 common shares for grant thereunder to employees and consultants. The
shares may be authorized but unissued, or reacquired common stock. The number of
shares of common stock covered under the Plan shall be proportionately adjusted
for any increase or decrease in the number of shares issued for which the
Company receives no consideration.
Should granted options expire or become unexercisable for any reason, the
unpurchased shares which were subject thereto shall become available for future
grant under the Plan. The term of each option shall not exceed a period of ten
years from the grant date and each option generally vests over five years. The
Plan expires in 2003. The exercise price is determined by the Plan's
administrator.
In February 1995, the Company adopted the 1995 Employee Stock Purchase
Plans (U.S. ESPP and Non-U.S. ESPP). The U.S. ESPP permits eligible employees of
Baan USA to purchase common shares through payroll deductions of up to the
lesser of 10% of their compensation, or $25,000 in any year. The price of common
shares purchased under the U.S. ESPP will be 85% of the lower of the fair market
value of the Company's common shares on the first or last day of each offering
period. The Non-U.S. ESPP terms are modified for local rules governing such
plans. A total of 2,000,000 common shares are available for grant under the two
Employee Stock Purchase Plans. Approximately 572,000 common shares were issued
under these plans through December 31, 1996.
In March 1995, the Company adopted the 1995 Director Stock Option Plan
(Director Plan). Under the terms of the Director Plan, each person who becomes a
Supervisory Director after July 1, 1995 shall automatically be granted an option
to purchase 64,000 common shares of the Company (Initial Options), with an
additional grant of 16,000 common shares on January 1, of each subsequent year
(Subsequent Options).
13
<PAGE> 31
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Initial Option grants vest in four equal annual increments and the Subsequent
Option grants vest in full on the fourth anniversary of the date of the grant.
All options have a term of ten years and are to be granted at fair market value
at the date of grant. In the event of a merger or sale of the Company, all
options granted become exercisable immediately. The company has reserved a total
of 800,000 common shares for grant under the Director Plan.
Option activity under the plans, excluding the U.S. ESPP and Non-U.S. ESPP,
was as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES AVAILABLE NUMBER OF PRICE PER SHARE
FOR GRANT SHARES $
---------------- ---------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1993...... 8,000,000 -- --
Additional shares authorized for
issuance........................ 4,000,000 -- --
Granted........................... (9,636,000) 9,636,000 .86
Canceled or expired............... 756,000 (756,000) .85
---------- ---------- -----
Balance at December 31, 1994...... 3,120,000 8,880,000 .86
Additional shares authorized for
issuance........................ 2,800,000 -- --
Granted........................... (4,260,000) 4,260,000 8.78
Canceled or expired............... 1,362,000 (1,362,000) 1.03
Exercised......................... -- (2,474,000) 0.88
---------- ---------- -----
Balance at December 31, 1995...... 3,022,000 9,304,000 4.46
Additional shares authorized for
issuance........................ 2,000,000 -- --
Granted........................... (2,881,000) 2,881,000 27.02
Canceled or expired............... 824,000 (824,000) 2.07
Exercised......................... -- (1,887,000) 2.99
---------- ---------- -----
Balance at December 31, 1996...... 2,965,000 9,474,000 11.82
========== ========== =====
</TABLE>
As of December 31, 1994, 1995 and 1996, exercisable stock options were
368,000, 1,992,000 and 2,578,000, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- -----------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
RANGE OF AVERAGE REMAINING NUMBER PRICE PER NUMBER PRICE PER
EXERCISE PRICES CONTRACTUAL LIFE OUTSTANDING SHARE EXERCISABLE SHARE
- - --------------- ----------------- ----------- ------------- ----------- -------------
<C> <S> <C> <C> <C> <C>
$ 0.85 - $ 8.00 28 months 5,247,000 $ 1.77 1,899,000 $ 1.72
$13.20 - $24.69 48 months 2,595,000 $ 20.33 565,000 $ 18.89
$26.44 - $36.00 54 months 1,632,000 $ 30.58 114,000 $ 34.46
</TABLE>
The Company recorded for financial statement purposes deferred compensation
expense of $1,423,000 for the difference between the grant price and the deemed
fair value of certain of the Company's common share options granted in the third
and fourth quarters of 1994 and in the first quarter of 1995. This amount is
being amortized over the vesting period of the individual options, generally
five years. Compensation expense was approximately $298,000 and $148,000 for the
years ended December 31, 1995 and 1996, respectively. During 1996, certain
options were canceled which further reduced deferred compensation by $605,000.
At December 31, 1996, deferred compensation totaled $372,000.
14
<PAGE> 32
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Stock-based compensation
As permitted under Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" (SFAS No. 123), the Company has
elected to follow Accounting Principles Board's Opinion No. 25 "Accounting for
Stock Issued to Employees" (APB No. 25) in accounting for stock-based awards to
employees. Under APB No. 25, the Company generally recognizes no compensation
expense with respect to such awards.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of SFAS No. 123. The fair value of the Company's stock-based awards
to employees was estimated using a Black-Scholes option pricing model. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes model requires the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock-based awards to employees have characteristics significantly
different from those of traded options, and because 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 stock-based awards to employees. The fair value
of the Company's stock-based awards to employees was estimated assuming no
expected dividends and the following weighted-average assumptions:
<TABLE>
<CAPTION>
OPTIONS ESPP
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected life (months)........................... 60 56 6 6
Expected volatility.............................. 19% 50% 12% 50%
Risk-free interest rate.......................... 5.7 % 6.1 % 5.6 % 6.2 %
</TABLE>
For pro forma purposes, the estimated fair value of the Company's stock
based awards to employees is amortized over the options' vesting period (for
options) and the six-month purchase period (for stock purchases under the ESPP).
The Company's pro forma net income and net income per share for 1995 and
1996 is as follows (in thousands except for net income per share):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net income............................................... $13,704 $28,654
Net income per share..................................... $ 0.16 $ 0.31
</TABLE>
As SFAS No. 123 is applicable only to awards granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until approximately 1999.
The weighted-average fair value of options granted during 1995 and 1996 was
$4.10 and $13.12, respectively.
Movement of shareholders' equity
The following information does not reflect the effects of any stock splits.
The statutory share capital consists of 175,000,000 shares with a par value of
NLG .02 and 10,000,000 shares with a par value of NLG .05 at December 31, 1995
and 1994, respectively. The actual number of shares issued amounts to
89,791,297, 43,123,488 and 9,349,740 at December 31, 1996, 1995 and 1994,
respectively. As of December 31, 1995, the par value of issued shares in Dutch
guilders was NLG 862,470 which translated at the year-end exchange rate of NLG
1.60 = $1 is $538,000. As of December 31, 1996 the par value of issued shares in
Dutch guilders was NLG 897,913 which translated at the year-end exchange rate of
NLG 1.74 = $1 is $516,000.
15
<PAGE> 33
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The movements in the shareholders' equity can be broken down as follows (in
thousands):
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED
COMMON PAID-IN RETAINED TRANSLATION
SHARES CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996............ 538 $ 87,487 $ 22,873 $ 3,222 $114,120
Issuance of common shares............. 20 9,927 (548) -- 9,399
Net income 1996....................... -- -- 36,333 -- 36,333
Other movements....................... -- 148 -- -- 148
Currency translation adjustment....... (42) -- -- (3,951) (3,993)
---- ------- ------- ------- --------
Balance at December 31, 1996.......... 516 $ 97,562 $ 58,658 $ (729) $156,007
==== ======= ======= ======= ========
</TABLE>
The other movements relate to the amortization of the deferred compensation
as discussed above.
8 STATEMENTS OF OPERATIONS INFORMATION
Non recurring operating expenses consist of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994
-----------------------
<S> <C>
Purchased in-process research and development... $ 486
Legal costs associated with estimated litigation
settlement costs.............................. 2,786
Severance costs and other....................... 900
------
Total........................................... $ 4,172
======
</TABLE>
Severance costs of $900,000 in 1994 arose from the reorganization of the
Company's United States operations. A total of 29 employees were terminated at
that time. These termination amounts were settled in cash during the year and no
liabilities remained at December 31, 1994.
Other income in 1995 arose from the curtailment and settlement gain arising
from the termination of the Company's defined benefit pension plan of
approximately $396,000 and from the gain on the sale of one of the Company's
subsidiaries to its former shareholders of approximately $675,000.
9 INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards Board No. 109. Deferred income taxes are provided, using
the liability method, for all timing differences between tax and financial
reporting. Where applicable, deferred income taxes are reduced by the tax effect
of available tax loss carry-forwards.
Income (loss) before income taxes and minority interest consists of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
The Netherlands....................... $ 5,911 $20,233 $49,229
Rest of the world..................... (1,566) 4,935 10,334
------- ------- -------
Income (loss) before income taxes and
minority interest................... $ 4,345 $25,168 $59,563
======= ======= =======
</TABLE>
16
<PAGE> 34
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
CURRENT:
The Netherlands.............................. $ 2,357 $4,947 $22,184
Germany...................................... 1,259 2,282 4,393
Other countries.............................. 130 422 3,840
------- ------ -------
Total current.................................. 3,746 7,651 30,417
DEFERRED:
The Netherlands.............................. (1,739) 2,017 (7,410)
Germany...................................... 164 149 223
------- ------ -------
Total deferred................................. (1,575) 2,166 (7,187)
------- ------ -------
Provision for income taxes..................... $ 2,171 $9,817 $23,230
======= ====== =======
</TABLE>
The Company's effective income tax provision differs from the Netherlands
statutory rate of 35% due to
the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Expected tax at statutory rate.................. $1,521 $8,808 $20,847
Amortization of goodwill........................ 386 435 661
Foreign earnings taxed at higher rates.......... 251 512 1,881
Other, net...................................... 13 62 (159)
------ ------ -------
Provision for income taxes...................... $2,171 $9,817 $23,230
====== ====== =======
Effective tax rate.............................. 50% 39% 39%
</TABLE>
The components of the deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- ------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Intangible assets....................................... $ 5,491 $4,208
Deferred revenues....................................... 3,796 --
Software development costs.............................. 2,048 4,856
------- ------
Total deferred tax liabilities............................ 11,335 9,064
DEFERRED TAX ASSETS:
Expenses not currently deductible....................... 112 975
Net operating losses of foreign subsidiaries............ 3,218 8,017
------- ------
Total deferred tax assets................................. 3,330 8,992
------- ------
Total net deferred tax liabilities........................ $ 8,005 $ 72
======= ======
</TABLE>
At December 31, 1996, the Company had foreign net operating loss
carryforwards of approximately $23,000,000. Approximately $12,000,000 of these
carryforwards have no expiration date and the balance expires in 2000 or later.
For financial accounting purposes, the benefit of these losses has been recorded
as a reduction of the provision for Dutch income taxes in 1994, 1995 and 1996.
17
<PAGE> 35
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
No deferred income taxes have been provided for the income tax liability
which may be incurred on repatriation of the undistributed earnings of the
Company's consolidated foreign subsidiaries because the Company intends to
reinvest such earnings indefinitely.
10 FINANCIAL INSTRUMENTS
Derivative financial instruments
The Company has strict controls regarding the use of derivative financial
instruments, which is limited to short-term foreign currency forward contracts.
The Company uses these contracts primarily to offset the effects of exchange
rate changes on intracompany cash flow exposures denominated in foreign
currencies. These exposures include firm trade accounts, royalties, service fees
and loans. The primary exposures are denominated in European and Asian
currencies. The Company does not hold these derivative financial instruments for
trading purposes.
The Company's foreign currency forward contracts all have maturities of
less than one year. These forward contracts are summarized below (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
European currencies...................................... $ 7,814 $61,805
Asian currencies......................................... 4,662 16,187
Other currencies......................................... 1,471 3,150
-------- --------
Total.................................................... $13,947 $81,142
======== ========
</TABLE>
The amounts represent the U.S. dollar equivalent of commitments to sell
foreign currencies.
Fair values of financial instruments
The carrying amounts and estimated fair values of the Company's financial
instruments were as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING 1995 CARRYING 1996
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents...... $ 12,165 $ 12,165 $198,031 $ 198,031
Marketable securities.......... 23,562 23,562 3,867 3,867
FINANCIAL LIABILITIES
Short term borrowings.......... 3,779 3,779 870 870
Convertible subordinated
notes....................... -- -- 175,000 175,577
Other long term borrowings
(including current
portion).................... 2,215 2,215 1,862 1,862
Off balance sheet instruments
Foreign currency forward
contracts...................... -- 13,927 -- 80,676
</TABLE>
The estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies as discussed below.
However, considerable judgment is required in interpreting market data to
develop the fair value estimates. Accordingly, the estimates presented above are
not necessarily indicative of the amounts that the Company could realize in a
current market exchange.
Cash equivalents and marketable securities -- The carrying amount
approximates fair value because of the short maturity of these instruments.
18
<PAGE> 36
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Short term borrowings -- The carrying amount approximates fair value
because of the short maturity of these instruments.
Convertible subordinated notes -- The fair value of the Notes was based on
quoted market prices of the Notes.
Other long term borrowings -- The fair value of these financial instruments
is estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Foreign currency forward contracts -- The fair value of the contacts was
based on the estimated amount at which they could be settled based on quoted
exchange rates.
11 CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, marketable
securities, accounts receivable, and financial instruments used in hedging
activities.
The Company places its cash equivalents and marketable securities with high
credit quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial institution.
Credit risk associated with accounts receivable is limited due to the large
number of customers comprising the Company's customer base and their dispersion
among many different industries and geographical regions. The Company does not
require collateral to support customer receivables. The Company also maintains
reserves for potential losses, and all credit losses to date have been within
management's expectations. For the year ended December 31, 1994 the Company
charged a write off of approximately $250,000 to bad debt expense. For the year
ended December 31, 1995, the Company charged $902,000 to bad debt expense. Bad
debt write offs in 1995 were $147,000. For the year ended December 31, 1996, the
Company charged $8,310,000 to bad debt expense. Bad debt write offs in 1996 were
$1,618,000.
In December 1996, the Company entered into an agreement pursuant to which
it sold $17,040,000 of its existing accounts receivable, subject to limited
recourse. Under the terms of the agreement, the purchaser assumed all credit
loss risk. The proceeds from the sale were less than the face amount of the
accounts receivable by an amount which approximates the short term unsecured
borrowing cost of the Company's customers. The discount from the face amount was
$602,000 and is included in selling and marketing expenses in the accompanying
financial statements. The balance of the sold accounts receivable was
$16,438,000 as of December 31, 1996.
The counterparties to the agreements relating to the Company's foreign
exchange instruments consist of a number of major high credit quality
international financial institutions. The Company, by policy, limits the
financial exposure and the amount of agreements entered into with any one
financial institution. While the notional amounts of financial instruments are
often used to express the volume of these transactions, the potential accounting
loss on these transactions if all counterparties failed to perform is limited to
the amounts, if any, by which the counterparties' obligations under the
contracts exceed the obligations of the Company to the counterparties.
12 TRANSACTIONS WITH AFFILIATES
During 1996, the Company entered into license distribution agreements with
BBS Holdings B.V. (BBS), a partially owned subsidiary of the Company's principal
shareholder. The distribution agreements allow BBS to sell the Company's
software to small and medium sized enterprises around the world. During the year
ended December 31, 1996, the Company recognized revenues of approximately
$14,532,000 from BBS.
19
<PAGE> 37
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
13 ACQUISITIONS AND DISPOSITIONS
In May 1995, the Company purchased the remaining 40% minority interest in
Baan Deutschland GmbH, a German company, for approximately $12,100,000
consisting of approximately $7,600,000 of cash and 600,000 common shares of the
Company's stock valued at $4,500,000. In October 1995, the Company acquired
certain assets and liabilities of Techno Infinitus Ltd. (Techno), a Japanese
company, for approximately $2,400,000 in cash. In March 1996, the Company
purchased 100% of the outstanding stock of Baan Iberica, a Spanish company, for
approximately $4,700,000 in cash. Baan Deutschland GmbH, Techno (renamed Baan
Japan Ltd.) and Baan Iberica are distributors of the Company's products in
Germany, Japan and Spain, respectively.
All of the above acquisitions were accounted for under the purchase method
and the assets and liabilities were recorded at their fair values on the
acquisition dates. Results of operations include these distributors from the
dates of acquisition.
After allocating a portion of the purchase price for these acquisitions to
tangible assets and liabilities, $8,276,000 was allocated to customer lists,
$2,126,000 to assembled workforce, and $344,000 to developed software and
$10,348,000 to goodwill of which $3,625,000 was the result of the tax effect of
the identified intangible assets.
The following unaudited pro forma financial information assumes the
respective acquisitions occurred at the beginning of the periods in which the
acquisitions took place and, for comparative purposes, at the beginning of the
immediately preceding year. These results have been prepared for informational
purposes only and are not necessarily indicative of the operating results that
would have occurred had the acquisitions been made as discussed above. In
addition, they are not intended to be a projection of future results. The
information is in thousands except for net income per share.
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues................................... $132,192 $227,819 $387,958
Net income (loss).......................... 404 14,105 36,333
Net income (loss) per share................ $ 0.01 $ 0.31 $ 0.38
</TABLE>
The results of all the above periods reflect the amortization of software,
goodwill and other intangible assets arising from the various acquisitions.
In May 1995, the Company entered into an agreement (the "Agreement") with
the former shareholders of Baan Process Inc. Pursuant to such Agreement, the
Company sold all outstanding shares of Baan Process Inc. to the former
shareholders of that company, together with certain identified assets and
liabilities. The Company retained the rights to all of the intellectual property
of Baan Process Inc., the majority of its employees and all of its physical
facilities, operating leases, fixed assets and related capital leases. The
proceeds received by the former shareholders of Baan Process Inc. from sales of
shares in the Company's initial public offering were used to settle the former
shareholders' obligations under the Agreement. The settlement of the terms of
the Agreement resulted in a net gain of approximately $675,000.
In May 1996, the shareholders of Berclain Group Inc. (Berclain) agreed to
exchange their shares in Berclain for 544,000 shares of the Company's common
shares. Berclain is a Canadian software company and a provider of manufacturing
synchronization and scheduling solutions. The business combination was effective
May 31, 1996 and was accounted for as a pooling of interests. In November 1996,
the shareholders of Antalys, Inc. (Antalys) agreed to exchange their shares in
Antalys for 915,000 shares of the Company's common shares. Antalys is an
American software company and a provider of configuration management software
that automates the configuration and pricing for products and services. The
business combination was effective
20
<PAGE> 38
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
November 30, 1996 and was accounted for as a pooling of interests. Because
Berclain's and Antalys' financial statements were not material to the
consolidated financial statements of the Company, the Company did not restate
any of its consolidated financial statements prior to the combinations.
Consolidation of Berclain and Antalys reduced the Company's retained earnings by
approximately $548,000.
14 COMMITMENTS AND CONTINGENCIES
Leases
The Company has operating leases for its corporate offices, domestic
distribution center, foreign subsidiary offices, domestic field sales offices,
certain data-processing equipment, telephone equipment, and other office
equipment. Rental expense for operating leases for the years ended December 31,
1994, 1995 and 1996 was approximately $3,527,000, $4,118,000 and $7,659,000,
respectively.
Minimum annual rental commitments under noncancelable operating leases for
periods subsequent to December 31, 1996, including amounts due to affiliates
(based upon the exchange rates at December 31, 1996), are as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................... $10,147
1998............................................... 8,681
1999............................................... 5,685
2000............................................... 4,287
2001............................................... 3,434
Thereafter......................................... 783
-------
Total minimum rental commitments................... $33,017
=======
</TABLE>
Litigation
The Company is involved in legal actions arising in the ordinary course of
business. While the outcome of such matters are currently not determinable, it
is management's opinion that these matters will not have a material adverse
effect on the Company's consolidated financial condition or results of its
operations.
21
<PAGE> 39
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
15 INDUSTRY SEGMENT, GEOGRAPHIC AND OTHER INFORMATION
The Company designs, manufactures, and markets applications software for
business processes and operates in a single industry segment.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
NET REVENUES FROM UNAFFILIATED CUSTOMERS:
The Netherlands.......................... $ 50,243 $ 71,352 $ 82,622
Germany.................................. 25,822 39,975 54,073
Other European operations, including
South Africa in 1995.................. 2,564 19,011 50,803
U.S. and Canadian operations............. 37,747 62,714 147,333
Other international operations........... 6,548 23,158 53,127
-------- -------- --------
Total net revenues......................... $122,924 $216,210 $387,958
======== ======== ========
TRANSFERS BETWEEN GEOGRAPHIC REGIONS
(ELIMINATED ON CONSOLIDATION):
The Netherlands.......................... $ 11,884 $ 39,245 $ 70,469
Germany.................................. 191 1,006 686
Other European operations,including South
Africa in 1995........................ 502 529 1,513
U.S. and Canadian operations............. 864 2,335 4,317
Other international operations........... 760 2,086 999
-------- -------- --------
Total...................................... $ 14,201 $ 45,201 $ 77,984
======== ======== ========
INCOME (LOSS) FROM OPERATIONS:
The Netherlands.......................... $ (2,901) $ (9,990) $ (6,407)
Germany.................................. 5,327 11,345 22,359
Other European operations, including
South Africa in 1995.................. (1,910) 4,451 9,900
U.S. and Canadian operations............. 8,573 18,058 44,678
Other international operations........... (833) 4,575 4,137
General corporate expenses............... (2,920) (4,958) (15,167)
-------- -------- --------
Income (loss) from operations.............. $ 5,336 $ 23,481 $ 59,500
======== ======== ========
IDENTIFIABLE ASSETS:
The Netherlands.......................... $ 34,045 $ 75,751 $240,768
Germany.................................. 15,295 41,335 44,943
Other European operations, including
South Africa in 1995.................. 3,793 16,968 48,858
U.S. and Canadian operations............. 20,061 35,217 66,373
Other international operations........... 4,393 17,350 39,750
-------- -------- --------
Total identifiable assets................ $ 77,587 $186,621 $440,692
======== ======== ========
</TABLE>
Amounts charged between geographic regions are based on terms similar to
those offered to third parties.
Revenues from Boeing Company amounted to $15,902,000 in 1994. No other
customer accounted for 10% or more of consolidated net revenues in 1994. In 1995
and 1996, the Company had no customer which accounted for 10% or more of
consolidated net revenues.
22
<PAGE> 40
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Sales from The Netherlands to unaffiliated customers in foreign countries
were less than 10% of total revenues from sales to unaffiliated customers in
1994, 1995 and 1996.
Wages and salary information is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Wages and salaries........................... $40,589 $65,051 $105,521
Social security costs........................ 5,885 9,091 13,546
Pension costs................................ 417 930 1,850
------- ------- --------
Total........................................ $46,891 $75,072 $120,917
======= ======= ========
</TABLE>
The average number of personnel employed during the year was:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
--- ----- -----
<S> <C> <C> <C>
Research and development.............................. 154 263 476
Sales and marketing................................... 190 302 472
Billable services..................................... 392 504 790
Finance and general administration.................... 134 165 220
--- ----- -----
Total................................................. 870 1,234 1,958
=== ===== =====
</TABLE>
Remuneration of the Managing Directors was, $376,000, $821,000 and $617,000
in 1994, 1995 and 1996 respectively.
In 1996 the remuneration of the Board of Supervisory Directors amounted to
$76,000 (1995: $57,000).
16 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1996 and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- -----------
<S> <C> <C> <C> <C>
1995
Net revenues....................... $38,869 $ 47,343 $54,448 $75,550
Gross margin....................... 21,769 27,805 32,377 45,591
Income from continuing
operations....................... 3,665 5,422 5,062 11,020
Net income......................... 2,099 3,273 3,062 6,845
Net income per share............... $ 0.03 $ 0.04 $ 0.03 $ 0.07
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- -----------
<S> <C> <C> <C> <C>
1996
Net revenues....................... $77,926 $ 88,482 $97,681 $123,869
Gross margin....................... 43,370 52,114 61,050 84,198
Income from continuing
operations....................... 7,099 11,251 15,235 25,978
Net income......................... 4,331 6,863 9,293 15,846
Net income per share............... $ 0.05 $ 0.07 $ 0.10 $ 0.17
</TABLE>
23
<PAGE> 41
BAAN COMPANY N.V.
BALANCE SHEETS
IN THOUSANDS
(AFTER PROPOSED APPROPRIATION OF NET INCOME)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
FIXED ASSETS
Intangible fixed assets............................................ $ 24,400 $ 22,528
Tangible fixed assets.............................................. -- 423
Financial fixed assets............................................. 89,570 187,428
------- -------
TOTAL FIXED ASSETS................................................. 113,970 210,379
CURRENT ASSETS
Other current assets............................................... 2,159 5,774
Marketable secureties.............................................. 23,562 24,200
Cash and cash equivalents.......................................... 25,872 150,003
------- -------
TOTAL CURRENT ASSETS............................................... 51,593 179,977
------- -------
TOTAL ASSETS....................................................... $165,563 $390,356
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Share capital...................................................... $ 538 $ 516
Additional paid-in capital......................................... 87,487 97,562
Accumulated translation adjustment................................. 3,222 (729)
Retained earnings.................................................. 22,873 58,658
------- -------
114,120 156,007
PROVISIONS
Deferred income taxes.............................................. 4,209 --
Other.............................................................. -- --
------- -------
4,209 --
LONG TERM DEBT
Convertible subordinated notes..................................... -- 175,000
Credit institutions................................................ 1,714 1,204
Other.............................................................. 183 183
------- -------
1,897 176,387
CURRENT LIABILITIES (DUE WITHIN ONE YEAR)
Credit institutions................................................ -- 373
Payable to subsidiaries............................................ 42,362 35,454
Income taxes payable............................................... 1,395 17,464
Deferred revenu.................................................... -- --
Other current liabilities.......................................... 1,580 4,671
------- -------
TOTAL CURRENT LIABILITIES.......................................... 45,337 57,962
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $165,563 $390,356
======= =======
</TABLE>
24
<PAGE> 42
BAAN COMPANY N.V.
STATEMENTS OF OPERATIONS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net income from subsidiaries and participating interests...... $ 5,055 $16,667 $35,526
Other income after taxes...................................... (3,857) (1,388) 807
------- ------- -------
NET INCOME (LOSS)............................................. $ 1,198 $15,279 $36,333
======= ======= =======
</TABLE>
25
<PAGE> 43
BAAN COMPANY N.V.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies are the same as those described in Notes to the
Consolidated Financial Statements. Investments in subsidiary companies and
participating interests are stated at the Company's share in their net asset
value. All amounts are stated in United States dollars.
2 INTANGIBLE FIXED ASSETS
Intangible fixed assets are disclosed in note 3 to the consolidated
financial statements. For 1996 the movement in intangible fixed assets can be
broken down as follows (in thousands):
<TABLE>
<S> <C>
Book value January 1....................................... $24,400
Purchases and additions.................................... 5,568
Amortization............................................... (5,726)
Foreign exchange difference................................ (1,714)
-------
Book value December 31..................................... $22,528
=======
Total accumulated amortization............................. $12,601
=======
</TABLE>
3 TANGIBLE FIXED ASSETS
The tangible fixed assets consist of computer equipment and software
development costs. The movement in tangible fixed assets are as follows (in
thousands):
The ending balances and the movement in tangible fixed assets can be broken
down as follows (in thousands):
<TABLE>
<CAPTION>
OTHER SOFTWARE
OPERATING DEVELOPMENT
ASSETS COSTS TOTAL
--------- ----------- -----
<S> <C> <C> <C>
Book value December 31, 1995.................. $ -- $ -- $ --
Purchases and investments..................... 463 95 558
Disposals..................................... -- -- --
Depreciation.................................. (103) (27) (130)
Foreign exchange difference................... (5) -- (5)
----- ---- -----
Book value December 31, 1996.................. $ 355 $ 68 $ 423
===== ==== =====
Total accumulated depreciation................ $ 103 $ 27 $ 130
===== ==== =====
</TABLE>
26
<PAGE> 44
BAAN COMPANY N.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4 FINANCIAL FIXED ASSETS
Financial fixed assets relate to investments in subsidiary companies and
participating interests. The movement can be broken down as follows:
<TABLE>
<CAPTION>
SUBSIDIARY COMPANIES OTHER INTERESTS
---------------------- --------------------
INVESTMENTS LOANS INVESTMENTS OTHER TOTAL
----------- -------- ----------- ------ --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996................... $18,891 $ 70,414 $ 265 $ -- $ 89,570
Additions/Acquisitions....................... 886 108,185 -- 3,500 112,571
Dividends/repayments......................... -- (46,334) -- -- (46,334)
Disposals/amortization....................... -- -- (258) (23) (281)
Share of net income.......................... 35,526 -- -- -- 35,526
Transfer from loans.......................... 695 (695) -- -- --
Other........................................ 345 -- -- -- 345
Foreign exchange............................. (1,868) (2,101) -- -- (3,969)
------- -------- ----- ------ --------
Balance at December 31, 1996................. $54,475 $129,469 $ 7 $3,477 $187,428
======= ======== ===== ====== ========
</TABLE>
The other financial fixed assets relate to the long term part of the
commission regarding the convertible subordinated notes less amortization.
5 SHAREHOLDERS' EQUITY
The movement in shareholders' equity and its components is disclosed in
note 7 to the consolidated financial statements.
6 LONG TERM DEBT
The long term liabilities relate to the convertible subordinated notes and
the guilder denominated loans as disclosed in note 6 to the consolidated
financial statements. Amounts due within one year are $373,000; no amounts are
due after five years.
Amounts payable to subsidiaries bear interest of 7% and generally have no
specific repayment terms.
7 CURRENT LIABILITIES
Borrowing arrangements and related guarantees are disclosed in note 6 to
the consolidated financial statements.
8 EMPLOYEE INFORMATION
The Company has no employees.
9 OTHER INFORMATION
The Company has given guarantees in respect of its Dutch subsidiaries under
the provision of section 403, Book 2 of the Netherlands Civil Code.
27
<PAGE> 45
BAAN COMPANY N.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10 CONSOLIDATED SUBSIDIARIES AND PARTICIPATING INTERESTS
Consolidated subsidiaries:
<TABLE>
<S> <C>
- Baan Nederland B.V., Barneveld, the Netherlands 100%
- Baan Belgie N.V., Antwerp, Belgium 100%
- Baan International B.V., Barneveld, the Netherlands 100%
- Baan Development B.V., Barneveld, the Netherlands 100%
- Baan Software B.V., Barneveld, the Netherlands 100%
- Baan (Schweiz) A.G., Otelfingen, Switzerland 100%
- Baan Austria GmbH, Vienna, Austria 100%
- Baan Polska Sp.z o.o., Warszawa, Poland 100%
- Baan Italia S.r.1., Milan, Italy 100%
- Baan Iberica I.S. S.A., Sant Just Desvern, Spain 100%
- Baan South Africa Pty. Ltd., Midrand, South Africa 100%
- Baan UK Ltd., Harlow, United Kingdom 100%
- Baan France S.A., Courbevoie, France 100%
- Baan Nordic AB, Stockholm, Sweden 100%
- Baan Deutschland GmbH, Hannover, Germany 100%
- Baan Canada Inc., Toronto, Canada 100%
- Berclain Group Inc., Sainte-Foy, Quebec, Canada with participating interest in:
- Berclain Canada Inc. 100%
- Berclain U.S.A. Inc. 100%
- Berclain (Deutschland) GmbH 100%
- Baan U.S.A. Inc., New Castle, Delaware, USA 100%
- Antalys Inc., Golden, USA 100%
- Baan Latin America Inc., Delaware, USA 100%
- Baan Mexico S.A. de C.V., Mexico City, Mexico 100%
- Baan Mexico Servicios S.A. de C.V., Mexico City, Mexico 100%
- Baan Argentina Ltda., Buenos Aires, Argentina 100%
- Baan Venezuela S.A., Caracas, Venezuela 100%
- Baan Colombia Ltda., Bogota, Colombia 100%
- Baan Brasil Sistemas de Informatica Ltda., Sao Paolo, Brazil 100%
- Baan Chile Sistemas de Informatica Ltda., Santiago, Chile 100%
- Baan Peru S.A., Lima, Peru 100%
- Baan Infosystems India Private Ltd., Bombay, India 100%
- Baan Software India Private Ltd., New Delhi, India 100%
- Baan China Ltd., Hong Kong, Hong Kong 100%
- Baan Japan Co. Ltd., Tokyo, Japan 100%
- Baan (Malaysia) Sdn. Bhd., Selangor, Malaysia with participating interest in: 51%
- Baan Singapore Pte. Ltd., Singapore, Singapore 51%
- Baan Asia Pacific Pte. Ltd., Singapore, Singapore 100%
- Baan Australia Pty Limited, Sydney, Australia 100%
</TABLE>
28
<PAGE> 46
BAAN COMPANY N.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<S> <C>
Participating interest:
- Tech@Spree Software Technology GmbH, Berlin, Germany 19%
- TAS Tele Anwender Service GmbH, Karlsruhe, Germany (held by Baan Deutschland
GmbH, Hannover, Germany) 20%
MANAGING DIRECTORS SUPERVISORY DIRECTORS
Jan Baan B.V., Jan Baan J.G. Paul Baan
Tom C. Tinsley William O. Grabe
David C. Hodgson
Graham J. Sharman
J.C. Wortmann
</TABLE>
29
<PAGE> 47
AUDITOR'S REPORT
- - - Introduction
We have audited the accompanying 1996 financial statements of Baan Company
N.V., Barneveld. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
- - - Scope
We conducted our audits in accordance with auditing standards generally
accepted in the Netherlands. 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.
- - - Opinion
In our opinion, the financial statements give a true and fair view of the
financial position of the Company as at December 31, 1996 and of the result for
the year then ended in accordance with accounting principles generally accepted
in the Netherlands and comply with the financial reporting requirements included
in Part 9, Book 2 of the Netherlands Civil Code.
Utrecht, The Netherlands
January 24, 1997
Moret Ernst & Young Accountants
30
<PAGE> 48
APPROPRIATION OF NET INCOME
According to Article 22 of the Company's articles of incorporation, the
annual meeting of shareholders determines the appropriation of the Company's net
income for the year. The Managing Directors propose that the net income be added
to retained earnings. This proposal has been included in the financial
statements.
31
<PAGE> 49
CORPORATE PROFILE
The Baan Company is a leading provider of innovative enterprise client/server
business software and consulting services that help organizations manage
continuous change. Companies around the world use Baan's enterprise business
applications and tools to streamline and manage processes - such as sales
forecasting, procurement, inventory control, distribution, project management,
transportation, and finance - throughout the enterprise and across the supply
chain. Baan is focused on optimizing its solutions for a variety of markets,
including automotive, electronics, aerospace and defense, process, project and
hybrid manufacturers. Founded in 1978, the Baan Company currently has
approximately 2,400 employees, 2,200 customers, and 3,500 installations
worldwide. The Company operates from dual headquarters, in Putten, The
Netherlands, and Menlo Park, California. Its stock trades on the Nasdaq
National Market System under the symbol BAANF and on the Official Market of the
Amsterdam Stock Exchange under the symbol BAAN.
<PAGE> 50
<TABLE>
<CAPTION>
In thousands, except per share amounts and
number of employees at year-end 1994 1995 1996
--------
<S> <C> <C> <C>
Total net revenues $122,924 $216,210 $387,958
Research and development expenses 7,987 18,718 42,136
Net income 1,198 15,279 36,333
Net income per share 0.02 0.17 0.38
Total assets 77,587 186,621 440,692
Working capital 5,286 71,740 260,507
Shareholders' equity 27,811 114,120 156,007
========
Number of employees at year-end 943 1,525 2,389
--------
</TABLE>
FINANCIAL HIGHLIGHTS
[GRAPHS] [GRAPHS]
[GRAPHS] [GRAPHS]
<PAGE> 51
[PICTURES OF THREE EXECUTIVE OFFICERS]
PICTURE CAPTIONS:
Jan Baan
Chairman and Chief Executive Officer
Paul Baan
Chairman of the Board of Supervisory Directors
Tom Tinsley
President and Chief Operating Officer
FROM THE OFFICE OF THE CHAIRMAN
The Baan Company had an amazing year in 1996. It wasn't just about making
money, which we did very nicely, or about growing faster than our industry,
which we also did. The year was really about Baan's emergence as a recognized
leader in the global enterprise resource planning (ERP) marketplace and being
praised by industry watchers as the most visionary of the handful of leadership
companies that did remain in our market space. Despite the success and
accolades, strong competitors keep us humble, and customers who put their trust
in us keep us motivated to work even harder on their behalf.
Our customers are a lot like us. Their ability to adapt to change and
capitalize on market opportunities is critical to their success. Put simply, we
are a dynamic enterprise focusing on helping other dynamic enterprises become
increasingly profitable. We think our ability to help customers do this better
than anyone else is the primary reason why we had such an outstanding year.
RECORD FINANCIAL PERFORMANCE
The increasingly broad market acceptance of Baan's family of integrated
enterprise software fueled record financial results in fiscal 1996. Net
revenues increased 79% to a record $388.0 million from fiscal 1995 net revenues
of $216.2 million. Net income for 1996 more than doubled to $36.3 million from
$15.3 million a year ago. Earnings per share were $0.38 for 1996 compared to
$0.17 in 1995.
In addition to these excellent results, shareholders approved a two-for-one
stock split in 1996, broadening the Company's shareholder base and improving
the liquidity of the shares on the market. We also completed a successful
public offering of 8,716,364 common shares at a price of $27.50 per share. All
of these shares were offered by existing Baan shareholders. And at year-end, we
issued a $175 million convertible subordinated notes offering, providing
additional working capital for further expansion and growth.
<PAGE> 52
WHAT MAKES US DIFFERENT
We have been told by our customers that we are a company that is easy to work
with. Our commitment to integrity means that we stand by our commitments to
customers. It is not about being perfect; it is about making things right. Our
customers know we will not rest until they are successful. We provide unique
options for working together. For example, Baan Solution Centers - typically a
joint venture with our customers and partners - provide a rich source of
industry-specific expertise and technical assistance.
We believe our products are also easier to work with. Our approach is to
provide customers with a flexible framework that allows them to manage
continuous change more effectively. From our inception almost 20 years ago, we
have based our solutions on an open, client/server architecture. This has
proven to be a wise choice because today our offerings remain among the most
scalable and flexible. British Aerospace, Western Star Trucks, Echlin, Inc.,
Litton Systems, Inc., Sensormatic Electronics Corporation, and many other
companies of all sizes joined Baan's growing list of customers who are
realizing the value of our client/server computing vision.
Our efforts have been focused on developing solutions and services optimized
for vertical markets and their supply chains. This allows us to have a depth of
knowledge about our customers' businesses and to seek out appropriate partners
to maximize success. Our focus industries are aerospace and defense,
automotive, electronics, process, and heavy equipment/projects. We have
tailored our enterprise software for applications in these specific markets and
developed Enterprise Reference Models based on best-in-class industry practices.
Most of our efforts in 1996 revolved around improving our ability to serve
customers' ever-changing needs and making complex enterprise technology much
easier to implement and use. In this regard, we are proud of our most
significant accomplishments, including:
DYNAMIC ERP
We delivered our next-generation BAAN IV family of enterprise software. Based
on Baan's unique Dynamic Enterprise Modeling (DEM) framework, BAAN IV extends
the traditional ERP model beyond the organization with functionality to support
supply-and-demand chain requirements. This enables our customers to adapt their
business applications in real time to their changing enterprise structures,
business practices, and operational procedures. BAAN IV is also our first step
toward offering large-scale internet-ready applications.
ENTERPRISE APPLICATIONS FOR MICROSOFT
In 1996, BAAN IV BackOffice was the first product in our industry to receive
the Microsoft BackOffice logo certification. It has now been successfully
installed by several customers. The BAAN IV BackOffice product enables
customers who run their enterprise on the Microsoft platform to have, for the
first time, a fully scalable solution optimized for their entire supply chain.
ACQUISITIONS TO EXTEND ERP
Our acquisition strategy also allowed us to take a leadership position in
extending the definition of ERP. This year, our acquisition of the Berclain
Group Inc., a global leader in manufacturing synchronization and scheduling
software,
<PAGE> 53
made Baan the first top-tier enterprise business applications vendor to offer
customers both the transaction and the decision support sides of manufacturing
software. And with our acquisition of Antalys Inc., a leading provider of
order management and product configuration software, we became the first
enterprise software vendor to let customers fully integrate their customers'
individual requirements across the entire supply chain.
BUILDING A WORLD-CLASS ORGANIZATION
To sustain our success over the long term, it is imperative that we continue
to build a world-class global infrastructure that supports our financial and
market growth. We also believe it's important to continue to make it easier
and easier for customers to embrace and implement our solutions.
To this end, we strengthened our support capabilities by creating three
distinct service organizations - Baan Education, Baan Support, and Baan
Consulting - to better focus on and serve customers' individual
requirements. We also made significant investments in research and
development, reflecting our commitment to innovation and our dedication to
providing leading-edge, easy-to-use, and easy-to-implement solutions. We grew
our R&D investment 125% year-to-year, doubling the size of our R&D facility in
India and expanding our R&D facilities in The Netherlands and California.
LOOKING FORWARD
Going forward, we will continue on our mission to provide the most innovative
solutions to help our customers manage their ever-changing enterprises while
realizing the highest possible return on their information technology (IT)
investment.
We will continue to expand the definition of ERP, make it easy for customers
to do business with us, simplify implementation, and drive down the cost of
ownership by making solutions less complex. We will also continue to align
ourselves with best-of-breed partners through strategic alliances, acquisitions,
and other means to provide complete solutions that meet our customers' needs.
As always, we will build on our successful track record as a partner who commits
to on-time delivery and to sharing risks with our customers.
We are grateful for the contribution and tremendous energy of our many
constituents - customers, shareholders, partners, and employees - and we are
intent on creating even more value for all of them in the future.
/s/ JAN BAAN
- - ------------
Jan Baan
Founder, Chairman, and Chief Executive Officer
<PAGE> 54
BAAN'S UNIQUE
DYNAMIC ENTERPRISE MODELING
(DEM)
APPROACH ENABLES OUR ENTERPRISE APPLICATIONS
TO TRANSPARENTLY OVERLAY EACH CUSTOMER'S OWN
BUSINESS MODEL.
THIS HELPS CUSTOMERS
QUICKLY ADAPT TO - AND LEVERAGE - CONTINUALLY
CHANGING BUSINESS CONDITIONS FOR FASTER TIMES
TO MARKET AND INCREASED SUCCESS.
<PAGE> 55
DISCIPLINED CREATIVITY
Staying ahead of competitors requires creative
thinking backed by cutting-edge capabilities. We believe in going a step
beyond business as usual at Baan. We believe in creating an environment in
which achievements that others may consider extraordinary are simply an
ordinary part of our everyday business lives. By innovating in our industry
we help our customers innovate in theirs.
ONGOING INNOVATION
Almost two decades ago, when Baan started, we saw the potential in providing an
open software system rather than the proprietary systems that were then the
norm. This foresight has paid off, making Baan a leader in today's burgeoning
open systems ERP marketplace. And our continually strong investments in R&D
enable Baan to keep reinventing our software, keeping it - and our customers -
on the cutting-edge. This year we continued to add to our long list of
"firsts" that help make Baan customers second to none. These included being
the first ERP vendor to receive "Designed for Microsoft BackOffice" logo
certification.
OUR UNIQUE TEAM APPROACH
Providing an environment of "disciplined creativity," Baan has been able to
attract and maintain a workforce with unparalleled capabilities. Our core
values encourage individual development and responsibility while simultaneously
fostering teamwork and collaboration. We believe in building strong,
long-term relationships among our own employees as well as with customers and
industry partners. The result is cohesive, energetic teams of talented people
all working toward shared goals of success.
EMPOWERING CUSTOMERS
Going beyond traditional support, Baan works closely with customers to fully
understand and meet their continually changing requirements. Our goal is to
transfer our technical knowledge and skills to our customers, enabling them to
become increasingly self-reliant. This helps them increase productivity and
achieve their operational goals more efficiently.
<PAGE> 56
Innovation is a way of life at Baan. Teams of independent thinkers, products
that adapt to myriad situations, support that enables customer self-reliance,
and other unique approaches make the ordinary extraordinary.
INNOVATION [PICTURE]
<PAGE> 57
BRITISH AEROSPACE
Wanting to lead their industry and do things that have never
been done before, British Aerospace requires a partner who could
rise to that challenge. They chose Baan as their ERP vendor. Now
Baan is helping British Aerospace make the "impossible"
[JET PICTURE] possible, replacing more than 200 separate computer systems with
the Baan system, with more than 3,000 concurrent users. And with
Baan's unique approach that enables "customer self-reliance."
British Aerospace will find themselves exactly where they want
to be when it comes to implementation: in the pilot's seat.
<PAGE> 58
[JET ENGINE PICTURE]
Leadership
<PAGE> 59
Rapid Implementation
How does a company gain an edge in a speed-driven world?
Be first to market with the products people want. Respond to customers
in real time. Make informed decisions in an instant. Reduce cycle times
while maintaining quality. Achieve fast returns on IT investments. The rapid
implementation capability built into Baan's ERP solution makes all
this possible for Baan customers.
CHANGE GOES FASTER WITH ORGWARE
At the heart of the Baan family of integrated enterprise software is BAAN
Orgware, a revolutionary suite of tools and methodologies that reduces the time
and cost of application implementation and continuous improvement. Because of
Orgware's unique capabilities and tight integration with Baan applications,
typical Baan implementations can be accomplished in 3-12 months-significantly
faster than the 2+ years of traditional solutions. This rapid implementation
ability is a key differentiator for Baan that also helps our customers
out-distance their competitors.
DEM MAKES THE DIFFERENCE
BAAN IV software is based on a new paradigm that Baan pioneered called Dynamic
Enterprise Modeling (DEM). Using "best practice" industry templates, the DEM
framework enables our enterprise applications to map directly onto each
company's own business model, organizational structures, and operational
processes. Such close alignment makes it easy for Baan customers to swiftly
reconfigure their applications in order to adapt to -- and take advantage of --
continually changing business requirements, fluctuating market conditions, and
advancing technologies.
STAYING ON THE FAST TRACK
Everything we do at Baan is focused on helping our customers improve their
return on investments, and reap the rewards that come with the ability to move
quickly. That's the motivation behind the dynamic modeling framework of DEM,
the rapid implementation capabilities of Orgware, the unparalleled flexibility
of Baan software, and the extraordinary responsiveness of the entire Baan team.
We are intent on keeping our customers, and ourselves, on the fast tract --
today, tomorrow, always.
<PAGE> 60
SPEED
Our customers are on the fast track in their dynamic environments, which makes
speed critical to their success. Baan helps make speed a reality with rapid
implementation.
[PICTURE]
[CAPTION ILLEGIBLE]
<PAGE> 61
CARRIER
The world's largest maker of air conditioning, heating, refrigeration, and
ventilation equipment. Carrier Corporation operates in 145 countries. Carrier
needed to integrate its operations within and across its strategic business
units. It also needed the flexibility to address global, regional, and local
customer needs. With Baan's solution serving as the backbone information system
for its internal value chain, Carrier can respond faster and more effectively
to constantly changing market needs. As global competition continues to heat
up, Baan's solution is helping Carrier maintain its cool and its
industry-leading position.
[picture]
<PAGE> 62
RESPONSE
<PAGE> 63
COMPETITIVE EDGE
Businesses must differentiate themselves from their competitors to survive in
today's global economy. To stay ahead, they must deliver the products and
services that people really want, while decreasing their own cycle and response
times. Baan solutions help make it possible for companies to anticipate and
quickly meet their customers' continually changing requirements.
INTEGRATING THE GLOBAL ENTERPRISE
Businesses are increasingly operating on a global scale, with multiple
manufacturing facilities, distribution sites, supply chain vendors, and
partners located around the world. Designed to manage - and optimize - the
extended enterprise, Baan's ERP solutions enable the integration of diverse IT
topologies and protocols throughout the global organization. Offering
unprecedented flexibility, Baan applications support multi-site environments
that use varied processes, languages and currencies. Designed for companies of
all sizes, Baan software scales easily to support any number of users - from a
few to many thousands.
OPTIMIZING THE SUPPLY-AND-DEMAND CHAIN
Baan software is specifically designed to help companies maintain close
relationships at every level of the supply-and-demand chain - from suppliers
and distributors to partners and customers. Baan applications streamline
information within the supply-and-demand chain for dynamic interaction,
providing highly flexible and scalable systems to support mixed-mode
manufacturing processes across dynamic supply-and-demand chain environments.
This enables our customers to easily provide customized yet cost-effective
solutions for their customers, helping them sustain a competitive edge in their
marketplace.
<PAGE> 64
Unmatched flexibility and
scalability built into Baan
software lets customers
optimize their supply-and-
demand chains.
FLEXIBILITY [PHOTO]
[caption illegible]
<PAGE> 65
[PHOTO] SNAP-ON
With approximately 4,000 franchisees and 20,000 items in their
product portfolio, Snap-on needed a truly integrated enterprise
system for effective supply-chain management. To ensure they
could deliver the right product to the right customer at the
right time, Snap-on needed reliable, up-to-the-minute
information from an integrated, single source. The Baan solution
was a perfect fit -- especially because it wasn't a
"one-size-fits-all" solution. Snap-on appreciated the fact that
they could customize Baan's enterprise applications around their
existing enterprise. And as a leading tool and equipment
supplier, they liked the fact that Baan has all the ERP tools
they need to sustain their competitive edge.
<PAGE> 66
[WRENCH ILLUSTRATION]
CUSTOMIZE
<PAGE> 67
SIMPLIFY COMPLEXITY
Making diverse systems work together
is a never-ending goal as technology continues to advance. Baan
leads the industry in providing customers with ERP solutions that
work seamlessly across multiple technology platforms.
THE OPEN SYSTEMS LEADER
Baan took an open systems approach to designing software from our inception
almost two decades ago. This decision has given us a strong market lead as more
and more organizations move away from proprietary systems to an open,
client/server information technology model.
ENABLING CHOICE
The Baan software family gives customers the freedom to choose the best
technology solutions for their needs because it is based on an open systems,
client/server architecture. Our ERP solutions work with the widest range of
software and hardware platforms in centralized and decentralized organizations
- - -- from Unix to Windows NT to the Internet, and from relational databases to
graphical workstations to simple ASCII devices.
PARTNERING WITH THE BEST
Having the right partners is essential for success in today's complex business
world. Baan teams with a select group of industry leaders to provide customers
with complete solutions that work to their advantage. This year, for example,
Baan was the first ERP vendor to receive Microsoft's "Designed for Microsoft
BackOffice" logo certification. We also strengthened alliances with other
technology titans such as Compaq, Digital Equipment Corporation,
Hewlett-Packard, IBM, Informix, Intel, Oracle, Sequent, and Sun. And we welcomed
leaders such as Compuware, Ernst & Young, and Perot Systems to our team of
consulting partners, which includes Cap Gemini, EDS, IBM ISSC, KPMG Peat
Marwick, and Origin International. Baan customers gain the best of all worlds
because we leverage the additional industry-specific expertise and services of
our partners.
<PAGE> 68
Our early and ongoing
commitment to deliver open,
client/server systems gives
Baan customers a distinct
advantage, enabling them to
leverage multiple technology
platforms - from Unix to
Windows NT to the Internet.
Choice
[picture]
[caption illegible]
<PAGE> 69
Advanced Micro Devices
Semiconductor manufacturing leader AMD prides itself on its ability to respond
to customers' ever-changing requirements and need to drive down cycle times. As
a world class operation, AMD needed a world class solution to become even more
efficient. With shop-floor control and capacity-planning systems already in
place, AMD chose Baan to run their Total Order Management (TOM) process, which
drives their business. Baan's open product architecture integrates easily with
AMD's current systems, enabling AMD to leverage their existing investments and
quickly bring order to order management.
<PAGE> 70
Open
[PICTURE OF COMPUTER CHIP]
<PAGE> 71
Staying Ahead
In business, change is the order of the day - every single day. Baan's focus on
enabling continuous change helps companies adapt adroitly to fluctuating global
markets. From our flexible enterprise applications to our customized customer
support, Baan is committed to helping our customers stay a step ahead.
A CUSTOMER-CENTRIC APPROACH
Baan's intense commitment to customer success has characterized our company
throughout our history. We believe in sharing risks and rewards with our
customers, pushing them to push the limits, making our successes theirs.
PRODUCTS TO GROW WITH
Baan's unique product development strategy reflects our strong customer focus.
Software renewal for ongoing innovation and change differentiates us in our
market. BAAN IV software is the latest example of how we continually reinvent
and improve our products to meet the changing needs of customers around the
world. With organizational processes at the heart of the system, BAAN IV
enables companies to successfully address today's four key business
considerations: customer responsiveness, supply chain management, continuous
improvement, and global information management. BAAN Orgware, which is tightly
integrated with BAAN IV, enables rapid system implementation, improving
customers' time-to-market. And our Dynamic Enterprise Modeling approach keeps
customers' systems consistent with their changing business structures and
practices, helping to improve their return on investments.
SUCCESS INTO THE FUTURE
Baan is uniquely positioned to provide enterprise solutions that let companies
continually adapt to change because of our ability to offer innovative solutions
that focus on speed, maximum flexibility, and customer-driven choice. We back
this with a wide array of worldwide support capabilities, offered by Baan and a
select group of strategic partners - from industry-specific consultants to
hardware and software vendors - to help customers sustain their edge over the
long term. In all these ways and more, Baan strives to contribute to the
continuing success of our customers around the world, today and far into the
future.
<PAGE> 72
Change
Our focus on helping companies adapt to change faster and more effectively has
enabled Baan customers to achieve a rapid return on their investment, speeding
both their time to market and time to profitability.
<PAGE> 73
[PHOTO] NORTEL
Nortel (Northern Telecom), a global leader in the
telecommunications industry, called Baan when it needed an
effective ERP solution for its worldwide operations. For a
network linking 68,000 employees across five continents and 16
time zones, Nortel is using Baan as its "ERP backbone." And as
the company streamlines its processes to be focused on supply
chain management, Nortel's Baan solution helps it compete more
effectively in a fast-moving, ever-changing industry. It will
also enable Nortel global operations to have a smooth transition
through the year 2000.
<PAGE> 74
[PHOTO]
SUCCESS
<PAGE> 75
1996 Condensed Consolidated Financial Information
THE BAAN COMPANY N.V.
<PAGE> 76
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS*
<TABLE>
<CAPTION>
In thousands, except per share amounts
Year ended December 31 1996 1995 1994
<S> <C> <C> <C>
Net revenues:
License revenue $224,237 $112,966 $ 60,348
Maintenance and service revenue 152,426 79,887 46,206
Hardware and other revenue 11,295 23,357 16,370
-------- -------- --------
Total net revenues 387,958 216,210 122,924
Costs and expenses:
Cost of license revenue 13,074 5,699 3,032
Cost of maintenance and service revenue 125,257 64,255 35,116
Cost of hardware and other revenue 8,895 18,714 13,229
Sales and marketing 99,932 57,052 41,770
Research and development 42,136 18,718 7,987
General and administrative 33,039 23,590 10,110
Amortization of intangible assets 6,125 4,701 2,172
Non-recurring operating expenses -- -- 4,172
-------- -------- --------
Total costs and expenses 328,458 192,729 117,588
-------- -------- --------
Income from operations 59,500 23,481 5,336
Interest income 1,137 1,391 --
Interest expense (1,074) (775) (1,109)
Other income, net -- 1,071 118
-------- -------- --------
Income before income taxes and minority interest 59,563 25,168 4,345
Provision for income taxes 23,230 9,817 2,171
Minority interest in earnings of consolidated subsidiaries -- (72) (976)
-------- -------- --------
Net income $ 36,333 $ 15,279 $ 1,198
======== ======== ========
Net income per share $ 0.38 $ 0.17 $ 0.02
======== ======== ========
Shares used in computing per share amounts 94,707 89,044 79,388
======== ======== ========
</TABLE>
*Condensed Financial Information
The 1996 Year in Review contains condensed consolidated balance sheets and
condensed consolidated statements of operations. Complete consolidated
financial statements, including notes to the consolidated financial statements,
as well as management's discussion and analysis of financial condition and
results of operations are presented in the Company's 1996 Annual Report on
Form 20-F.
<PAGE> 77
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands, except share amounts
December 31 1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents(1) $198,031 $ 12,165
Marketable securities 3,867 23,562
Accounts receivable, net of allowance for doubtful accounts of
$8,187 in 1996 and $2,629 in 1995 150,337 87,226
Other current assets 11,814 8,114
------- -------
Total current assets 364,049 131,067
Property and equipment, at cost 49,535 35,388
Less accumulated depreciation and amortization (20,252) (13,990)
------- -------
Net property and equipment 29,283 21,398
Software development costs net of accumulated amortization
of $8,159 in 1996 and $4,698 in 1995 16,147 6,983
Intangible assets, net of accumulated amortization of $13,025
in 1996 and $7,564 in 1995 24,269 26,524
Other non-current assets 6,944 649
-------- --------
Total assets $440,692 $186,621
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings from banks $ 870 $ 3,779
Accounts payable 35,446 23,292
Accrued liabilities 25,013 10,728
Payroll taxes 6,133 3,422
Income taxes payable 19,664 5,031
Other current liabilities 4,679 3,684
Deferred revenue 11,098 8,890
Current portion of long-term debt 639 501
-------- --------
Total current liabilities 103,542 59,327
Long-term debt(1) 176,223 1,714
Other long-term liabilities 4,848 3,455
Deferred income taxes 72 8,005
Commitments and contingencies
Shareholders' equity:
Common shares, par value - NLG.01 per share, 350,000,000
shares authorized; 89,791,297 issued and outstanding in 1996
(86,246,976 in 1995) 523 503
Additional paid-in capital 97,934 88,612
Deferred compensation (372) (1,125)
Retained earnings 58,658 22,873
Accumulated translation adjustment (736) 3,257
-------- --------
Total shareholders' equity 156,007 114,120
-------- --------
$440,692 $186,621
======== ========
</TABLE>
(1) In Note to Condensed Consolidated Balance Sheets
December 1996, the Company issued $175 million of
4.5% Convertible Subordinated Notes due in 2001.
<PAGE> 78
MANAGEMENT'S REPORT ON CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The 1996 Year in Review contains condensed consolidated financial statements
derived from the consolidated financial statements that appear in the Company's
1996 Annual Report on Form 20-F. Management is responsible for the preparation,
integrity and objectivity of the consolidated financial statements and
monitoring the Company's system of internal accounting controls. The
consolidated financial statements were audited by Moret Ernst & Young
Accountants, independent auditors, whose report on the condensed consolidated
financial statements appears here.
[SIG]
Jan Westerhoud
Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Shareholders
The Baan Company N.V.
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of the Baan Company N.V. and subsidiaries as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996 (not presented herein); and in our report
dated January 24, 1997, we expressed an unqualified opinion on those
consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheets of the Baan Company N.V. as of December 31, 1995
and 1996 and the related condensed consolidated statements of operations for
each of the three years in the period ended December 31, 1996 are fairly
stated, in all material respects, in relation to the consolidated financial
statements from which they have been derived.
[SIG]
Moret Ernst & Young Accountants
Utrecht, The Netherlands
January 24, 1997
<PAGE> 79
Innovation, Integrity, Initiative
For Baan, global leadership means being recognized as the best company in the
ERP marketplace. We have achieved our current leadership position by focusing
on what we call the "Baan Basics":
Innovation, Integrity, and Initiative.
The Baan Basics are, in fact, the very basis of our company and its culture.
In the past year, we recognized and honored team members who exemplify Baan's
core values of innovation, integrity, and initiative. We appreciate and applaud
the outstanding contributions of these extraordinary individuals:
KEVIN CALDERWOOD
President, Americas Operations, U.S.
THEODOOR VAN DONGE
Manager, Technology Research,
The Netherlands
HIROSHIGE FUKUOKA
Executive Director, Technology, Japan
ROCKY GUNDERSON
Vice President, Americas Marketing, U.S.
MEL MILLS
Vice President, Quality, Canada
MILO NADIR
Director, Product Development, U.S.
SUBRAMANIAN RAMANATHAN
General Manager, Baan Development, India
MARCEL VERHOEVE
Manager, Application Development,
The Netherlands
<PAGE> 80
Corporate Information
<TABLE>
<C> <S> <S>
Corporate Officers and Directors: John Jendricks Investor Relations Contact, U.S.:
Jan Baan*(1) Chief Information Officer Darby Dye
Managing Director, Chairman of Investor Relations Manager
the Board, Chief Executive Officer Robert R. Lewis (1)415-462-4949
Chief Operating Officer
Amal M. Johnson* EMEA Operations Stock Trading:
Managing Director, The Baan Company's common stock is
Executive Vice President, Gerrit J. van Munster traded on the over-the-counter market
Baan Affiliates & Marketing Vice President Human Resources and is quoted on the Nasdaq National
Market under the symbol BAANF. Its
Tom C. Tinsley*(2) Marvin J. Newell stock is also quoted on the Offical Market
Managing Director, President, Chief Operating Officer of the Amsterdam Stock Exchange
and Chief Operating Officer Americas Operations under the symbol BAAN.
J.G. Paul Baan* Christine B. Pittman Independent auditors:
Supervisory Director Vice President Consulting Morel Ernst & Young Accountants
Utrecht, The Netherlands
William O. Grabe*(1) Laurens van der Tang
Supervisory Director, Executive Vice President Legal Counsel:
General Partner, Research and Development De Brauw Blackstone Westbroek,
General Atlantic Partners Amsterdam, The Netherlands
Otto M. van der Tang
David C. Hodgson*(1)(2) Vice President Support Wilson, Sonsini, Goodrich & Rosati,
Supervisory Director, Palo Alto, CA, USA
General Partner, Karl-Heinz Voss
General Atlantic Partners President EMEA Operations SEC Form 20-F and Dutch Statutory Report:
A copy of the Company's SEC From 20-F,
Graham J. Sharman* Jan Westerhoud(2) as filed with the Securities and Exchange
Supervisory Director, Chief Financial Officer Commission, and the statutory report,
Director, McKinsey & Co. as filed with the Dutch Trade Register,
*Member of the Board of Directors are available on request.
J.C. (Hans) Wortmann* (1)Member of Compensation Committee
Supervisory Director, (2)Member of Audit Committee Annual Meeting:
Professor, School of Industrial The Annual General Meeting of
Engineering & Management, Corporate Headquarters: Shareholders will be held at 2 p.m. on
Technical University of Eindhoven The Baan Company N.V. May 20, 1997 at the Company's head-
The Netherlands Vanenburgerallee 13 quarters in Putten. All shareholders are
3882 RH Putten invited to attend.
Konrad Bank The Netherlands
President Asia Pacific Operations (31)341-375555 All brand or product names and logos are
trademarks or registered trademarks of
Kevin E. Calderwood The Baan Company N.V. their respective holders.
President Americas Operations 4600 Bohannon Drive
Menlo Park, CA 94025 This document may not be reproduced, copied
John J. Cordio USA or published, in whole or in part, for any
Vice President Consulting (1)415-462-4949 purpose without the written consent of the
Americas Operations Baan Company.
Transfer Agents: Printed in the USA 4/97 20K
Douglas L. Frederick ABN AMRO Bank N.V.
Executive Vice President Amsterdam (c)1997 The Baan Company
Customer Initiatives The Netherlands All rights reserved
Wim H. Heijting Citibank
General Counsel and New York, N.Y.
Secretary to the Board USA
</TABLE>
<PAGE> 81
LOGO
<PAGE> 82
[CITIBANK LOGO]
TIME SENSITIVE MATERIALS
NOTICE
OF
ANNUAL GENERAL SHAREHOLDERS' MEETING
OF
BAAN COMPANY N.V.
- - --------------------------------------------------------------------------------
CUSIP NO.: N08044104.
- - --------------------------------------------------------------------------------
US RECORD DATE: APRIL 18, 1997.
- - --------------------------------------------------------------------------------
MEETING SPECIFICS: Annual General Meeting - May 20, 1997 at
2:00 P.M. (local time) at the Company's
Conference Center "De Kamphorst",
Apeldoornsestraat 131, Voorthuizen, The
Netherlands.
- - --------------------------------------------------------------------------------
NEW YORK REGISTRY SHARES: Ordinary Shares, Nominal Value 0.01
Netherlands guilder per Share, of Baan
Company N.V., a company organized under
the laws of the Kingdom of The
Netherlands (the "Company").
- - --------------------------------------------------------------------------------
NEW YORK REGISTRAR AND TRANSFER Citibank, N.A.
AGENT:
- - --------------------------------------------------------------------------------
TO BE COUNTED THE CLOSED PROXY CARD NEEDS TO BE RECEIVED BY
THE NEW YORK REGISTRAR AND TRANSFER AGENT PRIOR TO 4:00 P.M.
(NEW YORK CITY TIME) ON MAY 13, 1997.
<PAGE> 83
The Company has announced that an Annual General Meeting of
Shareholders (the "Meeting") will be held at the date, time and location
identified above. A COPY OF THE NOTICE OF MEETING FROM THE COMPANY WHICH
INCLUDES THE AGENDA FOR SUCH MEETING AND EXPLANATORY NOTES PREPARED BY THE
COMPANY TOGETHER WITH THE COMPANY'S ANNUAL REPORT PREPARED PURSUANT TO SECTION
13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED ON FORM 20-F
ALONG WITH STATUTORY ANNUAL ACCOUNTS (PREPARED IN ACCORDANCE WITH NETHERLANDS
LAW) ARE ENCLOSED.
Holders of New York Registry Shares wishing to be represented by proxy
at the Meeting must complete the enclosed proxy form.
The information contained herein with respect to the Meeting has been
provided by the Company. Citibank, N.A. is forwarding this information to you
at the request of the Company and disclaims any responsibility with respect to
the accuracy or completeness of such information. Citibank, N.A. does not, and
should not be deemed to, express any opinion with respect to the proposals to
be considered at the Meeting.
Citibank, N.A.
solely as New York Registrar and Transfer Agent
<PAGE> 84
THIS PROXY MUST BE SIGNED, COMPLETED AND RECEIVED AT INDICATED ADDRESS PRIOR
TO 4:00 P.M. (NEW YORK CITY TIME) ON MAY 13, 1997 FOR ACTION TO BE TAKEN.
1997 PROXY NEW YORK REGISTRY SHARES
===============================================================================
BAAN COMPANY N.V. (THE "COMPANY")
US CUSIP No.: N08044104.
US Record Date: April 18, 1997.
Meeting Specifics: Annual General Meeting - May 20, 1997 at 2:00 P.M.
(local time) at the Company's Conference Center
"De Kamphorst", Apeldoomaestraat 131, Voorthuizen,
The Netherlands.
Meeting Agenda: Please see the Company's Notice of Meeting.
New York Registry Shares: Ordinary Shares, Nominal Value 0.01 Netherlands
guilder per Share, of the Company.
New York Registrar and Citibank, N.A.
Transfer Agent:
The undersigned holder, as of the US Record Date, of the New York Registry
Shares identified on the reverse side hereof (such New York Registry Shares,
the "NYRSs"), acknowledges receipt of a copy of the US Shareholder Servicing
Agent's Notice of Annual General Shareholders' Meeting of Baan Company N.V. and
hereby irrevocably authorizes and directs Jan Baan, Tom C. Tinsley, Amal M.
Johnson and Wim H. Heijting, and each of them, with full power of substitution,
to attend the Meeting (and any adjournment thereof) as the holder's proxy and
to vote the New York Registry Shares at such Meeting in the manner indicated on
the reverse side hereof.
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Please indicate on the reverse side hereof how the New York Registry Shares are
to be voted.
This Proxy must be marked, signed and returned on time in order to be counted.
By signing on the reverse side hereof, the undersigned represents to the US
Shareholder Servicing Agent and to the Company that the undersigned is duly
authorized to give the Voting Instructions contained herein.
(DETACH HERE)
<PAGE> 85
1997 PROXY
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUE FOR AGAINST
<S> <C> <C> <C>
1. Approval of the Annual Report of Managing Directors for the year [ ] [ ]
ended December 31, 1996.
2. Approval of adoption of the Company's Statutory Annual Accounts for the year [ ] [ ]
ended December 31, 1996.
3. Approval of the addition of the Company's net income for the year ended [ ] [ ]
December 31, 1996 to the retained earnings. OR
4. Approval of the amendment of Article 37 of the Company's Articles of [ ] [ ]
Association so as to extend the list of places and municipalities where a
shareholder's meeting may be held.
5. Approval of the (re-)appointment of the Board of Managing Directors and the [ ] [ ]
Board of Supervisory Directors.
6. Approval of ratification of an amendment to the Company's 1993 Stock Option [ ] [ ]
Plan to increase the number of shares authorized for issuance thereunder.
7. Approval of renewal of the power of the Board of Managing Directors to issue [ ] [ ]
shares pursuant to Article 8, paragraph 1 of the Articles of Association of the
Company.
8. Approval of renewal of the power of the Board of Managing Directors to exclude [ ] [ ]
or limit preemptive rights pursuant to Article 8, paragraph 5 of the Articles of
Association of the Company.
9. Approval of renewal of the authorization of the Board of Managing Directors to [ ] [ ]
have the Company acquire shares in its own capital pursuant to Article 10,
paragraph 4 of the Articles of Association of the Company.
10. Approval vote on any other business as may properly come before the Meeting [ ] [ ]
or any adjournment thereof.
</TABLE>
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If this Proxy is signed and timely returned to the US Shareholder Servicing
Agent but has no specific direction as to voting is marked above as to an issue,
the undersigned shall be deemed to have directed the proxy holder to give voting
instructions "FOR" the unmarked issue.
- - --------------------------------------------------------------------------------
Please sign your name to this Proxy exactly as printed below. When signing in a
fiduciary or representative capacity, give full title as such. Where more than
one owner, each MUST sign. Proxies executed by a corporation should be in full
corporate name by a duly authorized officer with full title as such.
- - --------------------------------------------------------------------------------
Please Sign Here exactly as your name(s) appear(s) to the left.
______________________________________
______________________________________
[LABEL]
Date__________________________________
When signing as attorney, executor,
administrator, trustee, guardian or
other representative capacity, please
give full title.
(DETACH HERE)
