<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
dated May 8, 1998
BAAN COMPANY N.V.
Vanenburgerallee 13
3882 RH Putten
The Netherlands
and
11911 Freedom Drive
Reston, Virginia, USA
(Addresses 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 8,
1998.
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.
Statutory Accounts 1997 (prepared as required by Netherlands law).
Notice of Annual General Shareholder's Meeting and 1998 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.
000-26052) on Form 20-F filed on May 4, 1998.
SIGNATURE
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/ Klaas Wagenaar
-------------------------------------
Klaas Wagenaar
Chief Operating Officer & Chief
Financial Officer
Date: May 8, 1998
<PAGE> 3
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 Conference Center "De Eenhoorn", located at
Koningin Wilhelminalaan 33, Amersfoort, The Netherlands, on Friday, May 29,
1998, at 10.00 a.m., local time.
The Agenda for the Meeting is as follows:
A. Opening
B. Items of business:
1. Annual Report of the Board of Managing Directors for the
year ended December 31, 1997.
2. a. Adoption of the Company's Statutory Annual Accounts
for the year ended December 31, 1997.
b. Discharge of the members of the Boards of Managing
and Supervisory Directors.
3. Approval of the addition of the Company's net income for
the year ended December 31, 1997 to the Company's
retained earnings.
4. (Re-)appointment of members of the Boards of Managing
and Supervisory Directors.
5. Ratification of amendment to the Company's 1993 Stock
Option Plan to increase the number of shares authorized
for issuance thereunder.
6. Renewal of the authority of the Board of Managing
Directors to cause the Company to acquire shares in its
own capital, pursuant to Article 10, paragraph 4 of the
Articles of Association of the Company.
7. Appointment of the Company's independent auditors.
8. Discussion of certain Corporate Governance matters.
9. Any other business as may properly come before the
Meeting.
C. Closing
The foregoing items of business are more fully described in the
Explanatory Notes to the Agenda.
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
<PAGE> 4
later than Wednesday, May 20, 1998 (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 Morgan Guaranty Trust Company of New York,
Depository, P.O. Box 9184, Boston, MA 02102-9906, 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 Wednesday May 20, 1998
(before 4.00 p.m. local time) by delivering such notification to the above
mentioned offices of the Company in Barneveld, ABN AMRO Bank N.V. or Morgan
Guaranty Trust Company of New York, 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 (see above),
constitutes proper notice of intent to attend by proxy for the purposes hereof.
Management Board of Baan Company N.V.
Putten, The Netherlands
May 8, 1998
The Agenda for the Meeting and Explanatory Notes thereto, the Company's Annual
Report and Statutory Annual Accounts for the year ended December 31, 1997, each
prepared as required by Netherlands law and the Company's Annual Report on Form
20-F as filed with the U.S. Securities and Exchange Commission, including
audited financial
<PAGE> 5
statements as of December 31, 1995, 1996 and 1997 prepared in accordance with
U.S. generally accepted accounting principles, 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 at the
Vanenburgerallee 13, Putten, The Netherlands, and at 11911 Freedom Drive, Suite
300, Reston, Virginia 20190-5602, United States of America, at the offices of
ABN AMRO Bank N.V. and Morgan Guaranty Trust Company of New York 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.
<PAGE> 6
LOGO
BAAN COMPANY N.V.
Putten, May 8, 1998
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 company with limited liability incorporated under the laws
of The Netherlands (the "Company"), to be held on Friday, May 29, 1998, at 10.00
a.m., local time, at the Conference Center "De Eenhoorn", located at Koningin
Wilhelminalaan 33, Amersfoort, 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, 1997, each prepared as
required by Netherlands law, (iii) the Company's Annual Report on Form 20-F as
filed with the U.S. Securities and Exchange Commission, including audited
financial statements for the years ending December 31, 1995, 1996 and 1997
prepared in accordance with U.S. generally accepted accounting principles and
(iv) 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
LOGO
Jan Baan
Chairman of the Board of Managing
Directors and Chief Executive Officer
<PAGE> 7
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 Conference Center "De Eenhoorn", located at
Koningin Wilhelminalaan 33, Amersfoort, The Netherlands, on Friday, May 29,
1998, at 10.00 a.m., local time.
A. Opening
B. Items of business:
1. Annual Report of the Board of Managing Directors for the year ended
December 31, 1997.
2. a. Adoption of the Company's Statutory Annual Accounts for the year
ended December 31, 1997.
b. Discharge of the members of the Boards of Managing and Supervisory
Directors.
3. Approval of the addition of the Company's net income for the year ended
December 31, 1997 to the Company's retained earnings.
4. (Re-)appointment of members of the Boards of Managing and Supervisory
Directors.
5. Ratification of amendment to the Company's 1993 Stock Option Plan to
increase the number of shares authorized for issuance thereunder.
6. Renewal of the authority of the Board of Managing Directors to cause the
Company to acquire shares in its own capital, pursuant to Article 10,
paragraph 4 of the Articles of Association of the Company.
7. Appointment of the Company's independent auditors.
8. Discussion of certain Corporate Governance matters.
9. Any other business as may properly come before the Meeting.
C. Closing
The foregoing items of business are more fully described in the Explanatory
Notes to the Agenda.
1
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BAAN COMPANY N.V.
------------------------
ANNUAL GENERAL MEETING OF SHAREHOLDERS
MAY 29, 1998
------------------------
EXPLANATORY NOTES TO AGENDA
I. GENERAL
The enclosed Proxy is solicited on behalf of Baan Company N.V., a company
with limited liability incorporated under the laws of The Netherlands (the
"Company"), for use at the Annual General Meeting of Shareholders (the
"Meeting") to be held on Friday, May 29, 1998, at 10.00 a.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 Conference Center "De
Eenhoorn", located at Koningin Wilhelminalaan 33, Amersfoort, The Netherlands.
The Company's telephone number is 011-31-341-375-555.
These proxy solicitation materials have been mailed on or about May 8,
1998, to all holders of registered shares of the Company as of April 24, 1998.
II. PROCEDURE FOR ATTENDANCE
In order to attend the Meeting and exercise their rights at the Meeting (in
person or by proxy), holders of bearer shares and registered shares must do the
following:
(i) Bearer shares: Holders of bearer shares, and usufructuaries and
pledgees that may exercise voting rights on bearer shares, are required to
deposit on or prior to Wednesday, May 20, 1998 (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
Morgan Guaranty Trust Company of New York, Depository, P.O. Box 9184,
Boston, MA 02102-9906, The United States of America. Only such receipt
shall entitle the shareholder, usufructuary or pledgee with voting rights,
to attend the Meeting.
(ii) Registered shares: 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 Wednesday, May 20, 1998 (before 4:00 p.m.
local time) by delivering such notification to the offices of the Company
at Vanenburgerallee 13, Putten, The Netherlands or at 11911 Freedom Drive,
Suite 300, Reston, Virginia 20190-5602, United States of America or to one
of the above mentioned offices of ABN AMRO Bank N.V. or Morgan Guaranty
Trust Company of New York, together with a specification of the numbers of
any 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 at both the time of
notification and the date of the Meeting. Notification will be deemed to
have been properly made if a duly completed proxy card is returned to the
Company in a timely manner, as provided below.
The Meeting shall decide whether any person other than those indicated
above can attend the Meeting. All holders of voting rights or their
representatives will be requested to sign an attendance list at the Meeting.
2
<PAGE> 9
III. VOTES REQUIRED FOR APPROVAL
Each proposal requires the approval of the majority of the votes cast of
the Meeting. Each share is entitled to one vote.
IV. PROXIES
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 have been 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.
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Morgan Guaranty Trust Company of New York, the
Company's U.S. transfer agent and registrar, to aid in the solicitation of
proxies from brokers, bank nominees and other institutional owners, on terms
customary for such services. 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.
V. EXPLANATORY NOTES TO AGENDA ITEMS
EXPLANATORY NOTE TO ITEMS B.1-B.3 -- ANNUAL REPORT, ADOPTION OF THE COMPANY'S
STATUTORY ANNUAL ACCOUNTS, DISCHARGE OF DIRECTORS, AND APPROVAL OF ADDITION OF
THE COMPANY'S NET INCOME TO THE RETAINED EARNINGS.
After discussion of the Company's Annual Report for the year ended December
31, 1997, the shareholders will be asked (i) to adopt the Company's Statutory
Annual Accounts for the year ended December 31, 1997 (each of the Annual Report
and the Statutory Annual Accounts having been prepared in accordance with
Netherlands law), (ii) to discharge the members of the Board of Managing
Directors and Supervisory Directors and (iii) to approve the addition of the
Company's net income for the year ended December 31, 1997 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 located at Vanenburgerallee 13, Putten, 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.
The shareholders are asked to discharge members of the Board of Managing
Directors in respect of their management duties and members of the Board of
Supervisory Directors in respect of their supervision duties during the 1997
financial year in sofar as such respective management duties and supervision
duties are apparent from the Annual Report and the Statutory Annual Accounts.
3
<PAGE> 10
EXPLANATORY NOTE TO ITEM B.4 -- (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 title of Chief Executive Officer of the
Company;
(b) Tom C. Tinsley, with the title of Chairman of the Board of
Managing Directors; and
(c) Amal M. Johnson, with the title of Executive Vice President;
(ii) a Board of Supervisory Directors (the "Supervisory Board") consisting
of:
(a) David C. Hodgson, Chairman;
(b) J.G. Paul Baan;
(c) William O. Grabe;
(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, Chief Executive Officer of the 52 1978
Company.
Tom C. Tinsley Managing Director, nominee as Chairman of the Board 44 1996
of Managing Directors.
Amal M. Johnson Managing Director, Executive Vice President. 45 1997
BOARD OF SUPERVISORY DIRECTORS
David C. Hodgson Nominee as Chairman of the Board of Supervisory 41 1995
Directors of the Company; Managing Member, General
Atlantic Partners, LLC.
J.G. Paul Baan Supervisory Director of the Company; Chief Executive 47 1982
Officer of Baan Investment B.V.
William O. Grabe Supervisory Director of the Company; Managing Member, 60 1995
General Atlantic Partners, LLC.
Graham J. Sharman Supervisory Director of the Company; Professor of 59 1995
International Distribution Logistics at the Technical
University of Eindhoven in The Netherlands; President
of Baan Investment B.V.
J.C. (Hans) Wortmann Supervisory Director of the Company; Professor at the 47 1995
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.
Tom C. Tinsley joined the Company in November 1995 acting as Managing
Director, President and Chief Operating Officer. Such 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.
4
<PAGE> 11
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 of the
Company and Executive Vice President, Baan Affiliates & Marketing. Her
appointment as Managing Director was approved at the Annual General Meeting of
Shareholders of May 1997. In January 1998, Ms. Johnson took over responsibility
for the Baan Supply Chain Division. In her current capacity, Ms. Johnson is
responsible for market positioning, development, sales and marketing of the
Company's supply chain products. Prior to joining the Company, Ms. Johnson 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.
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 or a
general partner of its predecessor partnership since its formation in 1989. Mr.
Hodgson also serves as a director of Walker Interactive, a financial
applications software company; ProBusiness Services, Inc., a payroll processing
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. Since Mr. J.G.P. Baan desires not to continue to
serve in the capacity of Chairman of the Supervisory Board, it is proposed and
the shareholders are being asked to approve the designation of Mr. Hodgson as
Chairman of the Supervisory Board.
J.G. Paul Baan joined the Company 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. In
December 1994, he became President and Managing Director of Baan Investment
B.V., and in October 1997 he was named Chief Executive Officer and Managing
Director. Mr. J.G.P. Baan desires to serve as a regular member of the Board of
Supervisory Directors, but no longer as its Chairman. It is proposed that he
will serve as a regular member of the Supervisory Board.
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 has been a Managing Member of General Atlantic Partners, LLC or a
general partner of its predecessor partnership since April 1992. From 1984 until
March 1993, Mr. Grabe was a Corporate Vice President at IBM. Mr. Grabe is also a
director of Gartner Group, Inc., a provider of information technology research
and analysis; the Coda Group, plc, a financial applications software company;
Marcam Solutions Inc., a process manufacturing application software company; LAS
Group, Inc., a client server software company; Compuware Corporation, a software
and services 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 & Company since 1984, and since July
1994 has been Professor of International Distribution Logistics at the Technical
University of Eindhoven in The Netherlands. In January 1998, Mr. Sharman was
appointed President and Managing Director of Baan Investment B.V.
J.C. (Hans) Wortmann became a Supervisory Director of the Company in May
1995. Since 1989, 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.
5
<PAGE> 12
Principal Share Ownership. On the record date, April 24, 1998, an aggregate
of 195,518,000 shares of the Company's Common Shares were issued and outstanding
(taking into account the two-for-one stock split concluded on December 11,
1997). The following table sets forth the beneficial ownership of the Company's
Common Shares as of April 24, 1998 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) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY APPROXIMATE PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OWNED
------------------------------------ ------------------- -------------------
<S> <C> <C>
Baan Investment B.V. (2).................................... 75,577,960 38.66%
Baron van Nagellstraat 89
3771 LK Barneveld
The Netherlands
General Atlantic Partners (3)............................... 6,993,290 3.58
Jan Baan (4)................................................ 979,479 *
J.G. Paul Baan (4).......................................... 979,479 *
Tom C. Tinsley (5).......................................... 1,024,538 *
William O. Grabe (6)........................................ 471,272 *
David C. Hodgson (7)........................................ 408,000 *
Amal M. Johnson (8)......................................... 315,626 *
Graham J. Sharman (9)....................................... 55,694 *
J.C. (Hans) Wortmann (10)................................... 45,253 *
All directors and executive officers as a group (10
persons)(11).............................................. 4,717,202 2.41%
</TABLE>
- ---------------
* Less than one percent
(1) Applicable percentage of ownership is based on an aggregate of 195,518,000
Common Shares outstanding as of April 24, 1998, 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 24, 1998, 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 6,676,283 Common Shares held by General Atlantic Partners V, L.P.;
317,007 Common 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. 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 partners 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 75,577,960 Common 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 979,479 Common Shares issuable upon exercise of options to
purchase Common Shares which are exercisable within 60 days following April
24, 1998 by each of Jan Baan and J.G. Paul Baan.
(5) Includes 1,024,538 Common Shares issuable upon exercise of options to
purchase shares of Common Shares which are exercisable within 60 days of
April 24, 1998.
(6) Does not include 6,676,283 Common Shares held by General Atlantic Partners
V, L.P. and 317,007 Common Shares held by GAP Coinvestment Partners, L.P.
Mr. Grabe disclaims beneficial ownership of shares owned by 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 6,676,283 Common Shares held by General Atlantic Partners
V, L.P. and 317,007 Common Shares held by GAP Coinvestment Partners, L.P.
Mr. Hodgson disclaims beneficial ownership of shares owned by
6
<PAGE> 13
General Atlantic Partners V, L.P. and GAP Coinvestment Partners, L.P.
except to the extent of his pecuniary interests therein. Includes 48,000
shares held by family members of Mr. Hodgson.
(8) Includes 107,114 Common Shares issuable upon exercise of options to
purchase Common Shares which are exercisable within 60 days of April 24,
1998.
(9) Includes 6,400 Common Shares issuable upon exercise of options to purchase
Common Shares which are exercisable within 60 days of April 24, 1998.
(10) Includes 45,253 Common Shares issuable upon exercise of options to purchase
Common Shares which are exercisable within 60 days of April 24, 1998.
(11) Includes 3,142,263 Common Shares issuable upon exercise of options to
purchase Common Shares granted to directors of the Company which are
exercisable within 60 days after April 24, 1998. See also notes (4), (6)
and (7).
EXPLANATORY NOTE TO ITEM B.5 -- 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 36,000,000 Common Shares (post-stock split) to a
total of 40,000,000 Common Shares. As of December 31, 1997, options to purchase
an aggregate of 21,345,400 Common Shares were outstanding under the 1993 Stock
Option Plan and an aggregate of 1,439,000 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 favorable 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 36,000,000 were approved in December 1994, May 1995,
April 1996 and May 1997. The 1993 Stock Option Plan will terminate in December
2003 unless terminated earlier by the Management Board subject to prior approval
by 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 B.6 -- RENEWAL OF THE AUTHORITY OF THE BOARD OF
MANAGING DIRECTORS TO CAUSE THE COMPANY TO ACQUIRE 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 Management Board may only cause the Company to acquire shares in
its own capital if the Meeting has previously authorized the Management Board to
do so. Any such authorization is valid for a maximum period of 18 months.
On May 20, 1997, the Management Board was authorized to cause the Company
to acquire shares in its own capital. At the Meeting, the shareholders shall be
asked to renew the authorization of the Management Board to cause the Company to
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 determined by the Management Board but (a) shall exceed or be equal to
the nominal value of the Baan Shares and (b) shall not exceed 110% of the price
listed in the quotation of the Baan Shares at the official market of the
Amsterdam Stock Exchange. 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. The authorization sought at
the Meeting shall be valid up to and including November 15, 1999.
7
<PAGE> 14
EXPLANATORY NOTE TO ITEM B.8 -- DISCUSSION OF CERTAIN CORPORATE GOVERNANCE
MATTERS
The topic of corporate governance is included in the agenda in view of the
recommendation to that effect included in the Report on Corporate Governance
which recently appeared in The Netherlands. The Company's position with respect
to the principal recommendations of the Corporate Governance Committee is
included in the Annual Report.
One of the elements of the current corporate governance discussion is the
period by which shareholders are asked to delegate the power to issue shares and
to exclude or limit preemptive rights. 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 May 20, 1997, 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. This authorization is valid up
to and including April 30, 2002.
At the Meeting, the shareholders are not being asked to extend the power of
the Management Board to issue shares and options or other rights to subscribe
for shares, and are not being asked to extend the power of the Management Board
to exclude or limit preemptive rights. (Such extensions for a period of up to
one additional year would be legally permissible since, in each case, the
delegation would then again be for a five year period.) As announced during the
1997 Annual General Meeting of Shareholders, the Management and Supervisory
Boards have carefully considered this matter and have concluded that the current
power, which remains valid up to and including April 30, 2002, is for the time
sufficient and that the shareholders shall in due course only be asked to renew
such powers for a shorter period than the legally permissible term of five
years.
EXPLANATORY NOTE TO ITEM B.9 -- 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, a proposal not included in the
agenda may only be approved at the Meeting in the event that the entire issued
capital of the Company is represented at the Meeting, in person or by proxy, and
the proposal is unanimously approved.
8
<PAGE> 15
LOGO
BAAN COMPANY N.V.
STATUTORY ACCOUNTS 1997
<TABLE>
<CAPTION>
PAGE
CONTENTS ----
<S> <C>
MANAGING DIRECTORS' REPORT
- Managing Directors' Report........................... 1
FINANCIAL STATEMENTS
- Consolidated Balance Sheets.......................... 5
- Consolidated Statements of Operations................ 6
- Consolidated Statements of Cash Flows................ 7
- Notes to Consolidated Financial Statements........... 8
- Balance Sheets....................................... 29
- Statements of Operations............................. 30
- Notes to Financial Statements........................ 31
OTHER INFORMATION
- Subsequent Event..................................... 35
- Report of the Auditors............................... 36
- Appropriation of Net Income.......................... 37
</TABLE>
<PAGE> 16
BAAN COMPANY N.V.
MANAGING DIRECTORS' REPORT
REVIEW OF OPERATIONS
Baan is a leading provider of enterprise business management software for
an open systems, client/server computing environment. Its suite of enterprise
applications controls and automates business processes, ranging from sales,
accounting, order management, supply chain management and inventory procurement,
to planning and scheduling, manufacturing, and finished-goods delivery. The
Company's products address an organization's entire value chain, from
front-office functions (such as interaction with customers and sales) to the
more traditional back-office operations (such as order management and inventory
control) associated with Enterprise Resource Planning (ERP). Baan's software is
targeted at organizations needing to increase their market advantage and global
competitiveness by continually improving business processes.
In December 1997, the shareholders of Baan Company N.V. approved a
two-for-one stock split distributed on December 17, 1997 to shareholders of
record on December 10, 1997. Accordingly, the authorized number of common shares
increased from 350 million to 700 million. In connection with the stock split,
each common share, nominal value NLG 0.01, was split into two common shares with
a nominal value of NLG 0.06 each, without decreasing the share capital. The
differential amount of NLG 0.11 per outstanding common share was paid out of the
Company's share premium reserve.
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 in 1997 rose 64% to $679.6 million, compared with net revenues
of $415.5 million for 1996. Revenues were negatively impacted by currency
fluctuations by $32.7 million. Excluding the currency effect, revenue growth
would have been 8% higher. Strong demand in 1997 for the Company's software
resulted in license revenue growth of 80% to $433.4 million, compared with
$240.7 million in 1996. Pro forma net income for the year (excluding
restructuring and other charges related to acquisitions) increased 133% to $85.4
million, or $0.41 per diluted share, compared with net income of $36.6 million,
or $0.19 per diluted share, for the 1996 year. As reported, net income for 1997
was $77.2 million, or $0.37 per diluted share. Excluding restructuring and other
charges, gross margin and operating margin for 1997 improved to 67% and 18%,
respectively, compared with 62% and 14% for 1996.
OUTLOOK
Capital expenditures
In 1997, the Company increased activities by realizing several
acquisitions. Two acquisitions were accounted for as a pooling of interests:
Aurum, a leading provider of Customer Interaction Software and Beologic, a
Danish sales configurator company. Some other acquisitions occurred in Germany
and the Netherlands and new subsidiaries were founded (Korea, Greece and
Malaysia). Further, the Company made a minority interest investment in a leading
European Human Resource Management Software company, Meta4. Additional
acquisitions and strategic investments will follow in 1998.
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. In 1997, an additional
$25,000,000 was issued, under the same terms as the previous issuance.
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.
1
<PAGE> 17
Staffing
As of December 31, 1996, the Company had 2,568 full time employees. As of
December 31, 1997, the Company had 4,254 full time employees, including 1,341
employees engaged in research and development, 944 in sales and marketing, 1,542
in billable services including product support, and 427 in finance and general
administration. Consistent with the Company's continued expansion, the number of
employees will continue to grow in 1998.
Factors on which sales and profitability developments depend
Baan believes it has done an effective job of addressing the key ERP
industry challenges through a combination of strategies that emphasize product
innovation, expansion of capabilities through acquisitions and partnerships, and
a focus that is consistent with its core competencies and values. Baan's key
strategies are as follows: Simplify the Complexity and Reduce the Risk of
Traditional ERP Implementation; Target Small-to Medium-Sized Organizations to
Bring Big-Company ERP Capabilities to the Mid-Market; Focus on Strategic
Vertical Markets, Expanding to New Markets As Appropriate; Acquire Compatible
Applications, Partner with Others, or Build New Capabilities Internally to
Provide a "Closed Loop" Solution for the Extended Enterprise; Pursue Product
Innovation; Leverage Third-Party Implementation Providers; Expand Global
Distribution, Sales, Services and Support Capabilities; Effectively Manage
Growth While Maintaining Core Values.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company's development organization is focusing on enhancements and
customary error corrections to existing versions and development of future
versions of the Company's software. Development activities are currently focused
principally on the Company's next generation product line, which will utilize a
new, adaptable component architecture designed to ease integration of disparate
application components, from Baan and other vendors, and to make it easier for
customers to gradually migrate to new release versions rather than having to
migrate a full application suite across the entire company. The Company expects
to deliver the first of these new components in 1998.
CORPORATE GOVERNANCE
The supervisory and managing directors of the Company attach great
importance to corporate governance.
The Company is committed to developing and sustaining long-term
relationships with all stakeholders, including customers, employees, business
partners, and shareholders. The Company aspires to lead the global software
market in areas such as customer satisfaction, employee retention and
development, product quality and shareholder return, and fosters a basic set of
guiding principles which it believes will forward this goal.
The core Company values include (i) Innovation: recruiting and developing
employees and partners committed to innovation in an environment free of
departmental and geographic boundaries, (ii) Integrity: the expectation of
honest, open and ethical dealings at all times with all stakeholders, and (iii)
Initiative: personal responsibility and the willingness to take calculated risks
which may improve product or service offerings. The Company believes that its
adherence to these values has enabled it to build strong relationships with
employees, as evidenced by its historically low rate of employee turnover. In
addition, the Company has enjoyed close working relationships with customers and
implementation providers who, the Company believes, have developed significant
confidence in Baan's performance and commitment.
The Company has followed with interest the public debate in the Netherlands
with respect to corporate governance. The Company in general supports, in line
with its above mentioned Company values, many of the recommendations included in
the Corporate Governance Report prepared in June 1997 by the Dutch Committee on
Corporate Governance and installed in April 1996 by the Chairman of the
Amsterdam Stock Exchange Association.
2
<PAGE> 18
In this respect it is noted that the Company has no anti-takeover devices.
Moreover, the Company complies with the extensive disclosure requirements of the
Securities and Exchange Commission in the United States, including the voluntary
quarterly filing of 6-K forms and the annual filing of, very extensive, 20-F
forms.
With respect to certain specific recommendations of the Corporate
Governance Committee, the following is noted. The Company is not subject to the
special Dutch regime for so-called structure or large companies according to
Article 2:153 para. 3 sub b of the Dutch Civil Code. Pursuant to the large
company regime, the Supervisory Board appoints its own members, while it is
afforded numerous important additional powers. Accordingly, as the Company is
not subject to such regime -- and has not voluntarily chosen to subject itself
thereto -- the power of the General Meeting of Shareholders is not diminished.
Equity investors in the Company obtain (voting) shares, and not as is often the
case in the Netherlands non-voting certificates, and thereby retain their voting
rights. Accordingly, the Company feels that the influence of shareholders is
appropriate and balanced, and that there is no need for change in this regard.
The Company regards it as neither necessary nor appropriate to request the
external auditor of the Company to verify compliance with the recommendations of
the Corporate Governance Committee, as corporate governance includes a multitude
of topics, including legal issues. It is not appropriate to submit such issues
to the judgment of the auditor, because such would extend beyond the audit
function of the auditor and would require legal and other non-audit judgments.
In accordance with the requirements of Dutch law, the Articles of
Association of the Company provide that shareholders together holding at least
10% of the issued capital of the Company may be authorised by the competent
court in the Netherlands to convene a General Meeting of Shareholders. The
Corporate Governance Committee has recommended to substantially expand the
rights of Shareholders to place items on the agenda of the General Meeting of
Shareholders. According to the Articles of Association of the Company, the
Management Board convenes General Meetings, and the agenda of such meetings
shall inter alia contain proposals by the Management Board or the Supervisory
Board. In view of the foregoing recommendation, the Company hereby agrees to
consider for inclusion in the agenda of General Meetings of Shareholders
proposals which have been submitted to the Management Board and the Supervisory
Board by shareholders together holding at least 1% of the issued capital of the
Company, provided that such proposals have been received 60 days prior to the
General Meeting of Shareholders, and to include items properly submitted in
accordance with the foregoing in the agenda of the next General Meeting of
Shareholders if both the Management Board and the Supervisory Board are of the
opinion that such is not contrary to (i) the interests of the Company and its
stakeholders and (ii) the appropriate course of affairs and company order
(vennootschappelijke orde).
Among the great number of recommendations of the Corporate Governance
Committee which the Company supports special mention must be made of the
recommendation to introduce an efficient system of proxy solicitation in the
Netherlands and the recommendation that the repurchase of shares should be
possible in the Netherlands without adverse tax consequences. The Company
strongly supports both recommendations.
YEAR 2000
Baan continues to assess its exposure (if any) associated with the
so-called Year 2000 issue on both the customer and internal systems fronts:
CUSTOMER PRODUCTS: Since the introduction of Triton 2.2(d) in 1993, Baan's
standard ERP software has been designed to be Year 2000 compliant (i.e., with
the capability of processing 4-digit year values so that it will be able to
correctly recognize the Year 2000 and any inputted year, and that it also will
be able to recognize the Year 2000 as a leap year). Current versions of other
products to which Baan has recently acquired ownership (e.g., Aurum, Berclain,
and Beologic) are either now Year 2000 compliant, or are expected to become so
before the end of 1998. Baan is continuing to investigate the Year 2000
compliance of any third-party products Baan markets on a reseller basis or
incorporates into its products.
The question of whether a software manufacturer is liable in any way to
customers of its installed base who are operating earlier, non-Year 2000
compliant versions of its products has not yet been decided by any
3
<PAGE> 19
court, to the best of our knowledge, although some such or related claims are
pending. To date, Baan has not been the subject of a Year 2000 claim. To the
extent a customer may assert any such claim against Baan in the future, whether
on some contract, tort, or other theory, Baan believes it has strong defenses to
any such claim (both in contract and on other grounds). Baan is continuing to
assess both its legal obligations, if any, and whatever business solution, if
any, it may propose to customers who are using non-Year 2000 compliant versions
of its products or third-party products it markets.
INTERNAL SYSTEMS: Baan has undertaken a review (which remains ongoing) of
its internal systems that are material to the operation of its business to
determine to what extent, if any, those systems are not Year 2000 compliant and,
to the extent any such systems are not compliant, what remedial, legal, and/or
other steps need to be taken. Certain of Baan's back office is operating with
recent versions of Baan's ERP software (e.g., Finance, which software, as noted
above, is designed to be Year 2000 compliant), thereby limiting to some extent
the breadth of any Year 2000 compliance issues with respect to Baan's internal
systems.
EURO
With the impending introduction of a single currency unit for the European
Community (the "Euro"), Baan has begun the process of enhancing its standard ERP
software in relevant respects to permit use of the software with the Euro.
Currently, Baan hopes to release modifications of its standard ERP software
later this year that will be designed to permit conversion of currencies to the
Euro and permit use of the Euro as the customer's base currency. Baan is now
assessing to what extent any products to which it has recently acquired
ownership (e.g., Aurum, Berclain, and Beologic) may also require revisions
related to the Euro. In addition, Baan is investigating the plans of third
parties that provide products to Baan that Baan markets on a reseller basis or
incorporates into its products with respect to how each intends to address the
Euro issue.
Like the Year 2000 question, the issue of whether a software manufacturer
is liable in any way to customers of its installed base who are operating
earlier versions of its products that do not recognize or process the Euro
currency has not been decided by any court, to the best of our knowledge;
indeed, we are aware of no such claim. To the extent a customer may assert any
such claim against Baan in the future, whether on some contract, tort, or other
theory, Baan believes it has strong defenses to any such claims (both in
contract and on other grounds, including without limitation the grounds that the
introduction of a new currency after the release of a product -- which product
correctly recognizes and processes the existing currencies for which it was
designed at the time -- does not give rise to a recognizable customer claim of
any kind). Baan's current plan is to offer a migration path to its new
Euro-compliant products to those customers who are so interested. The
particulars of that plan are still under review.
BARNEVELD, MAY 4, 1998
4
<PAGE> 20
BAAN COMPANY N.V.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(AFTER PROPOSED APPROPRIATION OF NET INCOME)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Fixed assets
Intangible fixed assets................................... $ 24,269 $ 41,085
Tangible fixed assets..................................... 48,329 101,430
Financial fixed assets.................................... 4,103 30,212
-------- --------
Total fixed assets................................ 76,701 172,727
Current assets
Trade debtors (net of allowance).......................... 163,666 240,422
Due from related parties.................................. -- 42,765
Deferred tax asset........................................ -- 10,788
Other current assets...................................... 15,753 39,443
Marketable securities..................................... 3,867 104,847
Cash and cash equivalents................................. 236,986 111,417
-------- --------
Total current assets.............................. $420,272 $549,682
-------- --------
Total assets...................................... $496,973 $722,409
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Group equity
Shareholders' equity...................................... $203,016 $290,465
Provisions
Deferred income taxes..................................... 72 --
Long term debt
Convertible subordinated notes............................ 175,000 200,000
Credit institutions....................................... 1,260 718
Other..................................................... 3,090 4,650
-------- --------
179,350 205,368
Current liabilities (due within one year)
Credit institutions....................................... 870 877
Accounts payable.......................................... 36,749 59,729
Accrued liabilities....................................... 29,324 63,823
Payroll taxes............................................. 6,133 10,641
Income taxes payable...................................... 19,686 52,468
Other current liabilities................................. 6,851 8,313
Deferred revenue.......................................... 14,097 29,872
Current portion of long-term debt......................... 825 853
-------- --------
Total current liabilities......................... $114,535 $226,576
-------- --------
Total liabilities and shareholders' equity........ $496,973 $722,409
======== ========
</TABLE>
Prior periods amounts have been reclassified for the merger with Aurum
Software Inc. and some other items to conform to the current period presentation
5
<PAGE> 21
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues
License revenue............................................ $118,894 $226,135 $367,101
License revenue from related parties....................... -- 14,532 66,325
-------- -------- --------
Total license revenue............................ 118,894 240,667 433,426
Maintenance and service revenue............................ 84,434 163,580 244,875
Hardware and other revenue................................. 23,357 11,295 1,295
-------- -------- --------
Net revenue................................................ 226,685 415,542 679,596
Costs of revenues:
Cost of license revenue.................................... 6,678 14,442 31,212
Cost of maintenance and service revenue.................... 68,174 134,851 189,072
Cost of hardware revenue................................... 18,714 8,895 799
-------- -------- --------
Costs of revenues.......................................... 93,566 158,188 221,083
Gross margin............................................... 133,119 257,354 458,513
Sales and marketing........................................ 63,803 111,103 184,703
Research and development................................... 21,004 45,843 90,849
General and administrative................................. 29,189 40,826 60,074
Restructuring and other expenses........................... -- -- 12,068
-------- -------- --------
Total costs and expenses......................... 113,996 197,772 347,694
-------- -------- --------
Income from operations..................................... 19,123 59,582 110,819
Interest income............................................ 1,391 1,137 14,408
Interest expense........................................... (932) (1,287) (11,622)
Other income (expense), net................................ 1,134 435 (95)
-------- -------- --------
Income before income taxes and minority interest........... 20,716 59,867 113,510
Provision for income taxes................................. (9,817) (23,255) (36,354)
-------- -------- --------
10,899 36,612 77,156
Minority interest.......................................... (72) -- --
-------- -------- --------
Net income................................................. $ 10,827 $ 36,612 $ 77,156
======== ======== ========
Net income per share
Basic...................................................... .07 .20 .40
Diluted.................................................... .06 .19 .37
Share used in computing per share amounts
Basic...................................................... 164,929 179,512 190,842
Diluted.................................................... 182,866 196,496 206,071
</TABLE>
Prior periods amounts have been reclassified for the merger with Aurum Software
Inc. and some other items to conform to the current period presentation
6
<PAGE> 22
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 10,827 $ 36,612 $ 77,156
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 13,566 19,782 29,104
Minority interest in earnings of consolidated
subsidiaries....................................... 72 -- --
Provision (benefit) for deferred income taxes........ 2,165 (7,187) (10,592)
Foreign currency transaction (gains) losses.......... 253 170 (6,452)
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................ (52,777) (72,520) (67,677)
Due from related parties........................... -- -- (42,765)
Other current assets............................... (1,679) (6,026) (35,963)
Accounts payable................................... 11,358 12,312 19,599
Accrued liabilities................................ 5,983 14,367 42,727
Payroll taxes payable.............................. 713 2,899 5,125
Income taxes payable............................... 2,052 14,023 33,909
Other current liabilities.......................... (1,376) 746 (3,256)
Deferred revenue................................... 135 1,923 17,924
-------- -------- ---------
Net cash provided by (used in) operating activities....... (8,708) 17,101 58,839
-------- -------- ---------
Investing activities:
Property and equipment purchased.......................... (18,034) (23,856) (42,457)
Property and equipment sold............................... 3,152 3,893 7,604
Increase in capitalized software development costs........ (3,932) (10,705) (29,518)
Payment for acquisitions and investments, net of cash
acquired................................................ (9,652) (3,806) (59,922)
Purchases of marketable securities........................ (33,862) (14,286) (539,233)
Sale of short-term investments............................ -- -- 62,270
Proceeds from maturities of marketable securities......... 10,300 33,982 375,983
Other..................................................... 1,173 1,095 (2,231)
-------- -------- ---------
Net cash used in investing activities..................... (50,855) (13,683) (227,504)
-------- -------- ---------
Financing activities:
Net payments under short-term credit facilities........... (1,367) (3,249) (742)
Payments of long-term borrowings.......................... (662) (414) (1,108)
Issuance costs of convertible subordinated notes.......... -- (4,375) (875)
Proceeds from issuance of convertible subordinated
notes................................................... -- 175,000 25,000
Proceeds from issuance of mandatorily redeemable
convertible preferred stock............................. 5,973 882 --
Proceeds from issuance of common shares................... 61,107 51,147 18,002
-------- -------- ---------
Net cash provided by financing activities................. 65,051 218,991 40,277
Effect of foreign currency exchange rates on cash and cash
equivalents............................................. 70 (383) 2,819
-------- -------- ---------
Increase (decrease) in cash and cash equivalents.......... 5,558 222,026 (125,569)
Cash and cash equivalents at beginning of year............ 9,402 14,960 236,986
-------- -------- ---------
Cash and cash equivalents at end of year.................. $ 14,960 $236,986 $ 111,417
======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 806 $ 657 $ 10,924
======== ======== =========
Taxes................................................... $ 5,661 $ 12,869 $ 6,561
======== ======== =========
Tax benefit related to issuance of common shares.......... $ 3,065 $ 797 $ 5,500
======== ======== =========
</TABLE>
7
<PAGE> 23
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements are stated in United States dollars
and are prepared under the historical cost convention. They have been prepared
in all material respects in accordance with generally accepted accounting
principles in the Netherlands and the United States. As permitted by Section
402, Book 2 of the Netherlands Civil Code, a condensed statement of operations
is presented for the Company itself.
BUSINESS
Baan Company N.V. (the "Company" or "Baan") is incorporated in The
Netherlands. The Company provides enterprise business management software for an
open systems, client/server computing environment. The Company's products
address an organization's entire value chain, from front-office functions (such
as interaction with customers and sales) to the more traditional back-office
operations (such as order management and inventory control) associated with
Enterprise Resource Planning ("ERP"). The Company sells and supports its
products through its corporate headquarters in Putten, The Netherlands and
Reston, Virginia, USA; Business Support Centers in three main locations located
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. Investments in
companies in which the Company has significant influence are accounted for under
the equity method.
FOREIGN EXCHANGE
Assets and liabilities of the Company's 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. Foreign currency transaction gains and losses are included
in income from operations.
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 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.
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, there
are no significant uncertainties surrounding product acceptance, amounts are due
within one year and collection of the resulting receivable is deemed probable.
Sales to third party and related party indirect channel partners are recorded at
the time of product
8
<PAGE> 24
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shipment, subject to certain conditions including an evaluation of the amount of
inventory being carried by the reseller channel. 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, 1997) 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 period, 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. Revenue under
contracts requiring product customization are recorded under contract accounting
on a percent-of-completion basis.
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.
Estimated lives are revised when new projects or product enhancements which
effect product lives are completed. The establishment of technological
feasibility and the ongoing assessment of the recoverability of capitalized
amounts require a significant amount of judgment by management in assessing such
factors as future revenues, product lives and economic changes in the Company's
marketplace. Amortization of software development costs was approximately
$2,138,000, $2,464,000 and $5,947,000 for the years ended December 31, 1995,
1996 and 1997, respectively. Such amortization is included in cost of license
revenue.
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
- -- Furniture 5 - 7 years
- -- Leasehold Lesser of lease term or estimated useful
improvements life
- -- Goodwill 5 - 8 years
</TABLE>
In August 1997, Baan Germany entered into a $16.7 million sponsorship
contract with Expo 2000, to be held in Hanover. Under the terms of the
agreement, Baan is permitted to use the Expo Logo, Expo mascot, and World
Partner title in its advertising, effective immediately. Baan is the exclusive
World Partner of Applications Software. The estimated amount associated with the
use of pavilion space and admittance tickets (approximately $7.5 million) will
be deferred until utilized in the year 2000. The remaining balance under the
contract (approximately $9.2 million for use of the Expo Logo, mascot and World
Partners title) will be amortized until December 31, 2001, when use of those
rights expire.
9
<PAGE> 25
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PER SHARE INFORMATION
In November 1997, the Company approved a two-for-one stock split effective
December 11, 1997. All references in these financial statements to the number of
shares and per share amounts have been restated to reflect the two-for-one
split, unless denoted otherwise.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which was required to be adopted on December 31,
1997. Under the new requirements, basic net income per share is computed using
the weighted average number of common shares outstanding during the period.
Diluted 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) and convertible securities
when the effect is dilutive. The Company has changed its method of computing
earnings per share and has restated all prior periods.
The following table sets forth the computation of basic and diluted income
per share for the years ended December 31, (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net Income............................... $ 10,827 $ 36,612 $ 77,156
======== ======== ========
Denominator:
Denominator for basic income per share-
weighted average shares............... 164,929 179,512 190,842
Common stock equivalents................. 17,937 16,984 15,229
-------- -------- --------
Denominator for diluted income per share-
adjusted weighted average shares and
assumed conversions................... 182,866 196,496 206,071
======== ======== ========
Basic income per share..................... $ 0.07 $ 0.20 $ 0.40
Diluted income per share................... $ 0.06 $ 0.19 $ 0.37
</TABLE>
At December 31, 1996 and 1997, 7,955,000 and 9,091,000 shares issuable upon
conversion of the Company's convertible subordinated notes were excluded from
the computation of diluted earnings per share because the effect was
antidilutive. See Note 6 to Notes to Consolidated Financial Statements.
CASH AND CASH EQUIVALENTS
The Company considers investments in highly-liquid debt instruments with
insignificant interest rate risk and 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 based on
quoted market prices.
Cash equivalents consist principally of investments in certificates of
deposit with approved financial institutions, commercial paper and other
specific money market instruments of similar liquidity and credit quality. The
Company has not experienced any significant losses related to these investments.
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.
10
<PAGE> 26
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1997, all such securities were
designated as available-for-sale. Accordingly, these securities are carried at
fair value. Since the difference between cost and fair value at December 31,
1997 and 1996 was immaterial, no adjustments have been made to the historical
carrying value of the investments.
ASSET IMPAIRMENT
The Company recognizes impairment losses on its long-lived assets held for
use when its fair value is less than their carrying amount. 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
recognized impairment losses of $1,693,000 relating to goodwill and equipment
write-offs in connection with various acquisitions during 1997. These losses
were included in restructuring and other expenses in the income statement.
Previously, the Company had not recognized any impairment losses relating to its
long-lived assets since 1993.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements and is required to be adopted by the
Company beginning in fiscal 1998. Additionally, the Financial Accounting
Standards Board issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for the way
that public business enterprises report information in annual statements and
interim financial reports regarding operating segments, products and services,
geographic areas and major customers. SFAS 131 will be effective for the Company
for fiscal 1998 and will apply to both annual and interim financial reporting.
The Company is evaluating the potential impact of these accounting
pronouncements on required disclosures. SFAS 130 and SFAS 131 will not have a
material impact on the financial position or results of operations of the
Company.
In October 1997, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended
by Statement of Position 98-4, which provide guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions
and are effective for the Company's transactions entered into subsequent to
December 31, 1997. The adoption of the SOPs, in certain circumstances, may
result in the deferral of software license revenues that would have been
recognized upon delivery of the related software under the preceding accounting
standard, SOP 91-1. Detailed implementation guidelines for the new standards
have not yet been issued. Once issued, such detailed implementation guidance
could lead to unanticipated changes in the Company's current revenue accounting
practices and such changes could materially adversely affect the company's
revenues and earnings. Such implementation guidance may also necessitate
substantial changes in the company's business practices in order for the Company
to continue to recognize a substantial portion of its license fee revenue upon
delivery of its software products. Such changes may reduce demand, extend sales
cycles, increase administrative costs and otherwise adversely affect operations.
11
<PAGE> 27
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 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.
For 1997 the movement in intangible fixed assets can be broken down as
follows (in thousands):
<TABLE>
<S> <C>
Book value December 31, 1996....................... $24,269
Purchases and additions............................ 25,715
Amortization....................................... (6,054)
Foreign exchange difference........................ (2,845)
-------
Book value December 31, 1997....................... $41,085
=======
Total accumulated amortization..................... $19,840
=======
</TABLE>
3 TANGIBLE FIXED ASSETS
Tangible fixed assets consist of the following (at cost in thousands):
<TABLE>
<CAPTION>
1996 1997
------------------ -------------------
<S> <C> <C> <C> <C>
Buildings and leasehold improvements....... $ 3,358 $ 7,137
Computer equipment......................... $40,864 $60,445
Furniture and other........................ 10,897 23,561
------- -------
51,761 84,006
Software development costs................. 24,306 62,820
------- --------
Total............................ $79,425 $153,963
======= ========
</TABLE>
Depreciation and amortization expense related to tangible fixed assets was
$13,566,000, $19,782,000 and $29,104,000 for the years ended December 31, 1995,
1996 and 1997, respectively.
The ending balances and the movement in tangible fixed assets can be broken
down as follows (in thousands):
<TABLE>
<CAPTION>
BUILDINGS AND OTHER SOFTWARE
LEASEHOLD OPERATING DEVELOPMENT
IMPROVEMENTS ASSETS COSTS TOTAL
------------- --------- ----------- --------
<S> <C> <C> <C> <C>
Book value December 31, 1996......... $1,860 $ 30,322 $16,147 $ 48,329
Purchases and investments............ 5,146 58,880 16,136 80,162
Disposals............................ (440) (18,619) -- (19,059)
Capitalization....................... -- -- 23,693 23,693
Depreciation......................... (702) (22,457) (5,945) (29,104)
Foreign exchange difference.......... (204) (1,780) (607) (2,591)
------ -------- ------- --------
Book value December 31, 1997......... $5,660 $ 46,346 $49,424 $101,430
====== ======== ======= ========
Total accumulated depreciation....... $1,477 $ 37,660 $13,396 $ 52,533
====== ======== ======= ========
</TABLE>
12
<PAGE> 28
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 FINANCIAL FIXED ASSETS
Financial fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
OTHER
INVESTMENTS OTHER TOTAL
----------- ------- -------
<S> <C> <C> <C>
Book value December 31, 1996................. $ 626 $ 3,477 $ 4,103
Purchases and additions...................... 27,264 500 27,764
Disposals.................................... -- -- --
Amortization................................. -- (1,001) (1,001)
Foreign exchange difference.................. (654) -- (654)
------- ------- -------
Book value December 31, 1997................. $27,236 $ 2,976 $30,212
======= ======= =======
</TABLE>
The other investments relate to companies in which the Company does not
have significant influence and are carried at cost or estimated realizable
value, if less. The other financial fixed assets of $2,976,000 relate to the
long-term portion of the commission from the convertible subordinated notes.
This commission is being amortized on a straight-line basis to interest expense
over the term of the Notes.
5 MARKETABLE SECURITIES
The following is a summary of available-for-sale debt and equity securities
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
Corporate notes......................................... $ 3,867 $135,624
US government agency notes.............................. -- 20,951
Other................................................... 16,770 337
------- --------
$20,637 $156,912
======= ========
Amounts included in cash equivalents.................... $16,770 $ 52,065
Amounts included in marketable securities............... 3,867 104,847
------- --------
$20,637 $156,912
======= ========
</TABLE>
All securities held as of December 31, 1997 are due within one year. Gross
realized gains and losses have been immaterial. The cost of securities sold is
based on specific identification.
6 SHAREHOLDERS' EQUITY
COMMON SHARES
In May 1995, the Company completed its initial public offering (IPO) of
29,200,000 common shares at $4.00 a share, of which 16,000,000 shares were sold
by the Company and 13,200,000 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 December 1997, the shareholders of the Company approved a two-for-one
stock split effective December 11, 1997. The authorized number of common shares
was increased from 350 million to 700 million. In connection with this, the
shareholders authorized an increase in par value to NLG 0.12 per share which was
then split to NLG 0.06 per share. 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
this stock split.
13
<PAGE> 29
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 (the "Plan").
Through the Plan and subsequent amendments, the Company has reserved a total of
36,000,000 common shares for grant thereunder to eligible participants. The
shares may be authorized but unissued, or reacquired common stock. The number of
common shares 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.
As a result of the Company's acquisition of Aurum Software, Inc. ("Aurum")
in 1997, the Company assumed the outstanding options under Aurum's 1995 Stock
Option Plan (the "Aurum Plan"). The Aurum Plan provided for grants of incentive
stock options to employees and nonqualifying options to eligible participants of
Aurum. The term of each option was not to exceed a period of ten years from the
grant date and each option generally vested over five years. At December 31,
1997, the Company had reserved 964,000 of its common shares for issuance under
the Aurum Plan. No additional grants will be made from the Aurum Plan.
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 4,000,000 common shares are available for grant under the two
Employee Stock Purchase Plans. Approximately 1,466,000 common shares were issued
under these plans through December 31, 1997.
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 32,000 common shares of the Company ("Initial Options").
Initial Option grants vest in four equal annual installments. 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 1,600,000
common shares for grant under the Director Plan.
14
<PAGE> 30
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Option activity under the plans, excluding the U.S. ESPP and Non-U.S. ESPP,
was as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER OF PRICE
GRANT SHARES PER OPTION
------------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1994..................... 6,240,000 17,760,000 $ 0.43
Additional shares authorized for issuance........ 6,461,000 -- --
Granted.......................................... (9,405,000) 9,405,000 $ 3.99
Canceled or expired.............................. 2,793,000 (2,793,000) $ 0.51
Exercised........................................ -- (5,175,000) $ 0.43
---------- ---------- ------
Balance at December 31, 1995..................... 6,089,000 19,197,000 $ 2.17
Additional shares authorized for issuance........ 6,218,000 -- --
Granted.......................................... (6,580,000) 6,580,000 $12.73
Canceled or expired.............................. 1,763,000 (1,763,000) $ 1.07
Exercised........................................ -- (4,648,000) $ 1.46
---------- ---------- ------
Balance at December 31, 1996..................... 7,490,000 19,366,000 $ 6.03
Additional shares authorized for issuance........ 3,072,000 -- --
Granted.......................................... (7,712,000) 7,712,000 $23.26
Canceled or expired.............................. 576,000 (576,000) $13.77
Exercised........................................ -- (4,193,000) $ 3.57
---------- ---------- ------
Balance at December 31, 1997..................... 3,426,000 22,309,000 $12.24
========== ========== ======
</TABLE>
As of December 31, 1996 and 1997, stock options were exercisable for
5,434,000 and 6,189,000 common shares, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------- ---------------------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING NUMBER AVERAGE PRICE NUMBER AVERAGE PRICE
EXERCISE PRICES CONTRACTUAL LIFE OUTSTANDING PER OPTION EXERCISABLE PER OPTION
- --------------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.17 - $ 4.00 1.7 years 7,531,000 $ 0.96 3,365,000 $ 0.90
$ 6.60 - $12.64 2.9 years 4,149,000 $ 9.87 1,752,000 $ 9.52
$13.22 - $18.00 3.7 years 6,633,000 $16.28 931,000 $16.76
$18.20 - $26.88 5.7 years 988,000 $21.65 119,000 $21.83
$25.81 - $30.63 4.8 years 1,932,000 $30.45 9,000 $30.37
$31.07 - $49.69 5.6 years 1,076,000 $33.17 13,000 $33.32
---------- ---------
22,309,000 6,189,000
========== =========
</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 1994 and
1995. This amount is being amortized over the vesting period of the individual
options, generally five years. Compensation expense was approximately $298,000,
$148,000 and $124,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. During 1996, certain options were canceled which further reduced
deferred compensation by $605,000. No options were cancelled during 1997. At
December 31, 1997, deferred compensation totaled $248,000.
15
<PAGE> 31
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 since the exercise price of the stock
options granted are equal to the fair market value of the underlying security on
the grant date.
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 as of the date of grant 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 1997 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (months).................... 60 56 56 6 6 6
Expected volatility....................... 19% 50% 50% 12% 50% 50%
Risk-free interest rate................... 5.7% 6.1% 5.7% 5.6% 6.2% 5.4%
</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,
1996 and 1997 is as follows (in thousands, except for net income per share):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net income:
As reported................................. $10,827 $36,612 $77,156
Pro forma................................... $ 9,238 $28,616 $50,479
Basic income per share
As reported................................. $ 0.07 $ 0.20 $ 0.40
Pro forma................................... $ 0.06 $ 0.16 $ 0.26
Diluted income per share
As reported................................. $ 0.06 $ 0.19 $ 0.37
Pro forma................................... $ 0.05 $ 0.15 $ 0.25
</TABLE>
Since 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, 1996 and
1997 was $1.86, $5.30 and $11.25 respectively. The weighted average fair value
of employee stock purchase rights granted under the U.S. ESPP and Non-U.S. ESPP
during 1995, 1996 and 1997 was $0.75, $3.61 and $6.28, respectively.
16
<PAGE> 32
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MOVEMENT OF SHAREHOLDERS' EQUITY
The following information does not reflect the effects of any stock splits.
The statutory share capital consists of 700,000,000 shares with a par value of
NLG 0.06 and 175,000,000 shares with a par value of NLG 0.02 at December 31,
1997 and 1996, respectively. The actual number of shares issued amounts to
193,698,784, 89,791,297 and 43,123,488 at December 31, 1997, 1996 and 1995,
respectively. 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. As of December 31, 1997 the par value of issued shares in
Dutch guilders was NLG 11,621,927 which translated at the year-end exchange rate
of NLG 2.02 = $1 is $5,753,000.
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 December 31, 1996........ $5,759 $152,782 $ 45,211 $ (736) $203,016
Issuance of common shares........... 180 22,088 (6,143) -- 16,125
Net income 1997..................... -- -- 77,156 -- 77,156
Other movements..................... -- 124 -- -- 124
Currency translation adjustment..... -- -- -- (5,956) (5,956)
------ -------- -------- ------- --------
Balance at December 31, 1997........ $5,939 $174,994 $116,224 $(6,692) $290,465
====== ======== ======== ======= ========
</TABLE>
The other movements relate to the amortization of the deferred compensation
as discussed above.
7 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 ($19,811,600 based on the exchange rate
at December 31, 1997). 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 4.75% at December 31, 1997) with a minimum interest rate of 4% and is
payable quarterly. There were no outstanding borrowings under the credit
facility at December 31, 1996 and 1997.
The Company, its Netherlands subsidiaries, and Baan USA, 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 $948,000 and $877,000 at
December 31, 1996 and 1997, respectively.
One of the short-term borrowings by the Company's subsidiaries at December
31, 1997 is 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 and 1997, $899,000 and $6,168,000, respectively, 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 weighted average interest rates on the short-term borrowings were 19.4%
and 11.33% at December 31, 1996 and 1997, respectively.
17
<PAGE> 33
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-TERM DEBT
The Company's long-term debt obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Convertible subordinated notes, 4.50%, due December 15,
2001................................................. $175,000 $200,000
Guilder denominated loans, 7.5% to 7.75%, due September
30, 2000 and December 31, 2001....................... 1,576 1,040
Other.................................................. 3,599 5,181
-------- --------
180,175 206,221
Less current portion................................... 825 853
-------- --------
$179,350 $205,368
======== ========
</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 $22.00 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 on a straight-line basis to interest expense
over the term of the Notes. A total of $875,000 was amortized in the year ended
December 31, 1997. Remaining unamortized 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 ($161,700 based on the exchange rate at
December 31, 1997) 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.
The aggregate amount of maturities subsequent to December 31, 1997 for all
long-term debt based on the exchange rates at December 31, 1997 were as follows
(in thousands):
<TABLE>
<S> <C>
1998...................................................... $ 853
1999...................................................... 4,972
2000...................................................... 297
2001...................................................... 200,099
--------
$206,221
========
</TABLE>
8 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-carryforwards.
18
<PAGE> 34
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income before income taxes and minority interest consists of the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
The Netherlands.............................. $20,233 $49,229 $ 81,629
Rest of the world............................ 483 10,638 31,881
------- ------- --------
Income before income taxes and minority
interest................................... $20,716 $59,867 $113,510
======= ======= ========
</TABLE>
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
Current:
The Netherlands............................. $4,947 $22,184 $ 31,316
Germany..................................... 2,282 4,393 4,536
United States............................... -- 3,168 7,579
Other countries............................. 422 697 3,515
------ ------- --------
Total current....................... 7,651 30,442 46,946
Deferred:
The Netherlands............................. 2,017 (7,410) (11,741)
Germany..................................... 149 223 415
United States............................... -- -- 734
------ ------- --------
Total deferred...................... 2,166 (7,187) (10,592)
------ ------- --------
Provision for income taxes.................... $9,817 $23,255 $ 36,354
====== ======= ========
</TABLE>
In 1995, 1996, and 1997, the Company recognized tax benefits related to
stock option plans of $856,000, $797,000 and $5,500,000, respectively. Such
benefits were recorded as an increase to additional paid-in capital.
The Company's effective income tax rate differs from The Netherlands'
statutory rate of 35% due to the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Expected tax at statutory rate................. $7,250 $20,953 $39,729
Amortization of goodwill....................... 435 661 2,106
Foreign earnings taxed at higher rates......... 512 1,881 239
Dutch qualifying income tax reduction.......... -- -- (4,382)
Other, net..................................... 1,620 (240) (1,338)
------ ------- -------
Provision for income taxes..................... $9,817 $23,255 $36,354
====== ======= =======
Effective tax rate............................. 47% 39% 32%
</TABLE>
19
<PAGE> 35
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
<S> <C> <C>
Deferred tax assets:
Expenses not currently deductible......................... $ 975 $ 1,709
Net operating losses of foreign subsidiaries.............. 8,017 13,708
------ -------
Total deferred tax assets....................... 8,992 15,417
------ -------
Deferred tax liabilities:
Intangible assets......................................... 4,208 4,629
Software development costs................................ 4,856 --
------ -------
Total deferred tax liabilities.................. 9,064 4,629
------ -------
Total net deferred tax asset (liabilities)...... $ (72) $10,788
====== =======
</TABLE>
At December 31, 1997, the Company had foreign net operating loss
carryforwards of approximately $36,000,000. Approximately $12,000,000 of these
carryforwards have no expiration date and the balance expires in 1999 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 1995, 1996 and 1997.
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.
During 1997, the Company was notified by the Dutch authorities that it
qualified for a reduced tax rate on certain of its qualifying income which
included net interest income from intercompany loans, and for money held on the
$200 million convertible debt and on royalties from direct license revenue.
Based on this ruling and other iniatives, the Company was able to decrease its
effective worldwide tax rate of approximately 39% in 1996 to approximately 32%
in 1997. Also, as part of the above ruling, the tax basis for software
development costs was adjusted to equal the book basis, thereby eliminating the
deferred tax liability.
The reduced tax rate on certain qualifying income may be subject to review
by the European commission. Although at present, there is not any indication
that such a review will take place, the result of that review could potentially
result in a higher effective tax rate for the Company.
9 FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments are 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 trade
accounts receivable, 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.
20
<PAGE> 36
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's foreign currency forward contracts all have maturities of
less than one year. These forward contracts are summarized below at contract
value (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
European currencies...................................... $61,805 $45,124
Asian currencies......................................... 16,187 29,584
Other currencies......................................... 3,150 1,210
------- -------
Total.......................................... $81,142 $75,918
======= =======
</TABLE>
The amounts represent the U.S. dollar equivalent of commitments to sell
foreign currencies.
While the contract amounts provide a measure of the volume of these
transactions, they do not represent the amount of the Company's exposure to
credit risk. The Company controls credit risk through credit approvals, limits
and subsequent monitoring procedures.
The Company operates in certain countries in Latin America, Eastern Europe,
and Asia Pacific where there are limited forward currency exchange markets and
thus the Company has unhedged transaction exposures in these 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>
1996 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents................. $236,986 $236,986 $111,417 $111,417
Marketable securities..................... 3,867 3,867 104,847 104,847
Financial liabilities
Short-term borrowings..................... 870 870 877 877
Convertible subordinated notes............ 175,000 175,577 200,000 316,060
Other long-term borrowings (including
current portion)....................... 2,085 2,085 1,571 1,571
Off-balance sheet instruments Foreign
currency forward contracts................ -- 80,676 -- 75,014
</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.
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 and reflects the increase in share price of the Company's
common stock since the Notes were issued.
21
<PAGE> 37
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 contracts is
based on the estimated amount at which they could be settled based on quoted
exchange rates. Foreign currency contracts are usually three months in duration
and typically are due at the end of each quarter. There were no material
differences between contract value and fair value at December 31, 1997.
10 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
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, 1995, the Company
charged a write-off of approximately $1.0 million to bad debt expense. Bad debt
write-offs in 1995 were $251,000. For the year ended December 31, 1996, the
Company charged $8.3 million to bad debt expense. Bad debt write-offs in 1996
were $1.6 million. For the year ended December 31, 1997, the Company charged
$12.4 million to bad debt expense and recorded bad debt write-offs of $3.0
million.
During the years ended December 31, 1996 and 1997, the Company entered into
agreements pursuant to which it sold $17.0 million and $17.5 million,
respectively, of its existing accounts receivable. Under the terms of the
agreements, 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 in 1996 and 1997 was $602,000 and
$716,000, respectively, and is included in selling and marketing expenses in the
accompanying financial statements. The balance of the accounts receivable sold
was $16.4 million and $16.8 million as of December 31, 1996 and 1997,
respectively.
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.
11 TRANSACTIONS WITH RELATED PARTIES
Baan Investment B.V. ("BIBV" together with its subsidiaries the related
parties), is controlled by Jan and J.G. Paul Baan, and owns approximately 39% of
the outstanding Common Shares of the Company. BIBV has invested in various new
technologies, educational programs, research projects and sales, consulting and
support activities in the ERP market. Often, these investments take the forms of
joint ventures or partnerships, whose activities are aimed at the ERP market for
packaged application software for business and business process improvement.
BIBV and entities owned or controlled by BIBV have made expenditures and
incurred
22
<PAGE> 38
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
substantial costs in connection with these investment activities and start-up of
business operations. These expenses are not included in the Company's
consolidated financial statements. In the opinion of Company management all
significant costs directly benefiting the Company incurred by such entities have
been recorded as an expense by the Company. The Company has entered into various
agreements with such entities owned or controlled by BIBV and has recognized
revenue and reimbursement of expenses from, and incurred costs for goods and
services provided by, such related parties.
The Company has approximately 150 SME channel partners. Included in the
Company's channel partners are approximately 15 companies which are owned by BBS
Holding B.V., a majority-owned subsidiary of BIBV. These BBS-related entities
are commonly referred to as the Baan Business Systems network ("BBS").
The Company recognized revenues of approximately $32.3 million and $4.5
million from the BBS Holding B.V. enterprises during 1997 and 1996,
respectively, from that company's licensing of Baan products. In addition,
during 1997 and 1996, the Company assigned a number of its SME license contracts
and trade accounts receivable to various BBS companies. In consideration for the
assignment, the BBS companies paid for the then-outstanding third party trade
accounts receivable assigned to them and, in addition, agreed to pay the Company
an amount representing the value of certain potential future license revenues
forgone by the Company as a result of pricing differences between customary
terms in direct sales versus indirect channel, third party contracts. Such
pricing differences resulted in the Company's recognition of license revenues of
$18 million and $10 million in 1997 and 1996, respectively. Further, during
1997, BBS Holding paid $6 million to the Company and committed to pay an
additional $2.7 million by March 1998 in exchange for the non-recourse
assignment of the remaining rights and obligations under a license agreement
with an unrelated third party.
During 1997, Baan Midmarket Solutions ("BMS") was formed, with an 85%
ownership by BIBV and 15% ownership by the Company. Pursuant to the related
agreement, the Company agreed to provide certain services to BMS in return for
reimbursement of the costs of such services and assigned a majority of its
existing reseller agreements to BMS. Consideration for the assignment was
payment by BMS of an amount representing the value of certain potential future
license revenues forgone by the Company as a result of pricing differences
between customary terms in direct sales versus indirect channel, third party
contracts. Such pricing differences resulted in the Company's recognition of
license revenues of approximately $13 million in 1997. In addition, the Company
recognized revenues of approximately $3 million from sales of licenses to BMS
for their resale to third party users.
The Company applies to these related parties the same revenue recognition
policies it uses for sales to independent third parties. At December 31, 1997
and 1996, respectively, approximately $11.6 million and $4.5 million of license
revenues recognized from related parties remained in such parties' inventory of
unsold licenses. All such inventory had been sold through as of the end of the
first quarter of 1998 (unaudited).
Other material transactions that the Company had during 1997 with BIBV and
with its affiliated entities included payment of approximately $2.1 million of
lease rental expense and $3.0 million of employee training expenses, and charges
to BIBV of $8.6 million for the reimbursement of management information systems
and marketing costs and services provided by the Company. The Company did not
have a formal cost-sharing agreement in place in 1997 for the management
information system and marketing costs and services.
During the Company's sales cycle and in connection with certain
implementations, use may be made of software products developed by Baan Business
Innovation ("BBI"), a wholly-owned subsidiary of BIBV, as well as BBI's partners
in the modeling arena. Revenues and costs of the Company associated with the use
of such products have not been material.
23
<PAGE> 39
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12 ACQUISITIONS AND DISPOSITIONS
In May 1996, the shareholders of Berclain Group Inc. ("Berclain") agreed to
exchange their shares in Berclain for 1,088,000 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 1,830,000 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 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.
In August 1997, the Company acquired all of the outstanding shares of Aurum
Software Inc. ("Aurum") for approximately 8,302,000 of the Company's common
shares. Aurum is a provider of enterprise-wide sales-force automation software.
The business combination was accounted for as a pooling of interests. Since the
combination was material to the Company, the accompanying consolidated financial
statements are presented on a combined basis for all periods presented. There
were no significant intercompany transactions between the two companies and no
significant conforming accounting adjustments.
Combined and separate balance sheets and statements of operations of the
Company and Aurum for the periods prior to the acquisition were as follows (in
thousands):
BALANCE SHEET AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
BAAN COMPANY N.V. AURUM COMBINED
(EXCL. AURUM SOFTWARE INC.) SOFTWARE INC. BALANCE SHEET
--------------------------- ------------- -------------
<S> <C> <C> <C>
Fixed assets....................... $ 73,804 $ 2,897 $ 76,701
Current assets..................... 366,888 53,384 420,272
-------- ------- --------
Total assets....................... 440,692 56,281 496,973
-------- ------- --------
Shareholders' equity............... 156,007 47,009 203,016
Provisions......................... 2,244 -- 2,244
Long term debt..................... 178,899 451 179,350
Current liabilities................ 103,542 8,821 112,363
-------- ------- --------
Total liabilities and Shareholders'
equity........................... $440,692 $56,281 $496,973
======== ======= ========
</TABLE>
STATEMENT OF OPERATIONS 1995
<TABLE>
<CAPTION>
BAAN COMPANY N.V. AURUM COMBINED
(EXCL. AURUM SOFTWARE INC.) SOFTWARE INC. BALANCE SHEET
--------------------------- ------------- -------------
<S> <C> <C> <C>
Net revenues....................... $216,210 $10,475 $226,685
Total costs and expenses........... 192,729 14,833 207,562
-------- ------- --------
Income (loss) from operations...... 23,481 (4,358) 19,123
Other income and income taxes...... (8,130) (94) (8,224)
Minority interest.................. (72) -- (72)
-------- ------- --------
Net income (loss).................. $ 15,279 $(4,452) $ 10,827
======== ======= ========
</TABLE>
24
<PAGE> 40
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS 1996
<TABLE>
<CAPTION>
COMBINED
BAAN COMPANY N.V. AURUM STATEMENT OF
(EXCL. AURUM SOFTWARE INC.) SOFTWARE INC. OPERATIONS
--------------------------- ------------- ------------
<S> <C> <C> <C>
Net revenues........................ $387,958 $27,584 $415,542
Total costs and expenses............ 328,458 27,502 355,960
-------- ------- --------
Income (loss) from operations....... 59,500 82 59,582
Other income and income taxes....... (23,167) 197 (22,970)
-------- ------- --------
Net income (loss)................... $ 36,333 $ 279 $ 36,612
======== ======= ========
</TABLE>
In November 1997, the Company acquired all of the outstanding shares of
Beologic A/S ("Beologic") for approximately 1,278,000 shares of the Company's
common shares. Beologic is a sales configurator company. The business
combination was accounted for as a pooling of interests. Because Beologic's
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 combination. Consolidation of Beologic reduced the
Company's retained earnings by approximately $6.1 million.
During the year ended December 31, 1997, the Company recognized $12.1
million of restructuring and other charges related to direct transaction and
integration costs as a result of the combinations with Aurum and Beologic.
Restructuring charges include $4.6 million for professional fees, $3.4 million
for write-offs of capitalized software, goodwill and other intangible assets,
$2.3 million of software discontinuation costs and migration costs related to
the Antalys product, and $1.8 million for contractual software upgrades and
commitments, and for other miscellaneous charges related to the mergers.
The following table, expressed in thousands, summarizes the Company's
restructuring and non-recurring costs and activity for the year ended December
31, 1997:
<TABLE>
<CAPTION>
ACCRUAL BALANCE AT
TOTAL CASH ASSET DECEMBER 31,
COSTS PAID WRITE-OFFS 1997
------- ------ ---------- ------------------
<S> <C> <C> <C> <C>
Professional fees........................... $ 4,589 $4,002 $ -- $ 587
Capitalized software, intangibles and other
assets.................................... 3,393 -- 3,393 --
Non-recurring, discontinuation and migration
costs..................................... 2,286 778 -- 1,508
Other restructuring costs................... 1,800 849 -- 951
------- ------ ------ ------
Total restructuring and other charges....... $12,068 $5,629 $3,393 $3,046
======= ====== ====== ======
</TABLE>
The Company expects to complete most of the actions associated with its
restructuring by the end of the second quarter of fiscal 1998.
In 1997, the Company acquired the assets and liabilities of several small
companies for approximately $27.1 million in cash, which included the
acquisition of Matrix Holding B.V. ("Matrix"), a related party. Matrix was a
wholly owned subsidiary of Baan Investment B.V. and was acquired for $8.0
million in cash based on an independent appraisal and assumed net liabilities of
approximately $5.2 million. All of these acquisitions were accounted for under
the purchase method and the assets and liabilities were recorded at their fair
values on the acquisition dates. After allocating a portion of the purchase
price for these acquisitions to tangible assets and liabilities, $1,500,000 was
allocated to customer lists, $7,231,000 to assembled workforce and $21,301,000
to goodwill.
25
<PAGE> 41
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13 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,
1995, 1996, and 1997 was approximately $4,355,000, $8,075,000, and $14,701,000,
respectively.
Minimum annual rental commitments under noncancelable operating leases for
periods subsequent to December 31, 1997, including amounts due to affiliates
(based upon the exchange rates at December 31, 1997), are as follows (in
thousands):
<TABLE>
<S> <C>
1998....................................................... $12,746
1999....................................................... 13.009
2000....................................................... 10,260
2001....................................................... 8,386
2002....................................................... 6,426
Thereafter................................................. 3,681
-------
Total minimum rental commitments........................... $54,508
=======
</TABLE>
LITIGATION
The Company is party to legal proceedings from time to time. There is no
such proceeding currently pending which the Company believes is likely to have a
material effect upon the Company's business as a whole. Any litigation, however,
involves potential risk and potentially significant litigation costs, and
therefore there can be no assurances that any litigation which is now pending or
which may arise in the future will not have such a material adverse effect.
14 INDUSTRY SEGMENT, GEOGRAPHIC AND OTHER INFORMATION
The Company designs, manufactures, and markets applications software for
business processes and operates in a single industry segment. As discussed in
Note 1 to Notes to Consolidated Financial Statements, information about the
Company's operating segments will be reported for the year ending December 31,
1998 as required by SFAS 131. The following table represents a summary of
operating information and certain year-end balance sheet information by
geographic region for the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues from unaffiliated customers:
The Netherlands.......................... $ 71,352 $ 82,622 $ 78,695
Germany.................................. 39,975 54,073 90,122
Other European operations, and South
Africa................................ 19,011 41,271 84,622
U.S. and Canadian operations............. 73,189 169,917 277,407
Other international operations........... 23,158 53,127 82,425
-------- -------- --------
Total net revenues from unaffiliated
customers........................... 226,685 401,010 613,271
Related party revenue.................... -- 14,532 66,325
-------- -------- --------
Total net revenues.................... $226,685 $415,542 $679,596
======== ======== ========
</TABLE>
26
<PAGE> 42
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers between geographic regions
(eliminated on consolidation):
The Netherlands.......................... $ 39,245 $ 70,469 $126,631
Germany.................................. 1,006 686 655
Other European operations, and South
Africa................................ 529 1,513 3,490
U.S. and Canadian operations............. 2,335 4,317 2,460
Other international operations........... 2,086 999 1,014
-------- -------- --------
Total................................. $ 45,201 $ 77,984 $134,250
======== ======== ========
Income (loss) from operations:
The Netherlands.......................... $ (9,990) $ (6,407) $ 10,736
Germany.................................. 11,345 22,359 43,993
Other European operations, and South
Africa................................ 4,451 9,900 36,852
U.S. and Canadian operations............. 13,700 44,760 42,086
Other international operations........... 4,575 4,137 1,379
General corporate expenses............... (4,958) (15,167) (24,227)
-------- -------- --------
Income from operations................ $ 19,123 $ 59,582 $110,819
======== ======== ========
Identifiable assets:
The Netherlands.......................... $ 75,751 $240,768 $303,684
Germany.................................. 41,335 44,943 100,370
Other European operations, and South
Africa................................ 16,968 48,858 62,584
U.S. and Canadian operations............. 45,012 122,654 188,645
Other international operations........... 17,350 39,750 67,126
-------- -------- --------
Total identifiable assets............. $196,416 $496,973 $722,409
======== ======== ========
</TABLE>
Amounts charged between geographic regions are based on terms similar to
those offered to third parties. No customer accounted for 10% or more of
consolidated net revenues in 1995 and 1996. Related party revenue for all such
parties as a group accounted for 10% of the Company's total net revenue for
1997. Sales from The Netherlands to unaffiliated customers in foreign countries
were less than 10% of total revenues from sales to unaffiliated customers in
1995, 1996 and 1997.
Wages and salary information
Wages and salary information is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Wages and salaries.......................... $70,269 $114,983 $192,582
Social security costs....................... 9,513 14,312 23,902
Pension costs............................... 930 1,850 3,314
------- -------- --------
Total.................................. $80,712 $131,145 $219,798
======= ======== ========
</TABLE>
27
<PAGE> 43
BAAN COMPANY N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Average number of personnel
The average number of personnel employed during the year was:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Research and development......................... $ 278 $ 503 $1,000
Sales and marketing.............................. 320 505 778
Billable services................................ 538 851 1,291
Finance and general administration............... 173 235 343
------ ------ ------
Total....................................... $1,309 $2,094 $3,412
====== ====== ======
</TABLE>
28
<PAGE> 44
BAAN COMPANY N.V.
BALANCE SHEETS
(IN THOUSANDS)
(AFTER PROPOSED APPROPRIATION OF NET INCOME)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Fixed assets
Intangible fixed assets..................................... $ 22,528 $ 28,023
Tangible fixed assets....................................... 423 12,461
Financial fixed assets...................................... 234,437 404,144
-------- --------
Total fixed assets.......................................... 257,388 444,628
Current assets
Other current assets........................................ 5,774 32,234
Marketable secureties....................................... 24,200 156,910
Cash and cash equivalents................................... 150,003 11,236
-------- --------
Total current assets................................... 179,977 200,380
-------- --------
Total assets...................................... $437,365 $645,008
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity
Share capital............................................... $ 5,759 $ 5,939
Additional paid-in capital.................................. 152,782 174,994
Accumulated translation adjustment.......................... (736) (6,692)
Retained earnings........................................... 45,211 116,224
-------- --------
203,016 290,465
Long term debt
Convertible subordinated notes.............................. 175,000 200,000
Credit institutions......................................... 1,204 718
Other....................................................... 183 48
-------- --------
176,387 200,766
Current liabilities (due within one year)
Credit institutions......................................... 373 322
Payable to subsidiaries..................................... 35,454 124,578
Income taxes payable........................................ 17,464 19,239
Other current liabilities................................... 4,671 9,638
-------- --------
Total current liabilities.............................. 57,962 153,777
-------- --------
Total liabilities and shareholders' equity........ $437,365 $645,008
======== ========
</TABLE>
Prior periods amounts have been reclassified for the merger with Aurum Software
Inc. and some other items to conform to the current period presentation
29
<PAGE> 45
BAAN COMPANY N.V.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net income from subsidiaries and participating interests
after taxes............................................... $12,215 $35,805 $70,941
Other income after taxes.................................... (1,388) 807 6,215
------- ------- -------
Net income.................................................. $10,827 $36,612 $77,156
======= ======= =======
</TABLE>
Prior periods amounts have been reclassified for the merger with Aurum Software
Inc. and some other items to conform to the current period presentation.
30
<PAGE> 46
BAAN COMPANY N.V.
NOTES TO FINANCIAL STATEMENTS
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 1997 the movement in intangible fixed assets can be
broken down as follows (in thousands):
<TABLE>
<S> <C>
Book value December 31, 1996............................... $22,528
Purchases and additions.................................... 13,592
Amortization............................................... (5,453)
Foreign exchange difference................................ (2,644)
-------
Book value December 31, 1997............................... $28,023
=======
Total accumulated amortization............................. $18,054
=======
</TABLE>
3. TANGIBLE FIXED ASSETS
The tangible fixed assets consist of computer equipment and software
development costs. The movement in tangible fixed assets is as follows (in
thousands):
<TABLE>
<CAPTION>
OTHER SOFTWARE
OPERATING ASSETS DEVELOPMENT COSTS TOTAL
---------------- ----------------- -------
<S> <C> <C> <C>
Book value December 31, 1996.......... $ 355 $ 68 $ 423
Purchases and investments............. 24,647 -- 24,647
Disposals............................. (6,180) -- (6,180)
Depreciation.......................... (6,382) (28) (6,410)
Foreign exchange difference........... (10) (9) (19)
------- ---- -------
Book value December 31, 1997.......... $12,430 $ 31 $12,461
======= ==== =======
Total accumulated depreciation........ $ 6,485 $ 49 $ 6,534
======= ==== =======
</TABLE>
4. FINANCIAL FIXED ASSETS
Financial fixed assets relate to investments in subsidiary companies and
participating interests. The movement can be broken down as follows (in
thousands):
<TABLE>
<CAPTION>
SUBSIDIARY COMPANIES
----------------------- OTHER
INVESTMENTS LOANS INVESTMENTS OTHER TOTAL
----------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996........................ $101,484 $ 129,469 $ 7 $ 3,477 $ 234,437
Additions/Acquisitions........ (4,671) 194,060 27,552 500 217,441
Dividends/repayments.......... (5,573) (100,575) -- -- (106,148)
Disposals/amortization........ -- -- -- (1,001) (1,001)
Share of net income........... 70,941 -- -- -- 70,941
Transfer from loans........... 11,330 (11,330) -- -- --
Foreign exchange.............. (2,449) (8,423) (654) -- (11,526)
-------- --------- ------- ------- ---------
Balance at December 31,
1997........................ $171,062 $ 203,201 $26,905 $ 2,976 $ 404,144
======== ========= ======= ======= =========
</TABLE>
The other investments relate to companies in which the Company does not
have significant influence and are carried at cost or estimated realizable
value, if less.
The other financial fixed assets of $2,976,000 relate to the long-term
portion of the commission from the convertible subordinated notes. This
commission is being amortized on a straight-line basis to interest expense over
the term of the Notes.
31
<PAGE> 47
BAAN COMPANY N.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY
The movement in shareholders' equity and its components is disclosed in
note 6 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 7 to the consolidated
financial statements. Principal payments due within one year are $322,000; no
amounts are due after five years.
7. CURRENT LIABILITIES
Borrowing arrangements and related guarantees are disclosed in note 7 to
the consolidated financial statements.
Amounts payable to subsidiaries bear interest of 7% and generally have no
specific repayment terms.
8. ACQUISITIONS
In August 1997, the Company acquired all of the outstanding shares of Aurum
Software Inc. ("Aurum") for approximately 8,302,000 of the Company's common
shares. Aurum is a provider of enterprise-wide sales-force automation software.
The business combination was accounted for as a pooling of interests. Since the
combination was material to the Company, the accompanying financial statements
are presented on a combined basis for all periods presented.
Balance sheets and statements of operations of the Company for the periods
prior to the acquisition have been restated as follows (in thousands):
BALANCE SHEET AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
BALANCE SHEET
PREVIOUS FINANCIAL RESTATEMENT
STATEMENTS AURUM SOFTWARE INC. BALANCE SHEET
------------------ ------------------- -------------
<S> <C> <C> <C>
Financial fixed assets.......... $187,428 $47,009 $234,437
Shareholders' equity............ 156,007 47,009 203,016
</TABLE>
STATEMENT OF OPERATIONS 1995
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
PREVIOUS FINANCIAL RESTATEMENT STATEMENT OF
STATEMENTS AURUM SOFTWARE INC. OPERATIONS
----------------------- ------------------- ------------
<S> <C> <C> <C>
Net income from subsidiaries
and participating
interests................. $16,667 $(4,452) $12,215
</TABLE>
STATEMENT OF OPERATIONS 1996
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
PREVIOUS FINANCIAL RESTATEMENT STATEMENT OF
STATEMENTS AURUM SOFTWARE INC. OPERATIONS
----------------------- ------------------- ------------
<S> <C> <C> <C>
Net income from subsidiaries
and participating
interests................. $35,526 $279 $35,805
</TABLE>
9. EMPLOYEE INFORMATION
The Company has no employees.
10. OTHER INFORMATION
Remuneration of the Managing Directors was, $821,000, $617,000 and $926,000
in 1995, 1996 and 1997 respectively.
Remuneration of the Board of Supervisory Directors was $57,000, $76,000 and
$33,000 in 1995, 1996 and 1997 respectively.
32
<PAGE> 48
BAAN COMPANY N.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company has given guarantees in respect of the following Dutch
subsidiaries under the provision of section 403, Book 2 of the Netherlands Civil
Code:
-- Baan Nederland B.V., Barneveld, the Netherlands
-- Baan International B.V., Barneveld, the Netherlands
-- Baan Development B.V., Barneveld, the Netherlands
-- Baan Software B.V., Barneveld, the Netherlands.
The Company has given a guarantee in favor of a company in the UK in
connection with a Receivables Discounting Agreement between this company and
Baan UK Ltd. for all amounts which at any time may be due to this company.
The Form 20-F has been filed at the Securities and Exchange Commission in
the United States. A copy of this document is free of charge available at the
Company's office in Barneveld.
11. CONSOLIDATED SUBSIDIARIES AND PARTICIPATING INTERESTS
<TABLE>
<S> <C>
Consolidated subsidiaries:
- -- Baan Nederland B.V., Barneveld, the Netherlands 100%
- -- Baan Belgium 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.l., 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%
with participating interest in:
-- Strassle GmbH, 100%
-- Q4 IBS GmbH, 100%
-- IVE GmbH, 100%
-- Schuler GmbH, 100%
- -- Baan Hellas Limited, Voula, Greece 100%
- -- Matrix Holding B.V., Nijmegen, the Netherlands 100%
with participating interest in:
-- Matrix Reseach and Development B.V., Nijmegen, the
Netherlands 100%
-- Matrix Informatie Systemen B.V., Nijmegen, the
Netherlands 100%
-- Matrix International B.V., Nijmegen, the Netherlands 100%
-- Matrix Information Systems B.V.B.A., Nijmegen,
Belgium 100%
-- Matrix Information Systeme GmbH, Moers, Germany 100%
-- Matrix Workstations Ltd., Berkshire, United Kingdom 100%
- -- Baan Canada Inc., Toronto, Canada 100%
- -- Berclain Group Inc., Sainte-Foy, Quebec, Canada 100%
with participating interest in:
-- Berclain Canada Inc. 100%
-- Berclain U.S.A. Inc. 100%
-- Berclain (Deutschland) GmbH 100%
</TABLE>
33
<PAGE> 49
BAAN COMPANY N.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
- -- Baan U.S.A. Inc., New Castle, Delaware, USA 100%
- -- Aurum Software Inc., New Castle, Delaware, USA 100%
- -- Antalys Inc., Golden, Colorado, USA 100%
- -- Beologic A/S, Herlev, Denmark 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 100%
with participating interest in:
-- Baan Singapore Pte. Ltd., Singapore, Singapore 100%
- -- Baan Education Asia Pacific Sdn. Bhd., Kuala Lumpur,
Malaysia 100%
- -- Baan Asia Pacific Pte. Ltd., Singapore, Singapore 100%
- -- Baan Australia Pty Limited, Sydney, Australia 100%
- -- Baan Korea Co. Ltd., Seoul, Republic of Korea 100%
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%
- -- Baan Solutions Line GmbH, Germany (held by Baan
Deutschland GmbH, Hannover, Germany) 40%
- -- Meta Software M.S., S.A., Spain 10%
- -- Top Tier Software Inc., USA 14%
</TABLE>
34
<PAGE> 50
SUBSEQUENT EVENT (UNAUDITED)
In February 1998, the Boards of Directors of the Company and CODA Group
plc. ("CODA") reached agreement for a recommended offer to be made by the
Company to acquire all of the outstanding shares of CODA. CODA is a provider of
financial software. Under the terms of the agreement, the Company will issue
approximately 0.0695 Baan common shares for each outstanding share of CODA,
representing an aggregate of approximately 1.9 million Baan common shares.
Outstanding options to purchase CODA stock will be assumed and converted into
Baan options at the same exchange ratio.
Completion of the acquisition is subject to certain conditions, including
acceptance of the offer by holders of at least 90% of the CODA shares, pooling
of interests accounting treatment and approval by appropriate government
agencies. The acquisition is expected to close in the second quarter of 1998.
The Company is currently reviewing the direct and anticipated integration costs
related to this transaction
MANAGING DIRECTORS SUPERVISORY DIRECTORS
Jan Baan J.G. Paul Baan
Tom C. Tinsley William O. Grabe
Amal M. Johnson David C. Hodgson
Graham J. Sharman
J.C. (Hans) Wortmann
35
<PAGE> 51
AUDITOR'S REPORT
- - Introduction
We have audited the accompanying 1997 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, 1997 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.
Moret Ernst & Young Accountants
Utrecht, The Netherlands
May 4, 1998
36
<PAGE> 52
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.
37
<PAGE> 53
BAAN COMPANY N.V.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
US Cusip No.: N08044104
US Record Date: April 24, 1998
Meeting Specifics: Annual General Meeting - May 29, 1998, 10:00
a.m. (local time) at the Conference Center
"De Eenhoorn", Koningin Wilhelminalaan 33,
Amersfoort, The Netherlands
Voting Instructions Deadline: 4:00 p.m. (New York City time) on May 20,
1998
US Registrar, US Transfer
Agent and US Shareholder
Servicing Agent: Morgan Guaranty Trust Company of New York
New York Shares: Common Shares, nominal value 0.06 Netherlands
guilder (NLG 0.06) per Share, of the Company
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being the registered
holder, as of the US Record Date, of Ordinary Shares of New York Registry ("New
York Shares") of BAAN Company N.V., registered and transferable in the City of
New York, hereby 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 such New York Shares on the Resolutions set forth in the Notice of
Annual General Meeting of Shareholders of BAAN Company N.V. to be held in
Amersfoort, The Netherlands, or any adjournment thereof, as indicated on the
reverse side hereof.
These instructions, when properly signed and dated, will be voted in the manner
indicated on the reverse side hereof.
NOTE: In order to have the aforesaid New York Shares voted, this proxy must be
returned on or before 4:00 p.m., May 20, 1998.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this proxy exactly as your name(s) appear(s) on the books of the
Depository. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more than
one name appears, a majority must sign. If a corporation, this signature should
be that of an authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
<PAGE> 54
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
<TABLE>
<S> <C> <C> <C>
- -------------------
BAAN COMPANY N.V.
- ------------------- For Against
1. Approval of the Annual Report of [ ] [ ]
the Board of Managing Directors for
the year ended December 31, 1997
and discharge of the members of the
Boards of Managing and Supervisory
Directors.
2. Adoption of the Company's Statutory [ ] [ ]
Annual Accounts for the year
ended December 31, 1997.
3. Approval of the addition of the [ ] [ ]
Company's net income for the year
ended December 31, 1997 to the
Company's retained earnings.
4. (Re-)appointment of members of the [ ] [ ]
Boards of Managing and Supervisory
Directors.
5. Ratification of amendment to the [ ] [ ]
Company's 1993 Stock Option Plan to
increase the number of shares
authorized for issuance thereunder.
6. Renewal of the authority of the [ ] [ ]
Board of Managing Directors to
cause the Company to acquire shares
in its own capital pursuant to
Article 10, paragraph 4 of the
Articles of Association of the
Company.
7. Discussion of certain Corporate [ ] [ ]
Governance matters.
8. Any other business as may properly "non-voting"
come before the Meeting.
</TABLE>
<TABLE>
<S> <C> <C>
Please be sure to
sign and date this Proxy. Date _______________
Mark box at right if an address
change or comment has been noted
on the reverse side of this
card. [ ]
ADR Holder sign here--Co-owner sign here
</TABLE>
DETACH CARD DETACH CARD
<PAGE> 55
BAAN COMPANY N.V. (the "Company")
To the Registered Holders of Ordinary Shares of Baan Company (New York Registry)
Notice is hereby given that the Annual General Meeting of Shareholders of the
Company will be held at the Conference Center "De Eenhoorn", located at
Koningin Wilhelminalaan 33, Amersfoort, the Netherlands, on Friday, May 29,
1998 at 10:00 a.m., local time.
The complete agenda and copies of the documents relating to the agenda are
available to shareholders free of charge at the Company's offices in The
Netherlands and Reston, Virginia and at Morgan Guaranty Trust Company of New
York.
Registered holders of New York Shares intending to attend the Meeting, whether
in person or by Proxy appointed in writing, must notify the Company of their
intention, which must reach the Transfer Agent of such shares, Morgan Guaranty
Trust Company of New York, Attn: John Sjosten, P.O. Box 9383, Boston, MA 02205-
9958, before 4:00 p.m., Wednesday, May 20, 1998. Completion and return of this
proxy card to Morgan Guaranty Trust Company of New York constitutes proper
notice of intent to attend the Annual General Meeting by Proxy.
BAAN COMPANY N.V.
