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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934; or
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ________ to ________
Commission File No. 0-26052
BAAN COMPANY N.V.
(Exact name of registrant as specified in its charter)
THE NETHERLANDS
(Jurisdiction of incorporation or organization)
Baron van Nagellstraat 89
3770 LK Barneveld
The Netherlands
and
11911 Freedom Drive, Suite 300
Reston, Virginia, 20190 USA
(Addresses of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Stock, NLG 0.06 Par Value
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
As of December 31, 1998, the registrant had outstanding 204,886,317
Common Shares,
NLG 0.06 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the Registrant
has elected to follow:
Item 17 Item 18 X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Founded in the Netherlands in 1978, Baan Company is a leading global
provider of enterprise business software. Baan Company offers a comprehensive
portfolio of best-in-class, component-based applications that are in use by more
than 6,300 customers at over 12,000 sites worldwide. Applications and related
services offered by the Company help customers gain competitive advantage
through improvements to their corporate management, customer management, and
operations management processes. Baan Company products reduce complexity,
improve core business processes, and are flexible in adapting to business
changes to optimize the management of information throughout the entire value
chain.
Today, the Company offers products that address an organization's entire
value chain. Specific business functions and processes supported by the Baan
Company suite of enterprise applications include automation and control of:
- Corporate Management: accounting/financials, order management,
- Customer Management: sales, product configuration, field service,
call center activities,
- Operations Management: ERP, supply chain management, inventory
procurement, planning and scheduling, manufacturing, finished-goods
delivery, transportation, and logistics.
With roots in the Enterprise Resource Planning (ERP) market, Baan Company
shipped its first products in 1982. Through its acquisition of various software
companies including supply chain vendor Berclain and product configuration
vendor Antalys in 1996, sales force automation vendor Aurum Software and
configuration vendor Beologic in 1997, and CODA Group plc., a provider of
financial software, and CAPS Logistics, Inc., a provider of optimization
software for logistics planning and scheduling in 1998, Baan Company started a
trend where traditional ERP/operations management vendors rounded out their
portfolio to include customer management, corporate management and operations
management products.
Baan Company software is targeted at organizations of all sizes needing to
increase their market advantage and global competitiveness by continually
improving business processes.
Baan Company focuses its sales, marketing and development resources on
manufacturing industries that can utilize the entire range of the Company's
products and services including:
- aerospace,
- automotive,
- component manufacturing,
- electronics,
- furniture,
- industrial equipment,
- paper and pulp, and
- primary metals.
Baan selects target markets based on four factors. Each industry has
well-defined supply and demand chains that can take advantage of the complete
range of products offered by Baan Company. Second, these industries have a focus
on clearly-defined industry best practices that can be modeled and automated
with Baan products. Third, the competitive nature of these
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markets requires continuous assessment and re-assessment of business processes
and the underlying information technology ("IT") infrastructure. Finally, Baan
has established a strong understanding, competitive position and reference base
in these markets.
The Company also targets individual product lines to other industries
including financial services, healthcare, hospitality, insurance,
telecommunications, transportation, wholesale, utilities, and other industries.
Baan partners with its reseller community to actively pursue additional markets
and is rapidly gaining mid-market customers through these initiatives.
The cornerstone of Baan Company product strategy is delivery of scalable,
flexible component-based solutions that can be implemented rapidly in
heterogeneous computing environments and rapidly reconfigured as business
conditions and needs change. To do this, the Company focuses on both intuitive,
graphical business modeling as a starting point for software implementation, as
well as robust out-of the-box functionality. As a result, Baan Company's
standard software typically can be configured and implemented in as short as one
to twelve months, which the Company believes provides it with a competitive
advantage. Ongoing adjustments can be made easily to the system in response to
changing market demands and changes in production and operational processes.
According to leading market analysts from organizations such as Aberdeen
Group, AMR Research, META Group, and Gartner Group, rapid implementation and
easy reconfiguration are critical differentiators for the enterprise
applications market space. These groups typically rank Baan Company operations
and customer management products among the top of all competitive products.
In addition to offering flexible and easy to implement software application
solutions, the Company believes it has gained a competitive market advantage by
offering a complete best-of-breed product portfolio of related products and
services. This includes traditional consulting services and unique consulting
offerings such as Baan CyberConsult that provide customers Internet access to
product-specialist consultants around the world, training programs including
traditional face-to-face instructor lead and train-the-trainer programs, as well
as Internet-based self-paced learning programs and Internet-based virtual
classrooms.
Baan Company views the next major areas of enterprise application growth to
be operations management for mid-market (i.e., small to medium size) companies,
and customer management and supply chain applications across all major vertical
markets, including the mid-market. The Company's extensive efforts to penetrate
the mid-market, as well as the ability to offer customer management and
corporate management solutions enabled Baan Company to achieve a market position
where it believes that it has certain advantages over competitors.
The Company has direct and indirect sales, service and support channels
operating in 80 countries throughout Europe, North America, Latin America and
certain Asian, African and Middle Eastern markets. To date, its enterprise
systems have been implemented at approximately 6,300 customer sites around the
world. The Company's net revenues increased from $227 million in 1995 to $736
million in 1998. The Company's number of employees has more than tripled from
approximately 1,600 employees at December 31, 1995 to approximately 5,100 at
December 31, 1998.
Baan Company N.V. is a Netherlands holding company with its statutory seat
in Barneveld, The Netherlands, and conducts business through its domestic and
international subsidiaries. Baan Holding B.V., the predecessor of Baan Company
N.V., was incorporated in 1983. References in
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this Form 20-F to "Baan" or "the Company," unless the context otherwise
requires, relate to Baan Company N.V., its predecessor, Baan Holding B.V. and
its subsidiaries. The Company maintains dual headquarters at Baron van
Nagellstraat 89, 3770 LK Barneveld, the Netherlands, telephone number +31 (0)
342-428888, and at 11911 Freedom Drive, Suite 300, Reston, Virginia, United
States of America 20190, telephone number +(1) 703-471-8785.
INDUSTRY BACKGROUND
The enterprise applications market as defined today by industry analysts
has come together through the consolidation of three primary markets - corporate
management, customer management and operations management.
Operations management is the most established of the three markets with its
roots in the control automation market of the 1960s and 1970s and the
manufacturing planning software market of the 1980s. This evolved into the
Enterprise Resource Planning (ERP) of the 1990s and today includes primarily ERP
and supply chain areas.
The corporate management market evolved from accounting and contract
management systems in the early 1980s. Human resource and more comprehensive
financial planning and control systems were added to this segment in the 1990s.
The final market, customer management, developed in the 1990s out of the
sales force automation (SFA), product configuration, customer support, and call
center markets.
Like many enterprise application vendors, Baan Company's roots are in the
ERP/operations management arena. During the late-1990s, several factors drove
ERP industry growth rates in excess of 50% per year. Some of the key drivers
included:
- Requirement to continually drive down costs in a competitive global
economic environment,
- Conversion of legacy systems to a new generation of products to
support the Year 2000 (Y2K),
- The requirement to support multi-currency reporting due to adoption of
the Euro.
In early 1998, market analysts expected growth rates to moderate somewhat
but continue in excess of 35% per year through the year 2001. In fact, based on
publicly available information or analysts' estimates, the leading vendors in
the operations management space saw growth rates drop unexpectedly from around
40% in the first quarter 1998 (compared to first quarter 1997) to less than 5%
growth in the fourth quarter 1998 (vs. fourth quarter 1997). Expectations today
among industry analysts are that the operations management segment will continue
to remain difficult and challenging through 1999 and that the market is not
expected to significantly improve until the year 2000. At that point, when
customers have solved the Y2K issues, analysts expect that customers will begin
looking for new ways to improve operational efficiencies.
In the meantime, market growth opportunities for enterprise application
vendors remain in three distinct areas:
- Customer Management - Industry analysts expect growth levels in excess
of 50% per year for this area, driven by new Internet technology that
is opening new distribution channels and increasing revenue.
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- Supply chain area of operations management - Industry analysts suggest
that this area appears to be growing in excess of 50% per year, driven
by dramatic cost reductions in transportation and inventory holding
costs,
- Mid-market ERP - The cost and complexity of traditional ERP and
operations management products historically limited adoption in this
segment. As vendors like Baan Company delivered solutions on industry
standard platforms and reduced deployment times from years to months,
operations management solutions became cost effective for the
mid-market. Industry analysts continue to believe that the mid-market
represents higher growth opportunities for the ERP vendors.
BAAN COMPANY STRATEGY
Entering 1998, growth rates for the ERP sector appeared healthy, but by the
third quarter 1998 market dynamics had changed and growth rates deteriorated
much more rapidly than expected. As reported above, market growth rates among
leading enterprise application vendors fell from 40% per year in the first
quarter to less than 5% per year in the fourth quarter.
In the final weeks of the third quarter, the slowdown in market growth
became apparent. ERP customers delayed or drastically downsized purchases in the
final days of the quarter as they reallocated funds away from Y2K replacement
business to fixing existing legacy systems. Global economic uncertainty also
contributed to this slowing of orders across other product areas. In mid-1998, a
significant portion of Baan Company revenue came from new license revenue. Other
enterprise application vendors have business models that rely more than 50% on
services and maintenance revenue. This difference contributed, the Company
believes, to the Company being one of the first to be impacted by these market
changes. The Company incurred a $39.7 million loss for the third quarter.
Subsequently, other vendors have reported drops in revenue growth.
The Company determined that these market changes were systemic to the
enterprise applications market and unlikely to reverse for at least a year. Baan
Company responded to this change immediately and decisively. During the fourth
quarter 1998, the Company looked for ways to reduce costs by 20%, to gain
efficiencies across all aspects of the organization, and to reinforce and
refocus its existing strategies. To accomplish this goal the Company instituted
a number of actions and strict cost controls:
- Announced a plan to reduce headcount by approximately 20% (from a high
of approximately 6,200 people worldwide) by eliminating programs and
reducing duplicate management, sales, marketing, and finance
functions.
- Disposed of certain non-core business entities.
- Closed 50 offices around the world.
- Cancelled certain marketing programs.
- Signed an equity financing agreement with Fletcher International
Limited that provided $75 million in cash with the option to extend
the agreement for an additional $150 million (see section "Liquidity
and Capital Resources" below).
- Accelerated the absorption of Baan Midmarket Solutions B.V. ("BMS")
into Baan Company (see section "Target Small to Medium Sized
Enterprises ("SME") to Bring Big Company Capabilities to the
Mid-Market" below).
As a result of these actions, the cost structure for the company as it
exited the first quarter 1999 is approximately 20% less than the cost structure
at the end of the third quarter 1998.
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Baan Company is focused on the following key strategies:
- SIMPLIFY THE COMPLEXITY TO REDUCE THE RISK OF TRADITIONAL
IMPLEMENTATION.
Baan Company's core operations management product, BaanERP, is
based on a distributed, client/server architecture that is independent
of hardware, operating system, and database platforms. BaanFrontOffice,
the customer management product family, was developed using Microsoft
development tools and offers a range of browser-based customer
management components. These foundation technologies allow users to
scale their deployments with the changing needs of their organization.
It allows components from Baan or other vendors to be integrated
together as business needs grow and change. The component-based
solution allows customers to quickly implement the solution in
heterogeneous, multisite, multinational environments, and to easily
modify the application components to match exact business needs and
processes.
The Baan Company solution employs a unique approach, called Baan
Dynamic Enterprise Modeling ("DEM"), that enables organizations to
model their own business practices and processes and link these
directly with the functional modules of the software. By modeling their
own business rather than being constrained by prescribed models that
are typical of other enterprise application systems, implementation, as
well as reconfiguration and re-implementation when changes occur, is
easier because of the direct relationship between the business modeling
capabilities and the enterprise applications. BaanDEM comprises a suite
of software implementation tools, methodologies, best business
practices templates, and end-user training solutions, all designed to
speed implementation and make it less complex and easier for the
customer.
The Company expects to continue to provide innovative product
enhancements, new capabilities and approaches -- directly or through
partnerships with others -- to further simplify enterprise applications
implementation and make it cost-effective and achievable for
organizations of all sizes.
- TARGET SMALL TO MEDIUM SIZED ENTERPRISES ("SME") TO BRING BIG
COMPANY CAPABILITIES TO THE MID-MARKET.
Baan is pursuing a strategy of bringing robust enterprise
application functionality to smaller enterprises, generally those with
annual revenues of between $50 million and $350 million.
Baan believes this market has not been well served by traditional
vendors for three reasons.
- The inherent complexity of most competitive products and
implementations. The BaanDEM approach makes it easier to
implement the Company's applications in organizations of all
sizes. In addition, strategic bundling and licensing
agreements with companies such as Microsoft enable Baan to
offer a complete IT solution, from operating systems and
databases to the enterprise applications themselves, again
simplifying implementation for organizations with fewer
resources.
- Products designed for Fortune 500 organizations often are too
complex for smaller organizations. Baan's products can support
from four users up to multiple thousands of users.
- Direct sales and support organizations are often too expensive
to cost-effectively serve mid-market customers. In 1997, BMS
was formed by the Company and Vanenburg
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Ventures B.V. to build and support a more cost-effective
indirect sales and support channel. BMS operated independently
from Baan Company to establish a world-class indirect channel
of distribution comprising consultants, system integrators,
distributors, and authorized value added resellers (VARs). BMS
acquired product from Baan Company and resold that product to
its distributors and resellers, who in turn provided product
to end-user organizations.
In January 1999, Baan Company acquired the core assets of BMS
including all 230+ outstanding reseller contracts and the sales support
channel, bringing management of the indirect channel under the
Company's direct control. Since then, the sales support function for
the indirect channel has been integrated into the Company's geographic
operations to eliminate conflicts between the direct and indirect
channels. See "Item 13 - Interest of Management In Certain
Transactions".
- PURSUE PRODUCT INNOVATION.
As a technology innovator, Baan has made substantial investments
since its inception in research and product development. Research and
development ("R&D") expenses increased from $90.8 million in 1997 to
$151.4 million in 1998. Employees involved in R&D increased from 1,341
at December 31, 1997 to 1,671 at December 31, 1998. The Company has
adopted a strategy of periodically reinventing its products in order to
maintain a leading-edge solution to address changing market needs. Each
new generation of Baan software consists of substantially rewritten
code, providing higher performance and greater functionality.
In 1998, the Company began to deliver a new component-based
Operations Management product architecture. This new architecture
allows easier migration to new product releases and technologies and
provides for easier integration with other Company applications and
with third-party applications. The Company also introduced during 1998
a new, 100% Microsoft-centric, browser-based architecture for its
Customer Management product line. The Company intends to continue to
use a combination of in-house developed and acquired technologies to
address customer requirements.
In April 1999, the Company launched the Baan E-Enterprise suite of
web-enabled enterprise software applications. The suite includes Baan
E-Collaboration, Baan E-Sales and Baan E-Procurement which facilitates
business between the entire value chain of employees, partners,
resellers, and suppliers.
- LEVERAGE THIRD-PARTY IMPLEMENTATION PROVIDERS.
The Company offers consulting programs, resources, and tools for
a broad range of implementation requirements, from multi-site, global
projects to departmental activities. The success of enterprise
applications systems is often tied to highly trained technical
personnel providing implementation and consulting services that enable
customers to rapidly achieve return on their investments. The Company's
2,000 person strong consulting, training and customer services groups
provide many of the services required.
During late 1998, the Company renewed it emphasis on growing the
profitability and predictability of these organizations. Deployment of
consistent methodologies, improved financial controls, and use of
Internet-based solutions have improved levels of quality, customer
satisfaction and profitability. Revenue from these functions tends to
be more predictable since customers sign contracts that often extend
six months or longer. The
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Company is focused on increasing the percentage of total revenue from
these more predictable revenue sources.
Implementation partners provide Baan with additional resources,
allowing the Company to address its customer needs on a global basis.
The Company currently has agreements with a number of leading
third-party implementation providers, including the systems consulting
groups of major public accounting firms such as KPMG Peat Marwick,
Ernst & Young Technologies, and ICS Deloitte & Touche, and systems
integrators such as Cap Gemini Sogeti, IBM Global Services, and Origin
International.
- EXPAND GLOBAL DISTRIBUTION, SALES, SERVICES AND SUPPORT
CAPABILITIES.
Baan continues to expand sales and support services throughout the
major markets of the world primarily through partnerships with
distributors and resellers. This global presence positions Baan both to
address local markets and to support its multinational customers. The
Company has expanded its direct and indirect sales and support
organizations and currently operates in approximately 80 countries.
For the Company as a whole, employees engaged in sales and
marketing and in billable services (including support) at December 31,
1997 were 944 and 1,542, respectively, compared to 978 and 2,001 at
December 31, 1998. As part of its restructuring efforts, the Company
reduced the size of its sales organization in the fourth quarter 1998.
It intends to continue to aggressively monitor the size and performance
of the sales organization and adjust according to market demand.
The Company utilizes both direct and indirect sales channels to
increase the accessible markets in targeted areas, such as certain
supply chain networks. In addition, Baan delivers products and provides
an infrastructure that makes it easy for indirect channel partners to
represent its products and provide local market service and support for
smaller enterprises.
PRODUCTS
Baan has a portfolio of more than 100 software products, including customer
management (sales automation, product configuration and call center products),
corporate management (financial and HR), and operations management (supply
chain, ERP and manufacturing) solutions. Add on modules to support these core
products such as business reporting tools, business modeling tools, and
E-Commerce versions of applications are also available.
- OPERATIONS MANAGEMENT / ENTERPRISE RESOURCE PLANNING SOLUTIONS
BaanERP offers an open systems, client/server ERP solution that operates on
a broad number of platforms. It supports distributed and mirrored databases,
local and wide area networks, and multiple-user interfaces. It also supports
most major languages (including multi-byte technology to support Asian character
sets), and multiple currencies, including support for the Euro. It has been
designed to support, within single or multiple sites, multiple production and
operational processes, permitting the management of multiple production methods,
including integrated process and discrete manufacturing, as well as any
manufacturing model along the "make-to-stock/engineer-to-order" continuum.
Through both acquisitions and product and technology partnerships, Baan has been
able to add what it considers to be best-of-market capabilities to its
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ERP solution. BaanERP itself consists of the core BaanERP application,
Orgware, and Baan Tools.
- BAANERP's standard products, which are Year 2000 and
Euro compliant (as described in Item 9 below),
include integrated software modules for seven broad
areas: manufacturing, constraint-based planning and
scheduling, distribution and transportation, finance,
service management, project management, and process
manufacturing.
- ORGWARE is a set of tools, templates, and
methodologies for business modeling and rapid
software implementation. Orgware is the enabling
technology for Baan's delivery of BaanDEM, which
facilitates implementation, adaptation and
re-implementation of the system as business
conditions change.
- BAAN TOOLS is a fourth-generation language (4GL)
software development toolset used by Baan, its
implementation providers, and end-user customers to
develop and modify Baan Applications.
- SUPPLY CHAIN MANAGEMENT
With its acquisitions of Berclain (1996) and CAPS Logistics (1998), Baan
increased its capabilities in the area of supply chain management, allowing
enterprises to link their operations easily and efficiently with those of their
suppliers. Specifically, Baan offers a constraint-based scheduling and execution
management system that enables coordination of plant-level production decisions
with market demand. In addition, Baan offers World Wide Web-based solutions that
provide the enterprise with connectivity tools enabling the supply and demand
chain to work as a single unit. For example, it allows the automatic generation
of key supply chain transaction reports -- such as stock levels and shipment
status -- that can be transmitted via the Internet when predefined thresholds
are met.
- CUSTOMER MANAGEMENT / FRONT OFFICE SOLUTIONS
Baan added to its customer management product suite in 1997 with the
acquisition of Aurum Software, Inc. and the acquisition of other complementary
products and technologies. Baan has acquired Antalys, Inc. (1996), Beologic A/S
(1997), and Matrix Holding B.V. (1997), providing complementary sales
configuration and sales automation capabilities. Baan believes it now provides
the industry's most complete global front office solution for sales, marketing,
service, and interactive selling. BaanFrontOffice is comprised of the following
core applications:
- BAANCONFIGURATION: offers a comprehensive
collaborative buying and selling environment for
presenting, tailoring, and configuring products to
match customer needs.
- BAANSALES: the first completely browser-based
opportunity management and sales force automation
application. Offers sales management, contact
management, sales forecasting and reporting and more
for global sales teams.
- BAANENTERPRISE INTEGRATION: enables the integration
of customer-interaction information for the entire
Front Office product line with back-office processes
such as order processing, manufacturing, and
distribution. Offers integration with all leading
back office systems including Baan, Oracle, and SAP.
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- BAANSERVICE: (formerly part of BaanMSO or
maintenance, service, and overhaul) offers full field
service capabilities for organizations to service a
variety of manufactured products at customer or
end-user sites.
- CORPORATE MANAGEMENT SOLUTIONS
Baan has expanded its corporate management offering through the acquisition
of CODA Financials and has established strategic relationships with other
software vendors to provide a comprehensive Corporate Management product suite.
This suite includes financial packages for planning, budgeting, forecasting,
consolidation, and business analysis (Hyperion Software), advanced engineering
and procurement monitoring and management (Aspect Development), and advanced
human resources and payroll management (Meta4).
PRODUCT DEVELOPMENT
The Company's research and development comprised a research group of 70
employees and a development group of 1,601 employees at December 31, 1998. The
research group evaluates new and emerging technologies and methodologies. The
organization develops prototypes to test the practical use of new concepts and
helps determine how these concepts might be introduced into the Company's
products. Research areas include intelligent resource planning, object-oriented
technologies and functionality, money requirements planning, logistics tools,
performance tools, and extensions to Orgware to more closely integrate software
to the customer's organization.
The development group's activity is structured around multiple small teams.
The Company employs concurrent engineering principles to ensure various product
elements are kept in line with the whole product strategy and architecture.
Development activities occur 24 hours-a-day among the Company's development
sites across 11 countries. This distributed approach to development allows Baan
to leverage the best software development talent and expertise around the world.
Based on industrial production principles, each team focuses on the development
of independent software components within a disciplined set of protocols that
enable the components to work together as a final product. This enables the
Company to manage the overall process in incremental elements and to track
performance, identify problem areas, and add additional resources where
necessary.
The Company also maintains detailed release planning procedures to ensure
integration, testing, and version control among different teams developing a
single release. This team approach also allows development activity to be
decentralized in order to take advantage of skill sets available in different
parts of the world and to enable local requirements to be addressed near the
markets where they are best understood. Development activities are performed
primarily in The Netherlands, India, Denmark, United Kingdom, and the United
States, with additional teams in six other countries around the world.
The Company's development organization is focusing on enhancements and
customary error corrections to existing product 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
utilizes 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.
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SALES AND MARKETING
The Company sells and supports its products through direct and indirect
sales and support organizations in 80 countries. In addition to its corporate
headquarters in Barneveld, The Netherlands, and Reston, Virginia, United States
of America, the Company maintains regional offices in Europe and Asia. The
Company has direct sales offices in approximately 30 countries and also
maintains independent distributors that market the Company's products and
provide first-line support in over 50 countries.
In 1998, the Company had net revenues from unaffiliated customers of $337.2
million in its EMEA region, consisting of Europe, the Middle East and Africa,
$286.2 million in North America, and $61.6 million in the rest of the world.
This compares to 1997 net revenues of $253.4 million in the EMEA region, $277.4
million in North America, and $82.4 million in the rest of the world.
During 1997 and 1998, the Company made strategic decisions to increase the
proportion of its sales which are generated and managed through indirect
channels, rather than Company-funded and managed direct sales and support
activities. Accordingly, through BMS the Company built an indirect channel to
serve the SME (small to medium sized enterprises) market segment as a key
element of the Company's strategy. By supporting a network of complementary
channel partners, including consultants, system integrators and value added
resellers (VARs) dedicated to these customers, Baan's goal is to deliver and
support its products to the SME market on a more efficient and cost effective
basis and thereby increase its SME market penetration. The Company believes that
the ability to continue to minimize product complexity, improve ease-of-use,
facilitate implementation, and provide quality service and support through
qualified partners is key to success in the SME market segment.
The Company's indirect channel has increased from 15 channel partners in
1996 covering two countries, The Netherlands and Germany, to over 230 channel
partners covering over 15 countries, including the United States, Canada, much
of Europe, and countries in the Asia Pacific region.
CUSTOMERS
As of December 31, 1998, the Company had licensed approximately 12,000
system installations to more than 6,300 customers worldwide. Customers range
from four users to more than 25,000 users, which the Company believes
demonstrates Baan's capability to deliver a solution for both the SME and large
companies in the ERP market. In addition, Baan's customer base represents the
full range of platform support, including database, hardware, and operating
system platforms.
Customers Include:
PROCESS INDUSTRIES
BHP
Boise Cascade
General Mills
Quaker Oats
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Usinor
MANUFACTURING
ABB
Andersen Windows
Avery Dennison
Herman Miller
Hilti
AUTOMOTIVE
Echlin
Fiat
Mercedes Benz
Paccar
Volvo
HIGH-TECH/ELECTRONICS /SEMICONDUCTOR
Flextronics International
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Hewlett-Packard
Hitachi
Motorola
Solectron
AEROSPACE AND DEFENSE
BF Goodrich Aerospace
Boeing
Delta Airlines/Delta Technologies
Litton Electron Devices
Lockheed Martin
PROJECTS (HEAVY EQUIPMENT, HYBRID MANUFACTURING)
BW/IP International
Carrier
Caterpillar
EUCLID-HITACHI Heavy Equipment
Grief Brothers
UTILITIES AND ENERGY
Los Angeles Department of Water and Power
Ohio Edison
Osaka Gas
Pacific Gas & Electric
Western Power
TELECOMMUNICATIONS
AT&T
Cegetel
Nortel
KPN Dutch Telecom
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Telecom Italia
FINANCIAL SERVICES/INSURANCE
American Data Processing
Barclay's Bank
Met Life
Prudential
UBS
TRANSPORTATION AND LOGISTICS
BAX Global
Consolidated Freightways
Federal Express
Ocean Group/MSAS
TNT Logistics
PETRO-CHEMICALS
Air Products
Ashland Chemicals
BOC Group
Eastman Kodak
Elf Atochem
RETAIL
IKEA
Peapod
Sears
Toys R Us
Wal-Mart Stores
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No customer accounted for 10% or more of total revenues in 1996, 1997, or 1998.
GLOBAL SERVICES AND SUPPORT
The Company believes that it is essential to customer satisfaction and the
Company's long-term success to facilitate the full and satisfactory
implementation of the Company's products at customer sites. Accordingly, the
Company provides a full range of value-added consulting, education and support
services directly to certain end-user customers, including project management to
promote rapid and efficient software implementation, product consultancy, and
technical support. The Company integrates these activities utilizing
relationships with leading third-party providers of business process consulting
and implementation and customization services for enterprise application
systems. As of December 31, 1998, the Company had 2,001 employees in its
customer support and services organization.
Customer Support: The Company's Baan Support Centers provide technical
maintenance and support to Baan's customers and distributors. Maintenance and
support includes 24-hour customer support. The Baan Global Support organization
consists of three main centers, located in Ede, The Netherlands; Grand Rapids,
Michigan, USA; and Bombay, India, with auxiliary operations throughout the world
including Canada, Brazil, Germany, UK, and Japan. This presence helps the
Company support customers and partners in different regions, language areas and
time zones worldwide. The support centers are closely integrated with the
Company's development organization.
The Company provides maintenance and support services for an annual fee
that entitles customers to receive maintenance and support services as well as
enhancements and updates to their licensed version of software.
Consulting Services: The Company provides a full range of fee-based
consulting services, including enterprise modeling, project/program management,
application consulting, and technical consulting to its customers. Baan's
strategy is to focus on those services that are believed to provide significant
value with respect to the quality of implementation projects, while relying upon
third parties to provide generic implementation services and customization
services to customers. At year-end, Baan had more than 250 third-party
consulting partners with more than 14,000 trained consultants on staff,
supplementing Baan's own consulting experts.
In addition, the Company has implemented a 24 hours-per-day World Wide
Web-based support service, called Baan CyberConsult, that allows customers and
partners to obtain a significant amount of support electronically. Customers can
enter requests and questions, check on the status of service calls, use a
knowledge base with frequently-asked questions and obtain technical
documentation.
Education and Training: The Company offers fee-based education and training
to its customers and to the Company's third-party implementation providers. It
has educational services and products available in 20 countries and several
languages. Its curriculum and instructional approach focuses on providing
solutions that address two key areas of customer need: (a) decreasing the time
to competency for those who will implement and maintain the system, and (b)
increasing the performance of employees who will use the new applications.
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<PAGE> 16
Classes are offered through in-house facilities at Company offices in
various locations, as well as on-site at customer locations. The Company's
training approach is based on standardized components that can be configured for
customer-specific training programs. The Company has also assisted
implementation providers and customers in developing internal competency centers
to support their Baan business activity.
COMPETITION
The enterprise business application software market is highly competitive,
is changing rapidly, and is significantly affected by new product introductions,
geographical regional market growth, integration of supply chain networks, and
issues related to policy such as the Euro requirements and the year 2000 date
change. Baan's products are targeted at the market for open systems, client
server and enterprise business software solutions. The Company's current and
prospective competitors offer a variety of products and solutions to address
this market.
In its traditional ERP manufacturing markets, the Company's primary
competition comes from a large number of independent software vendors and other
sources, including:
- (i) companies offering either standard or fully customized
applications that run on mainframe computer systems, such as
SAP Aktiengesellschaft ("SAP");
- (ii) companies offering applications that run on AS/400 and
other mid-range computers, including System Software
Associates, Inc., Marcam Corporation, and J.D. Edwards (each
of which has introduced a client/server product); and
- (iii) companies offering applications that run on UNIX- or
Windows NT-based systems in a client/server environment such
as SAP, Oracle Corporation ("Oracle"), and PeopleSoft, Inc.
("PeopleSoft").
For its other products, including customer management (sales automation and
configuration), supply chain, and corporate management (human resources and
financials), the Company competes with a number of companies, including Siebel
Systems, Trilogy Development Group, i2 Technologies, Manugistics, and
PeopleSoft.
The Company also faces indirect competition from suppliers of
custom-developed business application software that have focused mainly on
proprietary mainframe and minicomputer-based systems with highly customized
software, such as the systems consulting groups of the major public accounting
firms, as well as systems integrators. Additionally, the Company faces indirect
competition from legacy systems developed by the internal MIS departments of
large organizations. In the future, the Company's competitors could introduce
products with more features and lower prices than the Company's products, and
could also seek competitive advantage by bundling existing or new products and
services with other, more established products and services.
As the company pursues its strategy to more aggressively target the SME
market segment and to expand into enterprise applications beyond the traditional
ERP solutions, it expects to have additional competitors from both a number of
smaller companies that offer such applications for the SME market segment, as
well as established ERP vendors, such as SAP and Oracle.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing, and other resources than
the Company, greater name recognition, and a larger installed base of customers.
In addition, certain competitors, including SAP, Oracle
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<PAGE> 17
and PeopleSoft, have well-established relationships with present or potential
customers of the Company. Furthermore, companies with significantly greater
resources than the Company could attempt to increase their presence in this
market by acquiring or forming strategic alliances with competitors of the
Company, and such companies may be in better position to withstand and respond
to the current factors impacting the ERP market.
The principal competitive factors affecting the market for the Company's
software products are responsiveness to customer needs, product architecture,
functionality, speed of implementation, ease of use, performance and features,
quality and reliability, breadth of distribution, vendor and product reputation,
quality of customer support, and price. Based on these factors, the Company
believes it has competed effectively to date. In order to be successful in the
future, the Company must continue to respond promptly and effectively to the
challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings or adding to its product
portfolio. There can be no assurance, however, that the Company's products will
continue to compete favorably or that the Company will be successful in the face
of increasing competition from new products and enhancements introduced by
existing competitors or by new companies entering this market. In addition,
because the Company often relies on third-party implementation providers for
implementation and other support of its products, there can be no assurance that
these third parties will maintain sufficiently high quality standards so that
the Company's reputation and competitive position will not be adversely
affected.
The Company relies on a number of systems consulting and systems
integration firms for implementation and other customer support services, as
well as for recommendations of its products during the evaluation stage of the
purchase process. Although the Company seeks to maintain close relationships
with these third parties, many of them have similar, and often more established,
relationships with the Company's principal competitors. If the Company is unable
to develop and retain effective, long-term relationships with these third
parties, it would adversely affect the Company's competitive position.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies on a combination of the protections provided by
applicable copyright, trademark and trade secret laws, as well as
confidentiality procedures, licensing arrangements, and software-based license
management, to establish and protect its rights in its software. Despite the
Company's efforts, it may be possible for third parties to copy certain portions
of the Company's products or reverse engineer or obtain and use information that
the Company regards as proprietary. In addition, the laws of certain countries
do not protect the Company's proprietary rights to the same extent as do the
laws of the United States or The Netherlands. Accordingly, there can be no
assurance that the Company will be able to protect its proprietary software
against unauthorized third party copying or use, which could adversely affect
the Company's competitive position.
The Company licenses Baan products to end-users under license agreements
which generally allow the end-user to use the Baan products solely for the
end-user's internal purposes, and the end-user is generally prohibited from
sublicensing or transferring the Baan products. The agreements generally provide
that the Company's warranty for Baan products is applicable for a limited period
of time and is limited to correction or replacement of the affected product.
Generally, the end-user may terminate the license agreement at any time,
although typically the end-user remains responsible for any accrued and unpaid
license fee.
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<PAGE> 18
Baan products are not only licensed to end-users by the Company, but also by
independent third-party distributors. Although the Company seeks to establish
the conditions under which Baan products are licensed by such distributors to
end-users, the Company cannot assure that such distributors do not use other
conditions.
The Company from time to time receives notices from third parties claiming
that the Company's products infringe third-party proprietary rights. Such claims
could result in litigation against the Company claiming patent or other
intellectual property infringement by the Company. Such litigation involves
complex technical issues and inherent uncertainties and the Company may not
prevail in any such litigation. Any such claim, with or without merit, could be
time-consuming, could result in costly litigation and could require the Company
to enter into costly royalty and licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. If such claim against the Company is successful and the
Company is not able to develop or license a substitute technology, the Company
would be required to cease sale of the infringing product or products, which
could materially and adversely affect the Company's business and operating
results.
EMPLOYEES
As of December 31, 1998, the Company had 5,101 full-time employees, of
which 1,671 were engaged in research in development, 978 in sales and marketing,
2,001 in consulting, education and customer support services, and 451 in finance
and general administration. Full-time employees in 1997 and 1996 were 4,254 and
2,568, respectively. In The Netherlands, certain of the Company's employees are
represented by statutory Works Councils. A Works Council, required under
Netherlands law to be established by a company with more than a specified number
of employees, is an independent body elected by the employees of a business. In
general, the employer is required to seek the approval and/or advice of the
Works Council before proceeding with making certain significant decisions
affecting the employees and the business. None of the Company's employees is
represented by any collective bargaining agreements and the Company has never
experienced a work stoppage.
ITEM 2. PROPERTIES
The Company's executive offices are located in Barneveld, The Netherlands
and in Reston, Virginia with its statutory seat at Barneveld, The Netherlands.
The Company also has direct sales offices in 30 countries. The Company leases
its office and research and development facilities with leases of various
duration. Certain of these properties are leased from affiliates of the Company.
The Company believes that its existing and currently planned domestic and
international facilities will be sufficient to meet its needs for at least the
next twelve months. See Note 12 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
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 adverse 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.
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<PAGE> 19
In October of 1998, the Company and certain of its current or former
officers and directors were named as defendants in a purported shareholder class
action lawsuit entitled Salerno v. Baan Company N.V. et al., which was brought
in the United States District Court for the District of Columbia. Six additional
purported shareholder class action lawsuits were subsequently brought, each in
the same court with substantially similar allegations: that the Company
allegedly violated certain of the U.S. securities laws by making purportedly
false and misleading statements about the Company's operations during the period
from, in or around the end of January 1998 through mid-October 1998.
On February 16, 1999, the Court consolidated the actions and, as a
consequence, plaintiffs' leave to file a consolidated amended complaint has been
granted. Plaintiffs' motion for appointment of lead plaintiffs and lead counsel
remains pending. The Company has retained outside counsel and intends to
vigorously defend. See Note 12 of Notes to Consolidated Financial Statements.
ITEM 4. CONTROL OF REGISTRANT
To the Company's knowledge, it is not owned or controlled by another
corporation or by any foreign government. The table below sets forth certain
information with respect to the beneficial ownership of Common Shares as of
April 9, 1999 by (i) any person known to the Company to be the owner of more
than ten percent of the Common Shares, and (ii) the total amount of Common
Shares owned by all officers and directors as a group:
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (2) OWNED
------------------------------------ ------------ ------------
<S> <C> <C>
NAME AND ADDRESS OF BENEFICIAL OWNER
Vanenburg Ventures B.V. (1) ........................... 41,312,407 20.12%
Vanenburgerallee 13
PO Box 231
3880 AE Putten
The Netherlands
All directors and
Executive officers as a group (16 persons)(3) ......... 4,521,388 2.20%
</TABLE>
- ----------------
(1) Shares exclude shares owned by Jan Baan and J.G. Paul Baan.
(2) Applicable percentage of ownership is based on the approximate number
of Common Shares outstanding as of April 9, 1999, together with the
applicable options for each 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 currently exercisable
within 60 days after April 9, 1999, are deemed outstanding for
computing the percentage ownership of the person holding such options,
but are not deemed outstanding for computing the percentage of any
other person.
(3) Includes 5,167,908 shares issuable upon exercise of options to purchase
Common Shares granted to executive officers and directors of the
Company which are exercisable within 60 days after April 9, 1999.
ITEM 5. NATURE OF TRADING MARKET
The Company's Common Shares are quoted on the NASDAQ National Market under
the symbol "BAANF" and on the Official Market of the Amsterdam Stock Exchange
under the symbol "Baan". The following table lists the high and low closing
prices since the Company's Common Shares began
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<PAGE> 20
trading on the NASDAQ National Market on May 19, 1995 and began trading on the
Official Market of the Amsterdam Stock Exchange on May 23, 1995, after giving
effect for two-for-one stock splits that were effective May 1996 and December
1997.
<TABLE>
<CAPTION>
NASDAQ NATIONAL AMSTERDAM STOCK
MARKET (US$) EXCHANGE (NLG)
---------------------------- --------------------------
HIGH LOW HIGH LOW
--------- -------- ----- -----
<S> <C> <C> <C> <C>
Fiscal 1997:
First Quarter ............ 25 11/16 17 7/16 47.70 30.50
Second Quarter ........... 34 7/8 21 5/16 66.85 41.00
Third Quarter ............ 40 13/16 28 9/16 81.75 60.50
Fourth Quarter ........... 39 31 9/16 78.00 64.35
Fiscal 1998:
First Quarter ............ 50 1/4 28 3/4 103.90 62.60
Second Quarter ........... 55 1/2 35 1/2 108.70 73.10
Third Quarter ............ 43 5/8 25 1/8 89.60 47.90
Fourth Quarter ........... 24 3/4 9 1/2 48.00 17.30
</TABLE>
On December 31, 1998, the exchange rate of Dutch Guilders into the "Euro"
currency unit was NLG 2.20371/Euro.
On April 30, 1999, the closing price of the Company's Common Shares was
$9.38 per share as reported by the NASDAQ National Market. On April 29, 1999,
the last trading day in the month of April, the closing price as reported by the
Official Market of the Amsterdam Stock Exchange was NLG 20.16.
On April 30, 1999, the exchange rate of Dutch guilders into U.S. dollars
(the New York foreign exchange selling rate) was NLG 2.0829/$1.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITIES HOLDERS
There are currently no limitations either under the laws of The Netherlands
or in the Company's Articles of Association, to the rights of shareholders from
outside The Netherlands to hold or vote Common Shares. Cash distributions, if
any, payable in Dutch guilders may be officially transferred from The
Netherlands and converted into any other currency without Netherlands legal
restrictions, except that for recording purposes such payments and transactions
must be reported by the Company to the Netherlands Central Bank.
ITEM 7. TAXATION
The following is a summary of certain Netherlands and U.S. federal income
tax consequences relating to an investment in the Company's Common Shares. This
summary does not deal with all possible tax consequences relating to holding the
Company's Common Shares. In particular, the discussion does not address the tax
consequences under state, local and other (e.g., non-U.S. or non-Netherlands)
tax laws, nor does it address special circumstances that may apply to any
individual investor. Accordingly, each prospective investor should consult its
tax advisor regarding the tax consequences to it of an investment in the Common
Shares. The following discussion is based upon analysis of the statutory law and
regulations, case law, and published rulings, of the U.S. and The Netherlands.
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<PAGE> 21
The anticipated tax consequences are subject to change, and such change may
be retroactively effective. If so, the following summary may be affected and may
not be relied upon. Further, any variation or differences from the facts or
representations recited herein, for any reason, might affect the following
discussion, perhaps in an adverse manner, and make them inapplicable. In
addition, the Company has undertaken no obligation to update this discussion for
changes in facts or laws occurring subsequent to the date thereof.
The summary represents solely the views of the Company as to the
interpretation of existing law and, accordingly, no assurance can be given that
the tax authorities or courts in the U.S. or The Netherlands will agree with the
summary hereafter.
NETHERLANDS TAXATION
The following is a summary of The Netherlands tax consequences to an owner
of Common Shares who is not, and is not deemed to be, a resident of The
Netherlands for purposes of the relevant tax codes (a "non-resident
Shareholder"). The summary does not address taxes imposed by The Netherlands and
its political subdivisions other than the dividend withholding tax, individual
income tax, corporate income tax, net wealth tax, and gift and inheritance tax.
NETHERLANDS' DIVIDEND WITHHOLDING TAX
The Company does not expect to pay dividends in the foreseeable future. If
dividends were distributed by the Company, such dividends would be subject under
Netherlands' tax law to withholding tax at a rate of 25%. Dividends include
dividends in cash or in kind, constructive dividends and liquidation proceeds in
excess of recognized paid-in capital. Stock dividends are also subject to
withholding tax unless distributed out of the Company's paid-in share premium as
recognized for Netherlands tax purposes.
A non-resident Shareholder can be eligible for a reduction or a refund of
The Netherlands dividend withholding tax under a tax convention which is in
effect between the country of residence of the non-resident Shareholder and The
Netherlands. The Netherlands has concluded such conventions with, among others,
the United States and all members of the European Union except Portugal. Under
most of these conventions, The Netherlands' dividend withholding tax is reduced
to a rate of 15% or less unless the recipient shareholder has a permanent
establishment in The Netherlands to which the Common Shares are attributable.
No withholding tax applies on the sale or disposition of Common Shares to
persons other than the Company and affiliates of the Company.
INCOME TAX AND CAPITAL GAINS
A Shareholder will not be subject to The Netherlands' income tax with
respect to dividends distributed by the Company on the Common Shares or with
respect to capital gains derived from the sale or disposal of Common Shares in
the Company, provided that:
(i) such holder is neither resident nor deemed to be resident
in The Netherlands;
(ii) such holder does not have an enterprise or an interest in
an enterprise that is, in whole or in part, carried on
through a permanent establishment or a permanent
representative in The Netherlands and to which enterprise
or part of an enterprise, as the case may be, the Common
Shares are attributable; and
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<PAGE> 22
(iii) such holder does not have a substantial interest or a
deemed substantial interest in the share capital of the
Company or, if such holder does have such an interest, it
forms part of the assets of an enterprise.
Generally, a holder of Common Shares will not have a substantial interest
if he, his spouse, certain other relatives (including foster children), or
certain persons sharing his household, do not hold, alone or together, directly
or indirectly, the ownership of or certain other rights over, shares
representing five per cent or more of the total issued and outstanding capital
(or the issued and outstanding capital of any class of shares) of the Company. A
deemed substantial interest is present if (part of) a substantial interest has
been disposed of, or is deemed to have been disposed of, on a non-recognition
basis.
NET WEALTH TAX
A Shareholder will not be subject to The Netherlands' net wealth tax in
respect of the Common Shares provided that such Shareholder is not an individual
or, if he is an individual, the conditions described in clauses (i) and (ii) of
the proviso under "Income Tax and Capital Gains" are satisfied.
GIFT, ESTATE OR INHERITANCE TAXES
No gift, estate or inheritance taxes will arise in The Netherlands with
respect to an acquisition of Common Shares by way of a gift by, or the death of,
a Shareholder who is neither resident nor deemed to be resident in The
Netherlands, unless (i) such Shareholder at the time of the gift has or at the
time of his death had an enterprise or an interest in an enterprise that is or
was, in whole or in part, carried on through a permanent establishment or a
permanent representative in The Netherlands and to which enterprise or part of
an enterprise, as the case may be, the Common Shares are or were attributable,
or (ii) in the case of a gift of Common Shares by an individual who at the date
of the gift was neither resident nor deemed to be resident in The Netherlands,
such individual dies within 180 days after the date of the gift while being
resident or deemed to be resident in The Netherlands.
U.S. FEDERAL INCOME TAXATION
For purposes of this summary, a "U.S. Shareholder" is any Shareholder that
is (i) a citizen or resident of the United States, (ii) a corporation,
partnership, or other entity created or organized in or under the laws of the
United States (or any State thereof, including the District of Columbia), or
(iii) an estate or trust the income of which is subject to United States federal
income taxation regardless of its source. A "Non-U.S. Shareholder" is any
Shareholder that is not a U.S. Shareholder.
TAXATION OF DIVIDENDS
The gross amount (before reduction for withholding taxes) of a distribution
with respect to the Common Shares will be a dividend to a U.S. Shareholder,
taxable as ordinary income, to the extent of the Company's current or
accumulated earnings or profits (as determined under U.S. federal income tax
principles). Distributions paid by the Company in excess of current or
accumulated earnings and profits will be treated as a tax-free return of capital
to the extent of the U.S. Shareholder's adjusted tax basis in his or her Common
Shares, and thereafter as a gain from the sale or exchange of a capital asset.
These dividends are generally not eligible for the
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<PAGE> 23
dividends-received deduction otherwise allowed to U.S. corporate shareholders on
dividends from U.S. domestic corporations. The amount of any distribution paid
in guilders will be equal to the U.S. dollar value of the guilders on the date
of receipt, regardless of whether the U.S. Shareholder converts the payment into
U.S. dollars. Gain or loss, if any, recognized by a U.S. Shareholder on the sale
or disposition of guilders will be U.S. source ordinary income or loss.
A U.S. Shareholder may elect annually either to deduct The Netherlands
withholding tax (see "Netherlands Taxation") against its income or take the
withholding taxes as a credit against its U.S. tax liability, subject to U.S.
foreign tax credit limitation rules. Dividend income will be income from sources
outside the United States for foreign tax credit limitation purposes. Dividend
income generally will be either " passive" income or "financial services"
income, depending on the particular U.S. Shareholder's circumstances.
Payments of dividends on the Common Shares to a Non-U.S. Shareholder
generally will not be subject to U.S. federal income tax unless such income is
effectively connected with the conduct by such Non-U.S. Shareholder of a trade
or business in the United States.
DISPOSITIONS OF COMMON SHARES
A U.S. Shareholder will recognize gain or loss for U.S. federal income tax
purposes upon the sale or other disposition of Common Shares in an amount equal
to the difference between the amount realized and the U.S. Shareholder's tax
basis in the Common Shares. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss provided that the Common Shares have been
held (or deemed held) for more than 12 months.
Gain realized by a Non-U.S. Shareholder upon the sale or other disposition
of Common Shares generally will not be subject to U.S. federal income tax unless
(i) the gain is effectively connected with the conduct by such Non-U.S.
Shareholder of a trade or business in the United States or (ii) the Shareholder
is an individual who was present in the United States for at least 183 days in
the taxable year of such sale, exchange or retirement and provided that certain
other conditions are met.
PASSIVE FOREIGN INVESTMENT COMPANIES
The Company may be classified as a "passive foreign investment company"
("PFIC") for United States federal income tax purposes if certain tests are met.
The Company will be a PFIC with respect to a U.S. Shareholder if for any taxable
year in which the U.S. Shareholder held the Company's Shares, either (i) 75% or
more of the gross income of the Company for the taxable year is passive income;
or (ii) the average value during the taxable year of its passive assets (i.e.,
assets that produce passive income or which are held for the production of
passive income) is at least 50% of the average fair market value of all of the
Company's assets for such year. Passive income generally includes dividends,
interest, royalties, rents (other than rents and royalties derived in the active
conduct of a trade or business and not derived from a related person),
annuities, and gains from assets which would produce such income other than
sales of inventory.
For the purpose of the PFIC tests, if a foreign corporation owns directly
or indirectly at least 25% by value of the stock of another corporation, the
foreign corporation is treated as owning its proportionate share of the assets
of the other corporation, and as if it had received directly its proportionate
share of the income of such other corporation. The effect of this special
provision with respect to the Company and its direct and indirect ownership of
its subsidiaries is that the Company, for purposes of the income and assets
tests described above, will be treated as owning
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<PAGE> 24
directly its proportionate share of the assets of the subsidiaries and of
receiving directly its proportionate share of each of those companies' income,
if any, so long as the Company owns, directly or indirectly, at least 25% by
value of the particular company's stock. Active business income of the Company's
subsidiaries will be treated as active business income of the Company, rather
than as passive income.
If the Company were to be classified as a PFIC, a U.S. Shareholder would be
subject to various adverse U.S. tax consequences. Such adverse consequences
include an interest charge on taxes deemed deferred by them on receipt of
certain "excess" dividend distributions by the Company to the U.S. Shareholder
and on realization of gain upon disposition of any of the U.S. Shareholder's
Company stock (all of which distributions and gains would be taxable as ordinary
income at the highest marginal rate). However, the foregoing interest charge
could be avoided if a U.S. Shareholder were to make a qualified electing fund
("QEF") election and the Company were to agree to comply with certain reporting
requirements. If a QEF election were made, the U.S. Shareholder would be
currently taxable on the U.S. Shareholder's pro rata share of the Company's
ordinary earnings and profits and long-term capital gains for each year (at
ordinary income or capital gains rates, respectively), even if no dividend
distributions were received. Based on the nature of the Company's expected
income and assets, management does not expect that the Company will be
classified as a PFIC in the foreseeable future.
FOREIGN PERSONAL HOLDING COMPANIES
The Company or any of its non-U.S. subsidiaries may be classified as a
"foreign personal holding company" ("FPHC") if in any taxable year five or fewer
persons who are U.S. citizens or residents own (directly or constructively
through certain attribution rules) more than 50% of the Company's stock (a "U.S.
group") and at least 60% of the gross income of the Company or the subsidiary
consists of passive income for purposes of the FPHC rules. Because substantially
all of the Company's income is likely to consist of dividends from subsidiaries,
which generally is passive income for purposes of the FPHC rules, it is likely
to meet the income test. Similarly, if more than 60% of the gross income of a
non-U.S. subsidiary of the Company were to consist of dividends, interest,
royalties (other than active business computer software royalties) or other
types of passive income, the subsidiary would meet the FPHC income test.
If the Company or any of its subsidiaries is or becomes a FPHC, each U.S.
Shareholder of the Company (including a U.S. corporation) who held stock in the
Company on the last day of the taxable year of the Company, or, if earlier, the
last day of its taxable year on which a U.S. group existed with respect to the
Company, would be required to include in gross income as a dividend such
shareholder's pro rata portion of the undistributed FPHC income of the Company
or the subsidiary, even if no cash dividend were actually paid. In such case, a
U.S. Shareholder would be entitled to increase its tax basis in the shares of
the Company by the amount of the deemed dividend. If a subsidiary of the Company
were the FPHC, a U.S. Shareholder in the Company should be afforded similar
relief, although the law is unclear as to the form of the relief.
Although the Company believes that at the present time no U.S. group
exists, the Company can give no assurances regarding future ownership of Company
shares which could result in the creation of a U.S. group and thus cause the
Company to be treated as a FPHC. Moreover, the Company can give no assurance
that it will have timely knowledge of the formation of a U.S. group. In this
regard, the Company does not assume any obligation to make timely disclosure
with respect to such status.
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<PAGE> 25
If the Company becomes a FPHC, a U.S. person who acquires shares from a
decedent would obtain a tax basis equal to the lesser of the fair market value
of the shares at the date of decedent's death or the basis in the hands of the
decedent.
As noted above, certain U.S. tax consequences depend on the composition of
the income of the Company and its subsidiaries. The tax law is not entirely
clear as to the proper classification of all relevant types of income that the
Company and its subsidiaries may realize. Accordingly, there can be no assurance
that management's expectations described in the preceding section will be
fulfilled.
STATE AND LOCAL TAXES
State and local tax treatment may differ from federal income tax treatment.
Each U.S. Shareholder should seek tax advice with respect to applicable state
and local taxes.
ITEM 8. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and Notes
thereto and other financial information included elsewhere in this Form 20-F.
The statement of operations data set forth below for the years ended December
31, 1996, 1997 and 1998 and the balance sheet data as of December 31, 1997 and
1998 have been derived from the audited Consolidated Financial Statements of the
Company included elsewhere in this Form 20-F. The statement of operations data
for the years ended December 31, 1994 and 1995 and the balance sheet data at
December 31, 1994, 1995 and 1996 have been derived from audited financial
statements not included herein. The operating results for any period are not
necessarily indicative of results for any future period. All accompanying
consolidated financial statements have been restated to reflect the pooling of
interests of the Company and Aurum Software, Inc., which was acquired in August
1997. Certain prior period amounts have been reclassified to conform to the
current year presentation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues(1):
License revenue ............................ $ 63,704 $ 118,894 $ 226,135 $ 367,101 $ 285,778
License revenue from related parties ....... -- -- 14,532 66,325 50,600
--------- --------- --------- --------- ---------
Total license revenues ................... 63,704 118,894 240,667 433,426 336,378
Maintenance and service revenue ............ 65,132 107,791 174,875 246,170 399,271
--------- --------- --------- --------- ---------
Total net revenues ....................... 128,836 226,685 415,542 679,596 735,649
--------- --------- --------- --------- ---------
Cost of revenues:
Cost of license revenue .................... 3,397 6,678 14,442 31,212 30,741
Cost of maintenance and service revenue .... 50,931 86,888 143,746 189,871 302,063
--------- --------- --------- --------- ---------
Total cost of revenues ................... 54,328 93,566 158,188 221,083 332,804
--------- --------- --------- --------- ---------
Gross profit ................................. 74,508 133,119 257,354 458,513 402,845
--------- --------- --------- --------- ---------
Operating and non-recurring expenses:
Sales and marketing ........................ 44,847 62,901 102,191 171,572 272,497
Research and development ................... 10,233 21,004 45,843 90,849 151,369
General and administrative ................. 14,225 30,091 49,136 72,489 156,148
Asset write-downs .......................... 486 -- -- 3,393 36,899
Loss on disposal of assets ................. -- -- -- -- 58,030
</TABLE>
24
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C>
Restructuring and other charges ............ 3,686 -- -- 8,675 59,972
--------- --------- --------- --------- ---------
Total operating expenses ................. 73,477 113,996 197,170 346,978 734,915
--------- --------- --------- --------- ---------
Income (loss) from operations ................ 1,031 19,123 60,184 111,535 (332,070)
Net interest and other income (expense) ...... (1,074) 1,593 (317) 1,975 (3,122)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and minority
Interest ................................... (43) 20,716 59,867 113,510 (335,192)
Provision (benefit) for income taxes ......... 2,171 9,817 23,255 36,354 (20,000)
Minority interest in earnings of consolidated
Subsidiaries ............................... (976) (72) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) ............................ $ (3,190) $ 10,827 $ 36,612 $ 77,156 $(315,192)
========= ========= ========= ========= =========
Net income (loss) per share(2)
Basic ...................................... $ (0.02) $ 0.07 $ 0.20 $ 0.40 $ (1.59)
Diluted .................................... $ (0.02) $ 0.06 $ 0.19 $ 0.37 $ (1.59)
Shares used in per share calculation (2)
Basic ...................................... 158,679 164,929 179,512 190,842 198,519
Diluted .................................... 158,679 182,866 196,496 206,071 198,519
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities ......... $ 9,402 $ 38,522 $240,853 $216,264 $206,831
Working capital .......................................... 6,320 73,945 304,863 309,441 123,871
Total assets ............................................. 83,331 196,416 496,973 722,409 823,151
Long-term debt, less current portion ..................... 2,375 1,835 176,260 200,718 191,013
Shareholders' equity ..................................... 18,731 117,948 203,016 290,465 156,760
Dividends paid ........................................... -- -- -- -- --
</TABLE>
- -----------------
(1) See Note 10 of Notes to Consolidated Financial Statements for information
concerning transactions with related parties.
(2) See Note 1 of Notes to Consolidated Financial Statements. The weighted
average shares outstanding calculations have been restated because of the
adoption of Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion in the section "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains trend
analysis and other forward-looking statements that are subject to risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such differences include but are not limited to, those
set forth under "Risk Factors" and elsewhere in this Form 20-F.
ANNUAL RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total net revenues represented by certain items reflected in the Company's
statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenues ....................... 100% 100% 100%
Cost of revenues ................... 38 33 45
---- ---- ----
Gross profit ....................... 62 67 55
---- ---- ----
Operating expenses:
Sales and marketing .............. 25 25 37
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
Research and development ......... 11 13 21
General and administrative ....... 12 11 21
Non-recurring expenses ........... -- 2 21
---- ---- ----
Total operating expenses . 48 51 100
---- ---- ----
Income from operations ............. 14 16 (45)
Provision (benefit) for income taxes 6 5 (3)
---- ---- ----
Net income ......................... 9% 11% (42)%
==== ==== ====
</TABLE>
NET REVENUES. The following table sets forth, for the periods indicated,
revenues by category and the percentage of total net revenues represented by
each such category:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 1998
--------------------- --------------------- ---------------------
$ % $ % $ %
-------- -------- -------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Total license revenue .............. $240,667 58% $433,426 64% $336,378 46%
Maintenance and service revenue .... 174,875 42 246,170 36 399,271 54
-------- -------- -------- -------- -------- --------
Total net revenues ......... $415,542 100% $679,596 100% $735,649 100%
======== ======== ======== ======== ======== ========
</TABLE>
Total net revenues increased 8% ($56.0 million) to $735.6 million in 1998
from $679.6 million in 1997. License revenue decreased 22% ($97.0 million) to
$336.4 million in 1998 from $433.4 million in 1997, and maintenance and service
revenues increased 62% ($153.1 million) to $399.3 million in 1998 from $246.2
million in 1997. As a percentage of total revenue, license revenue decreased to
46% in 1998 from 64% in 1997; service and maintenance revenue increased to 54%
in 1998 from 36% in 1997.
The Company believes the reduction in 1998 license revenues, as compared to
1997, was attributable principally to four factors: increased economic and
competitive pressures experienced in the global ERP industry; a one-time revenue
deferral in the first quarter of 1998 attributable principally to the
implementation of the American Institute of Certified Public Accountants issued
Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition"; a
one-time reversal of revenue to effectively eliminate inventory in the Company's
indirect channel (motivated in part by economic and other factors that have led
to reduced future demand for ERP users); and certain inefficiencies in the
Company's organizational structure that led to certain operational shortcomings.
Each are discussed in greater detail below.
1. ECONOMIC AND INCREASED COMPETITIVE PRESSURES. The Company believes that
the ERP software market is being negatively impacted by a number of
industry-wide issues including: (i) global economic difficulties and
uncertainty; (ii) reductions in capital expenditures by large customers; (iii)
increasing competition; and (iv) increased customer focus on addressing Year
2000 problems. The Company believes the impact of these market forces was more
pronounced upon the Company because, as compared to certain of its competitors,
license fees comprise a greater percentage of the Company's total revenue, as
compared to non-license revenues such as maintenance, service and consulting.
These factors have, in turn, given rise to a number of market trends that have
slowed license revenue growth, including (a) longer sales cycles; (b) increased
uncertainty of customers in making purchasing decisions; (c) deferral or delay
of IT projects and generally reduced expenditures for software; (d) reallocation
of reduced capital expenditures to fix Year 2000 problems of existing systems;
and (e) increased price competition. The Company's license revenues were
adversely affected by these factors beginning in the third quarter of 1998, as
the Company experienced a decline in the number of license seats from both
direct sales and the indirect channel. The Company expects these factors to
continue to impact
26
<PAGE> 28
license revenues and that these trends will continue into 1999 until global
economic conditions improve and Year 2000 compliance is complete.
2. Q1 ANNOUNCED DEFERRAL OF $43 MILLION. In the first quarter of 1998, the
Company announced that it was deferring an aggregate of $42.5 million in revenue
related to license agreements entered into in such quarter, in large part due to
the adoption of SOP 97-2.
The principal component of this deferred revenue, $24.9 million, related to
software licenses for which the Company (consistent with past practices)
assisted the customer in obtaining, and became a party to, independent
third-party financing arrangements. The Company had utilized such arrangements
in the past in order to help expedite financing for the customer, although in
all circumstances the lender had no recourse to the Company in the event of a
customer default. Although SOP 97-2 does not explicitly address these financing
arrangements, the Company elected to defer recognition of the entire amount of
revenue associated with those licenses, notwithstanding that the Company
received full payment up front. Such revenue will be recognized concurrent with
the payment terms agreed to by, and between, the customer and the lending
institution.
In light of SOP 97-2, in early 1998 the Company undertook a review of its
business practices with respect to software licenses. In May 1998, the Company
announced that it would cease to become a party to customer license financing
arrangements, but instead would direct the customer to obtain financing
independently. As a result of this modification to the Company's business
practices on customer financing, the Company believes that SOP 97-2 should not
have any material effect on software license revenue from such independent
financing arrangements going forward.
The second component of the first quarter deferral, $12.9 million, related
to license agreements having extended payment terms. SOP 97-2 clarified the
impact of extended payment terms on the determination of whether license fees
are fixed and determinable. As a result of SOP 97-2, the Company deferred $12.9
million of license fees under certain license agreements, and will recognize the
revenue represented by such deferred fees when collected.
The Company has since changed its business practices so that the payment
terms of customer contracts will generally permit recognition in full under SOP
97-2. The Company believes that its current business practices are in accordance
with the requirements of SOP 97-2. To the extent future license agreements do
not conform to the Company's new business practices, revenue from those
agreements will be deferred consistent with these new practices and SOP 97-2.
The third component of the first quarter deferral was $4.7 million, which
represented a portion of the licenses BMS purchased from Baan in the first
quarter for the indirect channel. In the interest of restraining possible growth
of inventory in the indirect channel, the Company elected to record this amount
as deferred revenue. In the second quarter of 1998, the Company moved to a
sell-through model for channel revenue recognition (described in detail below in
Item 13). In connection with that decision, the Company reviewed with BMS first
quarter sales in the indirect channel, and confirmed that the $4.7 million
deferral was approximately equal to the difference between BMS's first quarter
purchases and the actual channel sell-through to end-users that quarter.
Consequently, the Company decided to reclassify this $4.7 million as an offset
to amounts due from related parties (as reported in the Company's 1998 Report on
Form 6-K for the second quarter of 1998).
3. ADDRESSING CHANNEL INVENTORY. During the fourth quarter of 1998, the
Company elected to effectively eliminate inventory in the indirect channel. This
decision was motivated principally
27
<PAGE> 29
in light of changes in market dynamics, including reduction in the rate of
growth of the indirect license sales, and the Company's determination to
undertake a comprehensive reorganization plan in the fourth quarter of 1998. At
the end of the third quarter, there was approximately $56 million in existing
indirect channel inventory. To eliminate that inventory: (i) approximately $17
million in inventory was sold by the Company's indirect channel to end-users
during the fourth quarter, thus reducing the inventory number by that amount,
and (ii) as to the remaining inventory of approximately $39 million, the Company
reversed that amount from fourth quarter revenue and recorded it as deferred
revenue in the quarter, even though product had been delivered, approximately
$34 million for such licenses had been paid, and there were no cancellation or
return provisions. This one-time, non-recurring item is discussed at greater
length in connection with the description of the Company's indirect channel in
Item 13 below.
4. BUSINESS REORGANIZATION. During 1997 and 1998, the Company acquired
several software companies as part of a strategy to expand its product footprint
beyond ERP. Typically, the Company operated these companies as independent
entities, in part to respect the differing cultures of these firms and retain
their entrepreneurial spirit. In the summer of 1998, in an effort to begin
integrating these various entities, the Company created a matrixed business
structure consisting of Product Business Units, whereby the Front Office
(Aurum), Supply Chain (Berclain), and Corporate Office (Coda) groups would each
retain their own dedicated sales and marketing organization; Vertical Business
Units, whereby the significant Aerospace and Defense and the Automotive units
retained their separate identity; Service Business Units, whereby consulting,
education, and customer support were treated as separate units; and Customer
Business Units, which in effect represented the country organizations across the
Company. This new organization was put in place in early July 1998. However,
this structure created a level of complexity to the organization that created
operational uncertainty and certain inefficiencies, contributing to certain
execution problems in the field. The Company moved to a more traditional
functional organization as part of its restructuring in the fourth quarter of
1998, one that presents a single face to the customer (by integrating the sales
forces) with a minimally matrixed structure and clearer lines of authority.
1997 vs. 1996 Revenue. In 1997, total net revenues increased 64% ($264.1
million) to $679.6 million from $415.5 million in 1996, primarily due to
increased license revenues and associated maintenance and service revenues in
1997. License revenues increased 80% ($192.8 million) to $433.4 million in 1997
from $240.7 million in 1996. License revenues also increased as a percentage of
total net revenues to 64% in 1997 from 58% in 1996. These increases in total
license revenues and in total license revenue as a percentage of total net
revenues resulted from both an increase in the number of software licenses and a
higher average transaction size. For 1997, the license revenue growth also
reflects the Company's increased sales activity through indirect channels to the
SME market segment. License sales to the SME market more than doubled in 1997
from 1996 levels and significantly increased the Company's license revenues with
related party entities.
No customer accounted for 10% or more of total net revenues in 1996 and
1998. Related party revenues from all such parties as a group accounted for 10%
of the Company's total net revenues for 1997.
REVENUE BY GEOGRAPHY. The Company operates its business in three principal
geographic regions, namely, EMEA (Europe, Middle East and Africa), North America
(United States and Canada), and Rest of World (Asia Pacific and Latin America).
Total net revenues in the EMEA
28
<PAGE> 30
region increased 33% ($83.8 million) to $337.2 million in 1998 from $253.4
million in 1997 and increased 42% ($75.4 million) in 1997 from $178.0 million in
1996, representing 46%, 37% and 43% of total net revenues, respectively. Total
net revenues in the North America region increased 3% ($8.8 million) to $286.2
million in 1998 from $277.4 million in 1997 and increased 63% ($107.5 million)
in 1997 from $169.9 million in 1996, representing 39%, 41% and 41% of total net
revenues, respectively. Total net revenues in the Rest of World region decreased
25% ($20.8 million) to $61.6 million in 1998 from $82.4 million in 1997 and
increased 55% ($29.3 million) in 1997 from $53.1 million in 1996, representing
8%, 12% and 13% of total net revenues, respectively.
Within the EMEA region, a large proportion of the Company's total net
revenues is derived from The Netherlands and Germany. In 1998, 1997 and 1996,
net revenues from the Company's operations in The Netherlands were $79.5
million, $78.7 million and $82.6 million, respectively, and represented 11%, 12%
and 20% of total net revenues, respectively, with export sales of less than 10%
of total net revenues from sales to unaffiliated customers for those years. For
the Company's German operations, total net revenues increased to $95.2 million
in 1998 from $90.1 million in 1997 and $54.1 million in 1996, representing 13%
of total net revenues for each year. The Company's operations are subject to
risks inherent in international business activities, including risks related to
currency fluctuations. See "Risk Factors - There are Obstacles in Managing
International Operations", Item 9A - "Quantitative and Qualitative Disclosures
About Market Risks", and Note 13 of Notes to Consolidated Financial Statements.
MAINTENANCE AND SERVICE REVENUES. These revenues increased 62% ($153.1
million) to $399.3 million in 1998 from $246.2 million in 1997, and increased
41% ($71.3 million) in 1997 from $174.9 million in 1996. These increases were
primarily attributable to increased maintenance fees and services to a larger
installed base of customers, which in turn was a result of the growth in product
licenses. As a percentage of total net revenues, maintenance and service
revenues were 54% in 1998, as compared to 36% in 1997, and 42% in 1996.
GROSS PROFIT. The following table sets forth, for the periods indicated,
gross profit and gross margin for each revenue category:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1996 1997 1998
---------------------- ---------------------- ----------------------
% OF % OF % OF
REVENUE REVENUE REVENUE
$ CATEGORY $ CATEGORY $ CATEGORY
-------- -------- -------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross profit:
License ............... $226,225 94% $402,214 93% $305,637 91%
Maintenance and service 31,129 18 56,299 23 97,208 24
-------- -------- --------
Total gross profit.. $257,354 62 $458,513 67 $402,845 55
======== ======== ========
</TABLE>
The Company's gross profit as a percentage of total net revenues was 55% in
1998, as compared to 67% in 1997 and 62% in 1996. The decrease in gross margin
in 1998 compared to 1997 is primarily a result of a shift from higher-margin
license revenue to lower-margin service revenue. The increase in gross margin in
1997 compared to 1996 primarily reflects the Company's strategy to increase
license revenues as a percentage of total net revenues and improvements in
utilization rates and pricing structure for services.
Gross margin on license revenue remained relatively constant in 1998 as
compared to 1997 and 1996. Cost of license revenues consists primarily of
amortization of capitalized software, the cost of third party software, and the
cost of media and freight. Amortization of capitalized
29
<PAGE> 31
software, included in cost of license revenue, amounted to $14.8 million, $6.0
million and $2.5 million in 1998, 1997 and 1996 respectively.
Gross margin on maintenance and service revenues remained relatively
constant in 1998 and 1997 at 24% and 23%, respectively. The increase in 1997
from 18% in 1996 was primarily due to the Company's improvements in utilization
rates and pricing structure. Cost of maintenance and service revenues consists
primarily of cost of product support, consulting and training, including
associated software engineering services.
SALES AND MARKETING. The following table sets forth, for the periods
indicated, sales and marketing expenses and such expenses as a percentage of
total net revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 1998
--------------------- --------------------- ---------------------
$ % $ % $ %
-------- -- -------- -- -------- --
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing expenses $102,191 25% $171,572 25% $272,497 37%
</TABLE>
The Company's sales and marketing expenses increased 59% ($100.9 million)
to $272.5 million in 1998 from $171.6 million in 1997, and increased 68% ($69.4
million) in 1997 from $102.2 million in 1996, representing 37%, 25% and 25% of
net revenues in 1998, 1997 and 1996, respectively. These increases in absolute
spending in sales and marketing activities reflect the continued expansion of
the Company's international sales channels through the first three quarters of
1998. Sales and marketing expenses also include net foreign currency transaction
losses of $17.1 million and $0.2 million in 1998 and 1996, respectively, and a
net foreign currency gain of $6.5 million in 1997. These foreign currency
transaction gains and losses result from the worldwide cash management
activities undertaken by the Company in support of its sales and marketing
subsidiaries. The Company's subsidiaries, which act as sales offices, supplement
their cash requirements with loans from the parent company in The Netherlands.
In addition, the loans are used to settle various intercompany transactions such
as required royalty payments. These intercompany accounts are denominated in the
functional currency of the subsidiary in order to centralize foreign exchange
risk with the parent company in The Netherlands. While the Company uses
short-term foreign currency forward contracts to hedge a significant portion of
this risk, the Company cannot eliminate the risk completely due to operational
complexities such as the number of currencies involved, the constantly changing
currency exposures and the substantial volatility of currency exchange rates.
Accordingly, the intercompany loans result in currency gains and losses, which
are recorded as sales and marketing expenses since they relate to operations of
the Company's sales subsidiaries. The Company expects that sales and marketing
expenses will grow at a lower rate than previous years as the Company
streamlined certain of its sales and distribution channels during the fourth
quarter of 1998.
RESEARCH AND DEVELOPMENT. The following table sets forth, for the periods
indicated, research and development expenses and such expenses as a percentage
of total net revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1997 1998
--------------------- --------------------- ----------------------
$ % $ % $ %
-------- -- -------- -- -------- ---
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Research and development expenses $ 45,843 11% $ 90,849 13% $151,369 21%
</TABLE>
30
<PAGE> 32
Research and development expenses increased 67% ($60.5 million) to $151.4
million in 1998 from $90.8 million in 1997, and increased 98% ($45.0 million) in
1997 from $45.8 million in 1996. The increases in research and development
expenses year over year in both absolute dollars and as a percentage of net
revenues reflects the Company's continuing investment in the development of new
and enhanced products and new technologies, primarily consisting of the hiring
of additional research and development personnel. Research and development
personnel totaled 1,671 people at December 31, 1998, as compared to 1,341 people
at December 31, 1997 and 650 people at December 31, 1996. This staff is located
primarily in The Netherlands, with a smaller number of research and development
personnel in India, the United States and various other locations. Research and
development personnel represented 33% of the Company's total employees at
December 31, 1998, as compared to 32% and 25% at December 31, 1997 and 1996,
respectively. In 1998, 1997 and 1996, the Company capitalized 11%, 17% and 16%,
respectively, of aggregate research and development expenditures. Aggregate
research and development expenditures in such years, including both research and
development expenses and capitalized software costs, were $170.6 million, $110.1
million and $54.6 million, respectively.
The Company believes it is critical to the Company's future success to
continue to develop new and enhanced products and technologies. Accordingly, the
Company intends to continue to make significant investments in its research and
development activities.
GENERAL AND ADMINISTRATIVE. The following table sets forth, for the periods
indicated, general and administrative expenses and such expenses as a percentage
of total net revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1997 1998
--------------------- --------------------- ----------------------
$ % $ % $ %
-------- -- -------- -- -------- ---
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
General and administrative expenses $ 49,136 12% $ 72,489 11% $156,148 21%
</TABLE>
General and administrative expenses increased 115% ($83.6 million) to
$156.1 million in 1998 from $72.5 million in 1997, and increased 48% ($23.4
million) in 1997 from $49.1 million in 1996. As a percentage of total net
revenues, such expenses were 21%, 11% and 12% in 1998, 1997 and 1996,
respectively. The increases in general and administrative expenses in absolute
dollars reflect the expansion of the Company's operations with the resulting
increase of additional personnel and infrastructure costs through most of 1998.
Such costs included the hiring of certain key executives into general and
administrative positions and the payroll and facilities costs incurred in
establishing administrative and finance support personnel in multiple locations.
General and administrative expenses include charges of $55.3 million, $12.4
million and $8.3 million to bad debt expense for 1998, 1997 and 1996,
respectively. The increase in bad debt expense in 1998 is due to global economic
difficulties and uncertainty. Also included in general and administrative
expenses is the amortization of intangible assets of $8.8 million, $6.1 million
and $6.1 million in 1998, 1997 and 1996, respectively. Amortization of
intangible assets arose from certain of the Company's acquisitions. As a result
of the Company's acquisitions during 1998, the Company expects amortization of
intangible assets to increase approximately $5 million in 1999. See Notes 3 and
11 of Notes to Consolidated Financial Statements. As a result of the Company's
reorganization during the fourth quarter of 1998, the Company expects that other
general and administrative expenses will increase at a lower rate in 1999 as
compared to prior years.
NON-RECURRING EXPENSES. The following table set forth, for the periods
indicated, restructuring and other expenses and such expenses as a percentage of
total net revenues:
31
<PAGE> 33
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1997 1998
--------------- ---------------------- ----------------------
$ % $ % $ %
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-recurring expenses -- -- $ 12,068 2% $154,901 21%
</TABLE>
During the fourth quarter of 1998, the Company completed key elements of
its restructuring program to reduce costs and gain efficiencies across all
aspects of the organization. In connection with these efforts, the Company
recorded non-recurring charges of $140.5 million related to restructuring,
losses on the disposal of certain under-performing business entities and other
assets, and other asset write-downs. The restructuring component of the charge
was $55.2 million and included severance-related expenses for over 1000
employees, costs associated with the cancellation of certain marketing and sales
programs, and costs related to the consolidation and closure of approximately 50
offices. The Company disposed of certain non-strategic business entities and
recognized a loss of $58.0 million in connection with the disposal of those
assets. The Company also recognized a charge of $27.3 million for the write-down
of certain long-lived assets in connection with the reorganization.
Approximately $31.3 million of these non-recurring charges are accrued as of
December 31, 1998.
In connection with the acquisition of CODA in May 1998, the Company
recognized non- recurring charges of $14.4 million consisting of a $9.6 million
write-down of duplicative capitalized software development costs, a $3.0 million
non-recurring charge for related professional fees, and a $1.8 million
restructuring charge, primarily severance related costs and other costs
associated with the consolidation of operations. None of these non-recurring
charges remain accrued as of December 31, 1998.
Non-recurring expenses were $12.1 million for the year ended December 31,
1997. These charges related to direct transaction and integration costs as a
result of the combinations with Aurum and Beologic. Such costs included asset
write-downs of $3.4 million for capitalized software, goodwill and other
intangible assets, professional fees of $4.6 million, and restructuring charges
of $4.1 million. The restructuring charges consisted of $2.3 million of software
discontinuation costs and migration costs related to the Antalys product (which
was discontinued as a result of the Aurum acquisition), and $1.8 million for
contractual software upgrades and commitments, and for other miscellaneous
charges related to the mergers. The Company completed the actions associated
with the restructuring during 1998. The cash outflows and asset write-offs
related to the $12.1 million charge were approximately $8.6 million and $3.5
million, respectively. There were no non-recurring expenses in 1996. See Notes
11 and 14 to Consolidated Notes to Financial Statements.
NET INTEREST AND OTHER INCOME. Interest income in 1998, 1997 and 1996 of
$8.7 million, $14.4 million, and $1.1 million, respectively, was primarily a
result of interest earned on investments in marketable securities. Interest
expense of $11.8 million, $12.4 million and $1.4 million in 1998, 1997 and 1996,
respectively, related primarily to interest on working capital lines of credit
and long-term debt, and in 1997 and 1998, interest expense on the convertible
notes and the amortization of debt issuance costs. See Note 5 of Notes to
Consolidated Financial Statements.
INCOME TAXES. At December 31, 1998 the Company had net operating losses
generated in various countries totaling approximately $445,449,000 of which
$333,000,000, $25,074,000 and $67,905,000 were generated in The Netherlands,
Germany and the United States, respectively. The Netherlands and Germany net
operating losses can be carried forward indefinitely to offset future taxable
income. The net operating losses generated in the United States expire in 2008
or
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later. For financial accounting purposes the benefit of the net operating losses
generated through 1996 and 1997 has been recorded as a reduction of the
provision for Dutch income taxes in 1996 and 1997. As of December 31, 1998, the
Company established a valuation allowance for all net operating losses.
Primarily as a result of establishing the valuation allowance, the Company's
1998 effective tax benefit is 6%. When it becomes more likely than not that the
Company will be profitable in future periods, the Company will draw down the
valuation allowance to compensate future tax provisions.
In July 1997, the Company was notified by the Dutch tax authorities that it
qualified for a reduced tax rate for the next ten years effective January 1997
on certain income as defined in the agreement. Based on this ruling and other
initiatives, the Company's effective tax in 1997 was 32%. The effective tax rate
for the year ended December 31, 1996 was 39%.
QUARTERLY VARIABILITY
The Company's revenues in general, and in particular its license revenues,
are relatively difficult to forecast and will continue to exhibit
period-to-period fluctuations due to a number of reasons, including (i) the
relatively long sales cycles for the Company's products, (ii) the size and
timing of individual license transactions, (iii) the timing of the introduction
of new products or product enhancements by the Company or its competitors, (iv)
the potential for delay or deferral of customer implementations of the Company's
software, (v) changes in customer budgets, and (vi) seasonality of technology
purchases and other general economic conditions. Accordingly, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. See "Risk Factors - The Company is Subject Variability of Quarterly
Operating Results".
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had cash, cash equivalents and
short-term marketable securities of $206.8 million and working capital of $123.9
million. In 1998, the Company's operating activities used cash of $41.0 million,
primarily as a result of the net loss for the year less certain non-cash items
such as depreciation and amortization and asset write-downs in connection with
the Company's reorganization. Accounts receivable net of allowance for doubtful
accounts was $252.1 million at December 31, 1998 compared to $243.3 million at
December 31, 1997. Accounts receivable days sales outstanding ("DSO," the ratio
of the quarter-end accounts receivable balance to quarterly revenues, multiplied
by 90) was 173 days as of December 31, 1998, compared with 102 days as of
December 31, 1997. Accounts receivable do not include, and the prior computation
of DSO does not reflect, Value Added Tax ("VAT") and sales taxes applicable to
accounts receivable in certain countries. These amounts are required to be
collected from the customer by the Company and to be paid to appropriate
authorities. If such taxes were included in accounts receivable, accounts
receivable at December 31, 1998 and 1997 would have been $277.8 million and
$240.4 million, respectively, and DSO at such dates would have been 191 days and
108 days, respectively. The amount of VAT reclassified and included in other
current assets as of December 31, 1998 and 1997, was $25.6 million and $13.6
million, respectively. As of December 31, 1998, the Company also had tax
receivables of $45 million (representing income tax refunds from various
jurisdictions in which it does business). The Company expects to collect
substantially all of this amount in 1999.
The Company's allowance for doubtful accounts increased to $46.6 million at
December 31, 1998 from $15.1 million at the end of 1997 due to global economic
difficulties and uncertainty. While the Company believes that its allowance for
doubtful accounts as of December 31, 1998
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remains adequate, a portion of the Company's accounts receivable at such date
were derived from sales of large licenses to new customers with which the
Company does not have a payment history. While the Company believes the payment
terms granted to such customers at the date of sale allows for revenue
recognition, there can be no assurance that the allowance will be adequate to
cover any receivables which are later determined to be uncollectible,
particularly if one or more large receivables becomes uncollectible.
Investing activities provided $27.5 million of cash in 1998. Proceeds from
the sale and maturities of marketable securities and investments of $313.2
million were partially offset by the net purchase of property and equipment of
$30.3 million, an increase of $29.6 million in capitalized software development
costs, purchases of marketable securities of $209.5 million and payments for
acquisitions and investments of $23.2 million. The Company expects capital
expenditures will remain relatively flat from 1998 to 1999. With the exception
of the semi-annual interest payments on the convertible debt of $4.3 million per
payment, the Company had no significant capital commitments in 1999.
Financing activities in 1998 provided cash of $113.3 million, primarily due
to proceeds from the issuance of common shares of $39.5 million upon exercise of
stock options and for the Employee Stock Option Program and a $75.0 million
equity investment from Fletcher International Limited ("Fletcher"). Fletcher
paid $75 million to the Company in exchange for subscription to common shares,
which will be purchased during the period August 1, 1999 through December 31,
2001. The number of common shares and the price per share will be based on
future stock price movement and will be calculated when the shares are
purchased. In no event may the exercise price exceed $16.00 per share, which
results in the minimum issuance of approximately 5 million common shares.
Subject to certain terms, the agreement also provides for an additional
investment of up to $150 million in the Company over the next three years (again
based on a formula based on the market price of the Company shares at or around
the time of exercise). For nine months commencing October 1, 1999, the Company
has the right to require Fletcher to purchase up to $75 million worth of
additional common shares. To the extent that the Company has not fully exercised
its right, Fletcher has the right to purchase any unexercised portion during the
remaining term of the agreement. Also, for 27 months commencing October 1, 1999,
Fletcher has the additional right to purchase another $75 million in common
shares.
The Company has a credit facility with ABN AMRO Bank in The Netherlands
which allows the Company and its subsidiaries to borrow up to NLG 40 million (or
$21.2 million, based on the exchange rate at December 31, 1998). There were no
outstanding borrowings under the credit facility at December 31, 1998. As of
December 31, 1998, one of the Company's subsidiaries has a $3 million line of
credit with its local bank (reduced to $1 million in January 1999). ABN AMRO has
guaranteed repayment on the line of credit to the local bank. Accordingly, the
Company's ability to borrow on its NLG 40 million credit facility is reduced by
the amount of the guarantee at December 31, 1998.
Under the terms of the credit facility with ABN AMRO Bank, 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. There are no financial
covenants associated with this facility. See Note 5 of Notes to Consolidated
Financial Statements. The Company is also working with a consortium of
international banks to further increase its line of credit.
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As of December 31, 1998, the Company had outstanding long-term debt of
$191.0 million, consisting of the Company's convertible subordinated notes due
December 15, 2001. These notes bear interest at a rate of 4.5% per annum and are
payable on December 15, 2001 to the extent not converted into common shares at
the election of the holder prior to such maturity date. Interest under the notes
amounts to $8.6 million per year, payable semi-annually, and there is no sinking
fund requirement. The notes are convertible at the option of each holder at a
conversion price of $22 per share. Accordingly, if the trading price of the
Company's common shares at the maturity date exceeds such conversion price, the
notes will generally be converted into common shares prior to repayment. If the
price of the common shares does not, however, exceed the conversion price, the
Company will be required to repay the notes using existing cash balances and
other financing arrangements. There can be no assurances that the state of the
financial markets or the condition of the Company's business at the time of any
such repayment requirement will permit any such refinancing on reasonable terms.
The Company believes that existing cash, cash equivalents and short-term
marketable securities, cash generated by operations, and existing credit
facilities, will be sufficient to meet the Company's working capital needs and
currently planned capital expenditure requirements for the next twelve months.
The Company may from time to time consider acquisitions of complementary
businesses, products or technologies, which could require additional financing.
Such acquisitions could include the acquisition of one or more distributors, but
no such contemplated acquisition, if effected, is likely to be material to the
Company's financial condition. In addition, continued growth in the Company's
business and other factors may from time to time require additional capital.
There can be no assurance that additional capital will be available to the
Company if and when required, or that such additional capital will be available
on acceptable terms.
YEAR 2000
Background. Some computer hardware, software and other date-dependent
equipment were designed with programming code in which calendar year data is
abbreviated to only two digits (e.g., 1998 is abbreviated to 98). As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are commonly referred to as the "Year 2000 Problem."
The Company believes that the demand for its products to date has been
positively impacted by the increased corporate awareness of the Year 2000
Problem and the need to upgrade and/or replace legacy applications in order to
accommodate the change in date to the year 2000. The Company's standard software
offerings introduced since 1993 have been designed to be Year 2000 compliant (as
defined in detail below). The Company and certain of its competitors have
experienced a deceleration of the rate of growth in new license sales in recent
periods, as compared to the growth rates experienced in the enterprise business
management software marketplace in immediately preceding periods, as companies
complete their preparation for the year 2000 or determine it may be too late to
complete such preparations in advance of year 2000. The Company believes that
this deceleration will continue for the foreseeable future.
Customer Products. Since the introduction of its Triton 2.2(d) product in
1993, the Company has designed its standard Enterprise Resource Planning ("ERP")
software to be Year 2000 compliant (i.e., with the capability of processing
accurately inputted 4-digit year values so that it will be able to correctly
recognize the Year 2000 and any inputted year, and that it will also be able to
recognize the Year 2000 as a leap year). The Company believes that current
versions of
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other standard products to which the Company has recently acquired ownership are
also now Year 2000 compliant.
The Company has made available on its Web site, at baan.com, complete
information on the Year 2000 compliance of the Company's products, for the
benefit of customers, potential customers, and other interested parties. It also
provided a direct mailing to its current customer list expressly identifying for
customers those Company products that are Year 2000 compliant and those that are
not; that mailing also referred customers to the Company Web site for the most
current information. However, management believes that it is not possible to
determine with complete certainty that all Year 2000 problems affecting the
Company's software products have been identified or corrected. This uncertainty
is caused by a number of factors, including the complexity of these products,
the fact that the Company's products operate on computer systems and networks
from other vendors not under the Company's control, and the fact that the
Company's products interact with software from other vendors not under the
Company's control.
The Company typically requires Year 2000 compliance warranties from
third-party vendors whose products are sold in conjunction with or incorporated
into the Company's software products. However, the Company has limited or no
control over the actions of these third-party suppliers. Any failure of these
third parties to comply with these Year 2000 warranties or to resolve Year 2000
problems with their products in a timely manner could have a material adverse
effect on the Company's business, financial condition, and results of operation.
In its mailing to customers, and on its Web site, the Company urges customers to
perform a comprehensive Year 2000 audit of its internal IT systems that operate
with the Company's products, and to contact third-party vendors to obtain Year
2000 assurances with respect to those products that interface with or are used
in combination with the Company's 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 court, to the
best of the Company's knowledge, although some such claims or related claims are
pending. To date, the Company has not been the subject of a Year 2000 claim. To
the extent that a customer may assert any such claim against the Company in the
future, whether on some contract, tort or other theory, the Company believes it
has strong defenses to any such claim (both in contract and on other grounds).
However, it has been widely reported that a significant amount of "business
interruption" litigation will arise out of Year 2000 compliance issues. It is
uncertain whether, or to what extent, the Company may be affected by such
litigation.
Costs - Customer Products. The total cost to the Company of completing any
required modifications, upgrades or enhancements to its software products to
ensure they are Year 2000 compliant is virtually impossible to calculate; since
the Company's standard software products are designed to be Year 2000 compliant,
any "compliance costs" are in effect a part of normal, ongoing development
costs.
Internal Information Infrastructure. The Year 2000 Problem could affect
computers, software, and other equipment used, operated, or maintained by the
Company plus office and facilities equipment such as fax machines, photocopiers,
telephone switches, security systems, elevators, and other office
infrastructure. Accordingly, the Company has undertaken a review (which remains
ongoing) of all internal computer programs and systems material to business
operations, to ensure that the programs and systems will be Year 2000 compliant.
Based on the review to date, the Company believes that its internal computer
systems are or will be Year 2000 compliant in a timely manner. Certain of the
Company's back office systems are operating with recent
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versions of the Company's standard ERP software (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 the Company's
internal systems. The Company has also sent a query letter to certain of its
significant vendors of internal information technology infrastructure seeking
representations from such vendors that their products are Year 2000 compliant.
To date the Company has received a limited number of responses to these query
letters. Although the Company is not aware of any material operational issues or
costs associated with preparing its internal systems for the Year 2000, there
can be no assurance that the Company will not experience unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems.
Costs - Internal Information Infrastructure. The total cost to the Company
of completing any required modifications, upgrades, or replacements of these
internal systems is difficult to estimate. As noted above, the Company's
assessment of its internal systems remains ongoing. Nonetheless, through
December 31, 1998, the Company's best estimate was that it would cost the
Company between $500,000 and $1,000,000 to upgrade its internal systems (both in
terms of actual upgrade expenses and personnel costs). Through December 31,
1998, the Company has actually incurred and expensed approximately $200,000.
Potential Consequences of Year 2000 Issues. The Company is attempting to
identify and resolve all Year 2000 problems that could materially adversely
affect its business operations. However, management believes that it is not
possible to determine with complete certainty that all Year 2000 problems
affecting the Company have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, one cannot accurately predict how many Year 2000
problem-related failures will occur or the severity, duration, or financial
consequences of these perhaps inevitable failures. As a result, management
expects that the Company could suffer a significant number of operational
inconveniences and inefficiencies for the Company and its clients that may
divert management's time and attention and financial and human resources from
its ordinary business activities. Additionally, the Company anticipates a lesser
number of serious system failures that may require significant efforts by the
Company or its clients to prevent or alleviate material business disruptions. In
this regard, the Company has not yet formulated contingency plans to deal with
any such unforeseen problems.
INTRODUCTION OF EURO
Background. In January 1999, a new currency called the "Euro" was
introduced in certain European Economic and Monetary Union ("EMU") countries. By
June 30, 2002 at the latest, all participating EMU countries are expected to be
operating with the Euro as their single currency. As a result, in less than one
year, computer software used by many companies headquartered or maintaining a
subsidiary in a participating EMU country is expected to be Euro-enabled, and in
less than four years all companies headquartered or maintaining a subsidiary in
a participating EMU country will need to be Euro-enabled. The transition to the
Euro will involve changing budgetary, accounting and fiscal systems in companies
and public administration, as well as the simultaneous handling of parallel
currencies and conversion of legacy data.
Customer Products. Current versions of the Company's standard ERP software
products are designed to, or with currently available updates will, accommodate
the implementation of the Euro in compliance with current legislation. In
addition, the Company offers two "backported" versions, Triton 3.1b.7 and Baan
IVb5, that will also support the implementation of the Euro. The Company's ERP
product also provides for "multi-base currency conversion", which allows
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users to adopt the Euro in a phased approach alongside running existing home
currency. The Company believes that current versions of other products to which
the Company has recently acquired ownership are also now Euro compliant.
The Company offers products from third-party vendors that contain Euro
functionality and are sold in conjunction with or incorporated into the
Company's software products. However, the Company has limited or no control over
the actions of these third-party suppliers. Any failure of these third parties
to comply with the Euro guidelines or to resolve Euro problems with their
products in a timely manner could have a material adverse effect on the
Company's business, financial condition, and results of operation.
The Company has made available on its Web site, at baan.com, complete
information on the Euro compliance of the Company's products for the benefit of
customers, potential customers, and other interested parties. However,
management believes that it is not possible to determine with complete certainty
that all Euro problems affecting the Company's software products have been
identified or corrected, due to the complexity of these products, the fact that
the Company's products operate on computer systems and networks from other
vendors not under the Company's control, and the fact that the Company's
products interact with software from other vendors not under the Company's
control.
Internal Accounting and Invoicing Systems. The Company is not aware of any
material operational issues or costs associated with preparing its own internal
systems for the Euro. As noted above, certain of the Company's back office
systems are operating with recent versions of the Company's ERP software,
thereby limiting to some extent the breadth of any Euro compliance issues with
respect to the Company's internal systems. The Company does utilize third-party
vendor equipment and software products that may or may not be Euro compliant.
Although the Company is currently taking steps to address the impact, if any, of
Euro compliance for such third-party products, the failure of any critical
components to operate properly in a Euro environment may have an adverse effect
on the business or results of operations of the Company or require the Company
to incur expenses to remedy such problems.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Form 20-F contain
forward-looking statements that are based on current expectations, estimates and
projections about the industries in which the Company operates, management's
beliefs and assumptions made by management. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates", variations
of such words, and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performances and involve certain risks and uncertainties which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in such forward-looking statements. The Company
undertakes no obligation to update publicly any forward-looking statements in
this Form 20-F report.
A number of risks that could cause or contribute to such differences have
been set forth above. Additional factors include but are not limited to those
set forth under "Risk Factors" below. In addition, such statements could be
affected by general industry and market conditions and growth rates, and general
domestic and international economic conditions, including interest rate and
currency exchange rate fluctuations.
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RISK FACTORS
In addition to the other information contained and incorporated by
reference in this Form 20-F, the following factors, which are not intended to be
all inclusive, should be carefully considered in evaluating Baan and our
business:
BAAN HAS A LIMITED INTERNATIONAL OPERATING HISTORY, AND HAS RECENTLY
RESTRUCTURED OUR OPERATIONS.
Baan has experienced substantial revenue growth in recent years, but our
profitability has varied widely on a quarterly and annual basis. Baan
experienced losses and limited profitability prior to 1996. In addition,
notwithstanding revenue growth and profitability increases through 1996 and
1997, in 1998 Baan's license revenues declined significantly and we incurred a
large loss from operations. If Baan is unable to stabilize and ultimately
increase license revenues, Baan's business, operating results, and financial
condition would be materially adversely affected. In the fourth quarter of 1998,
Baan began an effort to streamline and restructure our operations in order to
reduce operating costs. This effort resulted in Baan reducing our workforce by
approximately 20% and restructuring our operations through the sales of certain
operating units of Baan. To the extent that Baan's streamlining, restructuring
and cost reductions efforts are not successful, Baan's operating results will be
materially adversely affected.
INDUSTRY-WIDE CONDITIONS HAVE RESULTED IN REDUCED LICENSE REVENUES.
Baan believes that the ERP software market is being negatively impacted by
a number of generic issues including global economic difficulties and
uncertainty; reductions in capital expenditures by large customers; increasing
competition; and increased customer focus on addressing Year 2000 problems.
These factors have, in turn, given rise to a number of market trends that have
negatively impacted license revenues including:
- - longer sales cycles;
- - increased uncertainty of customers in making purchasing decisions;
- - deferral or delay of IT projects and generally reduced expenditures for
software;
- - reallocation of reduced capital expenditures to fix Year 2000 problems of
existing systems; and
- - increased price competition and price reductions for licensed software.
These conditions and factors contributed to a decline in Baan's license
revenues in 1998 from 1997. Baan expects these factors to continue to adversely
affect our license revenues and that these trends will continue into 1999 until
global economic conditions improve and Year 2000 problems are resolved. Because
of the high degree of uncertainty these factors and trends have created in the
marketplace, Baan is currently unable to predict whether our license revenues
will stabilize at current levels, or when Baan will return to profitability.
BAAN IS SUBJECT TO VARIABILITY OF QUARTERLY OPERATING RESULTS.
Baan's net revenues and operating results can vary, sometimes
substantially, from quarter to quarter. Baan's revenues in general, and
in particular our license revenues, are relatively difficult to forecast due to
a number of reasons. These include:
- - the relatively long sales cycles for Baan's products, which make it
difficult to predict the timing of customer purchase decisions;
- - the size and timing of individual license transactions;
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- - the timing of the introduction of new products or product enhancements by
Baan or our competitors, which can affect customer purchase decisions;
- - the potential for delay or deferral of customer implementations of Baan's
software, or changes in customer budgets;
- - seasonality of technology purchases and other general economic conditions.
Baan's software products generally are shipped as orders are received. As a
result, license revenues in any quarter are substantially dependent on orders
booked and shipped in that quarter. Because Baan's operating expenses are based
on anticipated revenue levels and because a high percentage of Baan's expenses
are relatively fixed, a delay in the recognition of revenue from a limited
number of license transactions could cause significant variations in operating
results from quarter to quarter and could result in losses.
BAAN FACES INTENSE COMPETITION.
The enterprise business application software market is highly competitive.
The market is rapidly changing, and is significantly affected by new product
introductions, geographical regional market growth, integration of supply chain
networks, and issues related to policy such as the anticipated requirements of
the European Monetary Unit and the Year 2000 date change. For a more complete
discussion of the competitive pressures confronting Baan and a discussion of
certain strengths of Baan's competitors, see Item 1 above entitled
"Competition".
BAAN MUST ATTRACT AND RETAIN KEY EMPLOYEES.
Baan is largely dependent on a limited number of members of our senior
management and other key employees. Baan does not maintain key-man life
insurance on any personnel. In addition, Baan believes that we must be able to
attract and retain highly skilled technical, management, sales, and marketing
personnel in order to continue to compete successfully. Competition for such
personnel in the computer software industry is intense. Baan may not be able to
attract and retain such personnel, and if we are not able to do so, this would
have a material adverse effect on Baan's business.
BAAN HAS DEBT OBLIGATIONS UNDER OUTSTANDING CONVERTIBLE SUBORDINATED NOTES.
In December 1996, Baan incurred $175 million of indebtedness through the
sale of 4.5% convertible subordinated notes payable in the year 2001. That
amount increased by an additional $25 million in January of 1997 (for a total of
$200 million convertible notes) when an over-allotment option was exercised. As
a result of this indebtedness, Baan has substantial principal and interest
obligations. As of December 31, 1998, $190 million in convertible notes was
outstanding. Baan's current debt obligations could make it much more difficult
for Baan to obtain additional financing in the future, if such financing is
needed for working capital, acquisitions or other purposes. This debt burden
could also make Baan more vulnerable to industry downturns and competitive
pressures. Further, Baan's working capital declined from $309.4 million at
December 31, 1997 to $123.9 million at December 31, 1998. Baan's ability to meet
our debt service obligations will be dependent upon Baan's future performance,
which will be subject to financial, business and other factors affecting our
operations, many of which are beyond our control. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
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BAAN FACES RAPID TECHNOLOGICAL CHANGE AND MUST CONTINUE TO DEVELOP NEW PRODUCTS
TO REMAIN COMPETITIVE.
The market for Baan's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements, and frequent new product
introductions and enhancements. In order to remain competitive, Baan must
continue to enhance our current product line and to develop and introduce new
products that keep pace with technological developments, evolving market needs
and increasingly sophisticated customer requirements. Baan believes it must
continue to expand product functionality to meet customer needs across broader
horizontal markets and in targeted vertical market segments. In addition, Baan
must continue to anticipate and respond adequately to advances in RDBMS
software, desktop computer operating systems such as Microsoft Windows and
successor operating systems, and the highly dynamic and evolving world of
e-commerce and use of the Internet. Baan may not be successful in developing and
marketing, on a timely and cost-effective basis, fully functional product
enhancements or new products that respond to technological advances by others,
or in achieving market acceptance for new products.
Baan has on occasion experienced delays in the scheduled introduction of
new and enhanced products. In addition, software programs as complex as those
offered by Baan may contain undetected errors or "bugs" when first introduced or
as new versions are released. Despite our testing, these bugs sometimes are only
discovered after a product has been installed and used by customers. Baan's most
recent software releases and future software releases may contain software
errors. Any such errors could impair the market acceptance of these products and
adversely affect operating results. Problems encountered by customers installing
and implementing new releases or with the performance of Baan's products could
also have a material adverse effect on Baan's business and operating results. If
Baan were to experience delays in the introduction of new and enhanced products,
or if customers were to experience significant problems with the implementation
and installation of new releases or were to be dissatisfied with product
functionality or performance, it could materially adversely affect Baan's
business and operating results.
BAAN FACES CHALLENGES CONCERNING THE INTEGRATION OF ACQUISITIONS.
As part of our strategy to complement and expand our existing business and
product offerings, Baan has acquired a number of companies. In September 1998
Baan acquired CAPS Logistics Inc. ("CAPS Logistics"), a supplier of logistics
and transportation, planning and scheduling software; in May 1998 Baan acquired
CODA Group plc ("CODA"), a provider of financial software; and in August 1997
Baan acquired Aurum Software, Inc. ("Aurum"), a provider of enterprise-wide
sales-force automation software and distribution services. Baan may continue to
pursue acquisitions of other companies with potentially complementary product
lines, technologies and businesses.
Acquisitions involve a number of risks and difficulties. They include:
- - uncertainty as to market acceptance of the acquired technologies and
products;
- - risks of expansion into new geographic markets and business areas;
- - the diversion of management's attention created by the expansion of
business breadth and integration challenges; and
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- - difficulties associated with the assimilation of the operations and
personnel of acquired companies and the integration of acquired companies'
business and financial reporting systems.
Baan may not be able to successfully integrate the operations of acquired
businesses. If any such acquisition were to be unsuccessful, Baan's results of
operations could be materially adversely affected.
THERE ARE OBSTACLES IN MANAGING INTERNATIONAL OPERATIONS.
Baan's products are currently marketed in the United States, Germany, The
Netherlands, and over 80 other countries. Accordingly, Baan's operations are
subject to the risks inherent in international business activities. These risks
include:
- - general economic conditions in each country (for example, we note the
volatile market conditions affecting most of the Pacific Rim region and
Latin America);
- - overlap of different tax structures and potential high tax levels;
- - the complexity of managing an organization spread over various countries;
- - unexpected changes in regulatory requirements;
- - costs and delays associated with compliance with a variety of foreign laws
and regulations; and
- - longer accounts receivable payment cycles in certain countries.
Other risks associated with international operations include import and
export licensing requirements, trade restrictions and changes in tariff and
freight rates.
VANNENBURG VENTURES B.V. OWNS A SIGNIFICANT EQUITY INTEREST IN BAAN.
Vanenburg Ventures B.V. ("VV") owned approximately 20% of Baan's
outstanding Common Shares at April 9, 1999. Jan Baan and J.G. Paul Baan, by
virtue of the control they exercise over the entities that own and control the
shares of VV, effectively have the power to vote the Common Shares of Baan owned
by VV. Messrs. Jan Baan and J.G. Paul Baan therefore may be deemed to have the
effective power to significantly influence the outcome of matters submitted for
shareholder action, including the appointment of members of Baan's Management
and Supervisory Boards and the approval of any significant change in control
transactions. This significant equity interest in Baan may make certain
transactions more difficult absent the support of Jan Baan and J.G. Paul Baan,
and may have the effect of delaying or preventing any proposed change in control
of Baan.
VV CONTROLS APPROXIMATELY ONE-THIRD OF SALES FROM BAAN'S INDIRECT CHANNEL.
Commencing in 1996, Baan began building an indirect channel as part of our
strategy to penetrate the SME market. Approximately 15 of its approximately 230
VARs (value added resellers) are VV subsidiaries known as the "Vanenburg
Business Systems" network (or "VBS"). As described in Item 13 below, VV has
recently announced its intention to reorganize and/or sell certain of its assets
due in part to pressure from lenders. Sales from VBS comprise approximately
one-third of total sales in Baan's indirect channel. While down from
approximately half of all indirect sales in 1996 and much of 1997, VBS remains a
large
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percentage of Baan's indirect channel. Consequently, any sale of, or operating
pressures on, VBS could have a material impact on Baan's indirect channel
performance.
YEAR 2000 UNCERTAINTIES.
Baan's ability to achieve Year 2000 compliance and the level of incremental
costs associated therewith, could be adversely impacted by, among other things,
our ability to identify all Year 2000 issues associated with Baan's products;
third-party products sold by Baan or third-party products used in Baan's
internal systems; the availability and cost of programming and testing
resources; the ability and willingness of third-party vendors to modify
proprietary software; the extent to which customers access Baan's Year 2000 Web
site in order to assess the Year 2000 exposure associated with their Baan
systems and their ability and willingness to take appropriate upgrade and
corrective measures; and unanticipated problems that may be identified in Baan's
ongoing compliance review.
BAAN'S SHARE PRICE HAS BEEN HIGHLY VOLATILE.
The market price of Baan's Common Shares has experienced significant
volatility. The price of Baan's Common Shares (split adjusted) has increased
from $4.00 per share in Baan's initial public offering in May 1995 to $54.125 in
April 1998, and has decreased to a trading price at April 30, 1999 of $9.375 per
share. The market price of Baan's Common Shares may be significantly affected by
a number of factors, including quarterly variations in operating results,
changes in earnings estimates by market analysts, the announcement of new
products by Baan or our competitors, and general market conditions. In addition,
the stock prices for many companies in the technology and emerging growth sector
have experienced wide fluctuations which have often been unrelated to the
operating performance of such companies. Such fluctuations may adversely affect
the market price of Baan's Common Shares.
ENFORCEABILITY OF UNITED STATES JUDGMENTS AGAINST NETHERLANDS CORPORATIONS,
DIRECTORS AND OFFICERS ARE NOT DIRECTLY ENFORCEABLE IN THE NETHERLANDS.
Judgments of United States courts, including judgments against Baan, our
directors or our officers predicated on the civil liability provisions of the
federal securities laws of the United States, are not directly enforceable in
The Netherlands.
OTHER MATTERS RELATED TO DUTCH COMPANIES.
As a Netherlands "naamloze vennootschap" (N.V.), Baan is subject to certain
requirements not generally applicable to corporations organized in United States
jurisdictions. Among other things, the issuance of shares by Baan must be
submitted for resolution of the general meeting of shareholders, except to the
extent such authority to issue shares has been delegated by the general meeting
of shareholders to another corporate body. The issuance of shares by Baan is
generally subject to shareholder preemptive rights, except to the extent that
such preemptive rights have been excluded or limited by the general meeting of
shareholders (subject to a qualified majority of two-thirds of the votes if less
than 50% of the outstanding share capital is present or represented) or, in case
the authority to issue shares has been delegated to another corporate body that
has also been empowered by the general meeting of shareholders to exclude or
limit such preemptive rights, by such corporate body. In this regard, the
general meeting of shareholders has authorized the Management Board of Baan,
upon approval by the Supervisory Board, to issue any authorized and unissued
shares of Baan at any
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time up to and including April 30, 2000, and has authorized the Management
Board, upon approval by the Supervisory Board, to exclude or limit shareholder
preemptive rights with respect to any issuance of such shares up to and
including such date. Such authorizations may be renewed by the general meeting
of shareholders from time to time, or by Baan's Articles of Association pursuant
to an amendment to that effect, for up to five years at a time. This
authorization would also permit the issuance of shares in an acquisition,
provided that shareholder approval is required in connection with a statutory
merger (except that, in certain limited circumstances, the board of management
of a surviving company may resolve to legally merge the company). Shareholders
do not have preemptive rights with respect to shares which are issued against
payment other than in cash, shares which are issued to employees of Baan or of a
group company or shares which are issued to someone exercising a previously
acquired right to subscribe for shares. In addition, certain major corporate
decisions are subject to prior approval or advice by the Works Council
established at Baan Development B.V. and Baan Nederland B.V., two Dutch
subsidiaries of Baan.
In April 1999, a new law became effective in The Netherlands that could
significantly restrict a company's ability to grant stock options in or from The
Netherlands. The new law also imposes certain additional disclosure obligations
on Baan and certain of its employees in connection with their involvement in
securities transactions in or from The Netherlands. Baan is currently discussing
possible alternatives with the Dutch authorities. Depending on the outcome of
those discussions, the new Dutch securities laws could have a material impact on
Baan's competitiveness in terms of impairing our ability to recruit and retain
directors and employees.
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ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Foreign Exchange. The Company is subject to risks typical of a global
business, including, but not limited to: differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange volatility.
The Company's exposure to foreign exchange rate fluctuations arises mainly
from intracompany transactions relating to financing activities, royalty charges
and other cost allocations which flow through intracompany accounts with its
subsidiaries. These intracompany accounts are typically denominated in the
functional currency of the subsidiary in order to centralize the foreign
exchange risk with the parent company in the Netherlands.
The Company conducts a significant portion of its business in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Euro. While the Company has historically recorded a
majority of its expenses in Dutch guilders (and, since January 1999, is
recording such expenses in Euros), especially research and development expenses,
the Company realizes a large portion of its revenues in U.S. dollars in addition
to guilders (now, Euros). As a result, fluctuation in the value of the Euro
relative to the value of the U.S. dollar could adversely affect operating
results. Foreign currency transaction gains and losses arising from normal
business operations are credited to or charged against earnings in the period
incurred. As a result, fluctuations in the value of the currencies in which the
Company conducts its business relative to the U.S. dollar have caused and will
continue to cause foreign currency transaction gains and losses. The Company
continues to evaluate its currency management policies. Notwithstanding the
measures the Company has adopted, there are a number of currencies involved,
currency exposures are constantly changing and currency exchange rates continue
to have significant volatility. The Company may experience currency losses in
the future, and the Company cannot predict the effect of exchange rate
fluctuations upon future operating results.
Interest Rates. The Company invests its surplus cash in a variety of
financial instruments, consisting principally of bank time deposits and
short-term marketable securities with maturities of less than one year. Cash
balances held by subsidiaries are invested in short-term time deposits with the
local operating banks.
The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). All of the cash
equivalent and short-term investments are treated as "available for sale" under
SFAS 115.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates. The Company's
investment securities are held for purposes other than trading and have
maturities of less than one year.
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ITEM 10. DIRECTORS AND CORPORATE EXECUTIVE OFFICERS OF REGISTRANT
The Managing Directors, corporate executive officers and Supervisory
Directors of the Company, and their ages, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Tom C. Tinsley (1) 45 Managing Director, Chairman of
The Board of Managing Directors
Mary Coleman 44 Chief Executive Officer
James F. Mooney 44 Chief Financial Officer
Laurens van der Tang 33 Executive Vice President, Research and Development
N.M. (Klaas) Wagenaar 40 Executive Vice President, Operational and Strategic Initiatives
Bob Lewis 40 Executive Vice President, Global Field Operations
Robert E. Goudie, Jr. 40 General Counsel and Secretary to the Board
Gerrit J. van Munster 35 Senior Vice President, Human Resources
Pierre J. Everaert (2) 59 Chairman Supervisory Board
John W. Barter (2) 52 Supervisory Director
Henk van den Breemen (3) 57 Supervisory Director
William O. Grabe (3) 61 Supervisory Director
David C. Hodgson (2) 42 Supervisory Director
Joop P.M. Janssen (2) 56 Supervisory Director
Koichi Nishimura 59 Supervisory Director
J.C. (Hans) Wortmann 48 Supervisory Director
</TABLE>
- -----------------
(1) Tom Tinsley is currently the Chairman and sole member of the Management
Board. On May 26, 1999, the Company announced that the following
individuals would be nominated as members of the Management Board at the
June 23, 1999 shareholders' meeting: Mary Coleman, Chairman; James Mooney,
Executive Vice President, Chief Financial Officer; Laurens van der Tang,
Executive Vice President, Research and Development; and Peter Aird,
Executive Vice President, Global Support. As of June 1, 1999, Ms. Coleman
succeeds Mr. Tinsley as Chief Executive Officer.
(2) Member of the Supervisory Board Audit Committee.
(3) Member of the Supervisory Board Nomination and Compensation Committee.
Tom C. Tinsley joined the Company in November 1995 as Managing Director,
President and Chief Operating Officer. His appointment as Managing Director was
approved at the Annual General Meeting of Shareholders in April 1996. Mr.
Tinsley became Chairman of the Board of Managing Directors in May 1998. Mr.
Tinsley previously was a director of McKinsey & Co., a management consulting
firm, where he had been employed for eighteen years and most recently 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.
Mary Coleman joined the Company as President and CEO of Aurum, Inc., a
subsidiary of Baan Company, after Baan acquired Aurum in August 1997. In October
1998, Ms. Coleman was named President of Baan Company. Ms. Coleman joined Aurum
with nearly 20 years of marketing experience in the high-tech industry, most
recently from Radius, Inc., where she served as vice president of marketing. On
June 1, 1999, Ms. Coleman was named Chief Executive Officer of the Company.
James F. Mooney joined the Company in April 1999 as Chief Financial
Officer. Prior to joining Baan, Mr. Mooney worked for International Business
Machines Corporation (IBM), where he had been employed for nineteen years and
most recently as Vice President and Chief Financial Officer, Americas.
Laurens van der Tang joined the Company in June 1986. After having held
various positions in Implementation and Consultancy, in October 1990 he became
responsible for Product
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Development, and in January 1992 he was named Vice President, Product
Development. In January 1995, he was promoted to Vice President, Research of the
Company and, in March 1997, to Executive Vice President, Research and
Development. In his current capacity, Mr. van der Tang is responsible for the
management and strategy of the Company's product research and development
groups.
N.M. (Klaas) Wagenaar joined the Company in August 1997 as Senior Vice
President Administration & Chief Financial Officer. In April 1998, Mr. Wagenaar
also assumed the responsibility of Chief Operating Officer. In March 1999, he
was appointed as Executive Vice President of Operational and Strategic
Initiatives. In this role he serves as the link between the regional and country
operations, and global functions. Mr. Wagenaar is also responsible for creating
a more centralized corporate infrastructure and, in cooperation with the
Management Board, he has the responsibility for identifying and driving key
strategic partnerships and initiatives for the Company. Prior to joining the
Company, Mr. Wagenaar was COO of Baan Investment B.V. Prior to that, Mr.
Wagenaar was with Cap Gemini, an international IT consulting firm, and held a
variety of operational and financial management positions, most recently as
deputy general manager of Division Industry Benelux.
Bob Lewis joined the Company in July 1996 as Vice President of Indirect
Channels. In 1997, Mr. Lewis became President of Baan EMEA, responsible for the
Company's operations across Europe, Middle East and Africa. In October 1998, Mr.
Lewis was named Executive Vice President of Global Field Operations. Prior to
joining Baan, Mr. Lewis had 15 years of experience in the information technology
industry including a period as CEO of a systems integration firm and most
recently as a General Manager for System Software Associates.
Robert E. Goudie, Jr. joined the Company in April 1998 as Senior Vice
President, General Counsel and Secretary to the Board. Mr. Goudie has global
responsibility for all legal operations of the Company. Prior to joining the
Company, Mr. Goudie was Vice President, Assistant General Counsel at Simon &
Schuster, Inc. Prior to that, Mr. Goudie was in the Litigation Department and
Intellectual Property Group at the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison, and he also clerked for two years on the Federal Court for the
Southern District of New York.
Gerrit J. van Munster joined the Company in May 1986 as a Project Manager
and was promoted to Manager of Personnel and Organization in January 1990. In
January 1994, Mr. van Munster became Human Resource Manager of the Company's
operations in Europe. Mr. van Munster was promoted to Director, Human Resources
in June 1994, Vice President, Human Resources in January 1996, and Senior Vice
President, Human Resources in November 1998. Mr. van Munster is responsible for
overseeing the Company's personnel resources. He holds a bachelor degree from
the Higher Nautical School in Delfzijl.
Pierre J. Everaert became a member of the Supervisory Board in March 1999
and was elected its Chairman one month later. He has 15 years of executive
experience: at Goodyear; at General Biscuits S.A. (Paris, France), where he was
Vice Chairman; Ahold USA Inc. as CEO; and Koninklijke Ahold N.V. (Zaandam, The
Netherlands) as President and CEO. In 1992, Mr. Everaert joined the board of
management of Philips Electronics N.V. in the Netherlands, and also served as
Chairman of the Board of Philips North America Corporation. In 1996, he formed
his own company, E C Consult B.V., which provides advice to companies on
corporate governance, advanced marketing, and e-commerce. Mr. Everaert is also
currently professor at the University of Gent, Belgium, is a director of
Interbrew, Louvain, Belgium, and is a member of the board of several privately
held companies.
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John W. Barter became a supervisory director of the Company in March 1999.
Before his recent retirement from AlliedSignal, Mr. Barter served as Executive
Vice President of AlliedSignal, Inc and President of AlliedSignal Automotive,
and prior to that as Senior Vice President and CFO. Mr. Barter is a member of
the board of directors of BMC Software, Inc., Louisiana-Pacific Corporation,
Iomega Corporation, and Kestrel Solutions, Inc. and is chairman of the Board of
Trustees of the Spring Hill College.
General Henk van den Breemen (ret.) is the decorated former Chief of
Defense Staff of the Dutch Armed Forces. Mr. Van den Breemen climbed the ranks
from Lieutenant in the Marine Corps to his last position as Chief of the Defense
Staff - the first General of the Marine Corps to assume that role. In his career
Mr. van den Breemen has represented the Netherlands in international panels
including NATO, WEU and CSCE and was able to transform the Dutch Armed Forces
into one of the most advanced and well-equipped Armed Forces in the world, while
carrying out significant down-sizing operations and supporting peace operations
at the same time. He was elected to the Supervisory Board in March 1999.
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 LLP or a
general partner of its predecessor partnership since April 1992. From 1984 until
March 1992, 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; LHS Group Inc., a billing and customer care software for wireless
communication providers; Compuware Corporation, a software and services company;
TDS GmbH, an IT consulting and services company; and several other companies in
the computer software and services industry, including companies in which
General Atlantic Partners LLP or one of its affiliates is an investor.
David C. Hodgson became a Supervisory Director of the Company in May 1995
and served as Chairman of the Supervisory Board during 1998. Mr. Hodgson has
been a Managing Member of General Atlantic Partners LLP, or a general partner of
its predecessor partnership, since its formation in 1989. Mr. Hodgson also
serves as a director of Exact Holdings B.V., a provider of financial accounting
software applications; ProBusiness Services, Inc., a provider of payroll
processing and employee administrative services for large employers; and several
other companies in the computer software and services industry, including
companies in which General Atlantic Partners LLP or one of its affiliates is an
investor.
Joop P.M. Janssen was elected to the Supervisory Board in March 1999. His
experience includes positions with KPMG Accountants, Lathouwers Beheer B.V., and
ING Bank. He currently serves as chairman of the Board of Managing Directors of
the AEX listed construction company, Heijmans N.V., where he is responsible for
strategic planning, finance and control, and heads several divisions of
Heijmans. Mr. Janssen is a supervisory board member of Lathouwers Beheer B.V.
and several other privately held companies in the Netherlands. He also serves as
a member of the Amsterdam Exchanges' (AEX) advisory body.
Koichi Nishimura currently directs Solectron Corporation's worldwide
operations as its Chairman of the Board, President, and CEO. He has led the
company to twice win the prestigious Malcolm Baldrige National Quality Award.
Dr. Nishimura joined Solectron after an extensive career at IBM Corporation. Dr.
Nishimura is past chairman of the board of the Silicon Valley Manufacturing
Group and continues to serve on the boards of Merix Corporation and the Sante Fe
Institute. Dr. Nishimura is a senior member of the Institute of Electrical and
Electronics
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<PAGE> 50
Engineers and the Society of Manufacturing Engineers. He was elected to the
Supervisory Board in March 1999.
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. He also
provides consulting services to Baan Development B.V. in the area of overall
product architecture.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of cash compensation of all Managing Directors,
Supervisory Directors and corporate executive officers of the Company as a group
(16 persons) paid or accrued for services in all capabilities for the year ended
December 31, 1998 was approximately $2.1 million.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
1993 Stock Plan. The 1993 Stock Plan was initially adopted by the
Management Board and approved by the shareholders in December 1993, and
subsequent amendments increased the aggregate number of shares reserved for
issuance thereunder from 7,000,000 in 1993 to 40,000,000 in 1998. The 1993 Stock
Plan will terminate in December 2003 unless terminated earlier by the Management
Board upon the authority of the Supervisory Board. The 1993 Stock Plan provides
for grants of options to employees and consultants (including officers and
directors) of the Company and its affiliates. The 1993 Stock 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 "Administrator"). The 1993 Stock Plan is
currently administered by the Management Board of the Company.
The 1993 Stock Plan includes appendices setting forth specific provisions
providing for the grant of options to employees in certain countries to address
certain securities and tax laws in such respective countries, including
provisions governing options intended to qualify as incentive stock options
within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as
amended (the "Code").
The exercise price of options granted under the 1993 Stock Plan is
determined by the Administrator. With respect to incentive stock options granted
under the 1993 Stock Plan, the exercise price must be at least equal to the fair
market value per share of the Common Shares on the date of grant, and the
exercise price of any incentive stock option granted to a participant who owns
more than 10% of the voting power of all classes of the Company's outstanding
share capital must be equal to at least 110% of fair market value of the Common
Stock on the date of grant.
The maximum term of an option granted under the 1993 Stock Plan may not
exceed ten years from the date of grant (five years in the case of a participant
who owns more than 10% of the voting power of all classes of the Company's
outstanding share capital). In the event of termination of an optionee's
employment or consulting arrangement, options may only be exercised, to the
extent vested as of the date of termination, for a period not to exceed 90 days
(12 months, in the case of termination as a result of death or disability)
following the date of
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<PAGE> 51
termination, but in no event later than the expiration date of each option as
set forth in the optionee's option agreement. Options may not be sold or
transferred other than by will or the laws of descent and distribution, and may
be exercised during the life of the optionee only by the optionee.
Options outstanding under the 1993 Stock Plan generally vest and become
exercisable, assuming continued service as an employee or consultant, for
non-Dutch employees at the rate of 20% of the shares subject to an option on the
first anniversary of the commencement of vesting date and 1/60th of the shares
each month thereafter, and for Dutch employees at a rate of 1/60th of the shares
each month following the commencement of vesting date, such that in each case
all shares under an option vest in full five years from the commencement of the
vesting date assuming continued service as an employee or consultant. Options
outstanding under the 1993 Stock Plan generally have a term of five years.
In the event of a merger of the Company with or into another corporation,
all outstanding options may be assumed or equivalent options substituted by the
successor corporation or its parent or subsidiary. In the absence of such
assumption or substitution, to the extent not exercised, all options shall
terminate as of the closing of the merger.
As of December 31, 1998, the Company's directors and executive officers (16
persons) had outstanding options to purchase an aggregate of approximately
4,521,000 Common Shares. As of December 31, 1998, under both the 1995 Director
Option Plan and the 1993 Stock Plan, options to purchase an aggregate 19,546,000
Common Shares were outstanding and 3,071,000 shares remained available for
future grants. See Note 6 of Notes to Consolidated Financial Statements.
Berclain Plan. As a result of the Company's acquisition of Berclain Group,
Inc. ("Berclain") in May 1996, the Company assumed the outstanding options under
The Berclain Stock Option Plan (the "Berclain Plan"). The Berclain Plan provided
for grants of non-qualified stock options to employees and eligible participants
of Berclain. The term of each option was not to exceed a period of five years
from the grant date and each option generally vested over one year. At December
31, 1998, the Company had reserved 6,926 of its common shares for issuance under
the Berclain Plan. No additional grants will be made under the Berclain Plan.
Aurum Plans. As a result of the Company's acquisition of Aurum Software,
Inc., the Company assumed the outstanding options under Aurum's Stock Option
Plans (the "Aurum Plans"). The Aurum Plans provided for grants of incentive
stock options and repurchaseable to employees and nonstatutory options to
employees and consultants of Aurum. The terms of options granted under the Aurum
Plans generally did not exceed ten years. Generally, options granted under the
Aurum Plans vest over four years. The exercise price of incentive stock options
granted under the Aurum Plans was at least equal to the fair market value of the
shares on the date of grant. At December 31, 1998, the Company had reserved
1,567,952 of its common shares for issuance under the Aurum Plans. No additional
grants will be made under the Aurum Plans.
Beologic Plan. As a result of the Company's acquisition of Beologic A/S
("Beologic") in November 1997, the Company assumed the outstanding options under
The Beologic Warrant Scheme (the "Beologic Plan"). The Beologic Plan provided
for grants of non-qualified stock options to employees and eligible participants
of Beologic. The term of each option was not to exceed a period of 32 months and
31 days from the grant date and each option generally vested over 2.6 years. At
December 31, 1998, the Company had reserved 122,796 of its common shares for
issuance under the Beologic Plan. No additional grants will be made under the
Beologic Plan.
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Coda Plans. As a result of the Company's acquisition of CODA ("Coda") in
May 1998, the Company assumed the outstanding options under Coda's three stock
options plans: the Coda Worldwide Scheme, Coda Incorporated Scheme (U.S.), and
Coda Executive Scheme (U.K.) (the "Coda Plans"). The Coda Plans provided for
grants of incentive stock options to employees and non-qualified options to
eligible participants of Coda. The term of each option was not to exceed a
period of ten years from the grant date and each option generally vested over
three years. At December 31, 1998, the Company had reserved 97,207 of its common
shares for issuance under the Coda Plans. No additional grants will be made
under the Coda Plans.
1995 Director Option Plan. The Company has reserved an aggregate of
1,600,000 Common Shares for issuance under its 1995 Director Option Plan (the
"Director Plan"). The Director Plan was adopted by the Managing Directors and
approved by the shareholders of Baan Company N.V. in March 1995. The Director
Plan (as amended) provides for automatic and nondiscretionary grants of
nonstatutory stock options to Supervisory Directors of the Company in the
following amounts: (i) an initial grant of 50,000 for Supervisory Directors and
65,000 for the Chairman, vesting at the rate of one-fourth of the total on the
anniversary date of the grant (i.e., a four-year vesting schedule); and (ii) a
subsequent grant equal to one-fourth of the initial grant for each year of
service on the Supervisory Board, granted on the anniversary date of appointment
and vesting four years thereafter. In all events, the exercise price of options
granted to Supervisory Directors will be 100% of the fair market value of the
Common Shares on the date of grant as measured by the closing trading price on
NASDAQ for the day. In the event of any merger, sale of assets or other
transaction involving a change in control of the Company, all options
outstanding under the Director Plan will become exercisable in full, and the
option will be assumed or an equivalent option substituted by the successor
corporation or its parent or subsidiary. Options for a total of 558,500 shares
have been granted as of March 31, 1999 under the Director Plan. The Director
Plan will expire in the year 2005.
1995 Employee Stock Purchase Plans. The Company has reserved an aggregate
of 4,000,000 Common Shares for issuance under its 1995 Employee Stock Purchase
Plan for U.S. Employees (the "U.S. ESPP") and 1995 Employee Stock Purchase Plan
for non-U.S. Employees (the "Non-U.S. ESPP"). The U.S. ESPP and the Non-U.S.
ESPP were adopted by the directors and approved by the shareholders in February
1995. The U.S. ESPP is intended to qualify under Section 423 of the Code and
permits eligible U.S. employees of the Company to purchase Common Shares through
payroll deductions of up to 10% of their compensation provided that no more than
an aggregate of 800,000 shares may be issued in any offering period and no
employee may purchase more than $25,000 worth of stock in any calendar year. The
U.S. ESPP has been implemented with six-month offering periods, provided that
the first such period commenced on May 19, 1995, the date of the Company's
initial public offering, and ended on October 31, 1995. The price of Common
Shares purchased under the U.S. ESPP will be 85% of the lower of the fair market
value of the Common Shares on the first or last day of each offering period. The
U.S. ESPP will expire in the year 2005.
As of March 31, 1999, the Company has issued an aggregate of 2,185,750
Common Shares under the U.S. ESPP and the Non-U.S. ESPP and has 1,814,250 shares
remaining for issuance under these plans.
51
<PAGE> 53
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Jan Baan, formerly Chief Executive Officer and a Managing Director of the
Company, and J.G. Paul Baan, formerly a Supervisory Director of the Company, and
the Company's founders, effectively control a Netherlands limited liability
company called Vanenburg Ventures B.V. ("VV," formerly Baan Investment B.V.). As
of April 9, 1999, VV owns approximately 20% of the Company's outstanding Common
Shares. All of the shares of VV are in turn held by a share administration
foundation of which Messrs. Baan and Baan are directors, thereby providing them
with effective voting control of VV's shares in the Company. The economic
interest in VV's shares is held by the Oikonomos Foundation, a foundation the
Baan brothers established under Netherlands law in 1994 to carry out charitable
activities throughout the world.
VV was created in 1994 as a venture capital company that invests in the
form of corporations, joint ventures, or partnerships in various new
technologies, educational programs, research projects and sales, consulting, and
support activities principally in the ERP and other technology markets. As
described further below, the Company has entered into various agreements with
entities owned or controlled by VV and has recognized revenue and reimbursement
of expenses from, and incurred costs for goods and services provided by, such
related parties. The Company believes that all such transactions have been
entered into in the ordinary course of business and have been on terms no less
favorable than would have been obtained from unrelated third parties. During
1998, it has been Company policy to have all material agreements with VV
approved by the independent directors of the Company's Supervisory Board, and
information on all material VV relationships has also been provided to the
Company's Audit Committee.
As reported in the Company's Form 20-F for 1997, VV owned approximately 39%
of the Company's outstanding shares as of April 1998. In October 1998, however,
VV publicly disclosed that it had secured $500 million in loans to help fund
certain of its operations and investments, with VV's shares in the Company
serving as collateral on those loans. When the publicly traded share price in
the Company's stock declined over the summer and into the fall of 1998, VV
reported that its lenders began selling the VV collateral shares to pay down the
VV debt obligations. As a consequence of these actions, VV's holdings of the
Company's shares had declined to 20.12% as of April 9, 1999. VV also indicated
that it would undertake a review of its operations/investments, with an eye
toward reorganizing and/or selling certain of its assets.
Revenues from VV during 1996, 1997 and 1998, were $14.5 million, $66.3
million and $50.6 million, respectively. As of December 31, 1997 and 1998, the
outstanding balances with VV (reflected in amounts (due to) and due from related
parties) consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- -------
<S> <C> <C>
Baan Midmarket Solutions (BMS) .... $19,396 $ 2,648
Vanenburg Business Systems (VBS) .. 9,935 1,142
Vanenburg Ventures ................ 9,079 (1,463)
Other ............................. 4,355 3,970
------- -------
$42,765 $ 6,297
======= =======
</TABLE>
THE COMPANY'S INDIRECT CHANNEL. Since 1996, one of the principal
relationships between VV and the Company has been VV's involvement as both a
reseller and manager of the Company's indirect channel. As indicated above, the
Company began building an indirect channel in 1996 as part of its strategy to
penetrate the SME market (or so-called midmarket). Because the go-to-market
strategy and demands of the midmarket differ significantly from those of the
high-end ERP sector, the Company believed then (and continues to believe) that
the midmarket could likely best be served through creation of an indirect
channel. Commencing in 1996, therefore, the Company embarked on a strategy of
signing resellers as part of this midmarket strategy.
52
<PAGE> 54
1. The BBS relationship. Consistent with its venture capital philosophy,
and in an effort to participate in the indirect channel the Company was
creating, VV and a third party in 1996 created a joint venture known as BBS
Holding B.V. (now owned 100% by VV). That company in turn owns a series of
approximately fifteen companies operating as resellers in the midmarket space.
These companies were commonly referred to throughout 1996-1998 as the Baan
Business Systems network, or "BBS." In April 1999, BBS changed its name to the
Vanenburg Business Systems network, or "VBS."
Commencing in 1996 and continuing through 1997, the Company entered into a
reseller relationship with VBS. Prior to 1997, VBS, like each of the Company's
resellers, paid a fee to the Company for licenses resold based on a percentage
of the resale price. In 1997, when the Company amended its reseller license fee
terms to provide for a straight per-seat license fee, VBS negotiated a volume
discount fee structure reflecting the greater volume of its purchases (at that
time VBS comprised greater than 50% of sales of the Company's products in the
indirect channel; that number today is approximately 30% of channel sales) as
well as its willingness to pay for the seats up front in cash in exchange for
the lower rate. In all other respects, VBS's terms have been materially the same
as those provided other resellers; it has not been given special payment,
return, or exchange terms.
The Company recognized revenues of approximately $4.5 million and $32.3
million from VBS during 1996 and 1997, respectively, from sales of licenses
pursuant to the VBS reseller agreement. In addition, during 1996 and 1997, the
Company assigned to VBS a number of customer contracts that the Company believed
could best be served by VBS. In connection with assigning those contracts: (i)
the Company assigned the related outstanding accounts receivable balances in the
aggregate amount of $4.6 million and $0.3 million, respectively, and VBS paid
for such outstanding receivables; and (ii) VBS paid the Company for these
contracts $10.0 million, $18.0 million and $2.9 million in 1996, 1997 and 1998,
respectively, representing the value of certain potential future license revenue
forgone by the Company as a result of pricing differences between customary
terms in direct sales versus indirect channel, third-party contracts. Finally,
during 1997 the Company recognized $8.7 million from the VBS holding company for
the non-recourse assignment of the remaining rights and obligations under a
license agreement with an unrelated third-party. All revenue recognized from VBS
is included in "License revenue from related parties" in the accompanying
Consolidated Statements of Operations.
The Company recorded no license revenues from VBS in 1998 because it and
the Company's other resellers began buying directly from a newly formed company,
Baan Midmarket Solutions B.V. ("BMS"), a joint venture between the Company and
VV created in late 1997 as wholesaler and manager of the indirect channel.
2. Creation of BMS. Over the course of 1997, the Company's indirect channel
grew to approximately 110 resellers, including approximately 15 VBS companies.
Given that growth, and the potential for future growth of the channel, the
Company determined that a stronger infrastructure to manage and support the
channel was needed. To provide that "backbone," the Company and VV entered into
a joint venture agreement in the fourth quarter of 1997 under which BMS was
created (85% owned by VV, 15% by the Company). As envisioned, BMS would act as
the wholesaler to the indirect channel distributors and resellers, and would
provide training, lead generation and sales support to further develop and
sustain the channel. With the creation of BMS, the Company ceased to sell
directly to VBS and its other resellers (with the exception of minor direct
sales to independent third-party resellers in the first quarter of 1998 in the
amount of $5.3 million, $1.3 million of which was recorded as deferred revenue).
53
<PAGE> 55
In connection with creating BMS in 1997, the Company entered into a
software distribution agreement under which it: (i) provided BMS with
distribution rights to the Company's products; and (ii) assigned a majority of
the Company's existing VAR (value added reseller) agreements to BMS. In
consideration for that assignment, BMS paid the Company $13 million,
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. In addition, the Company
recognized revenues of approximately $3.0 million and $47.7 million during 1997
and 1998, respectively, from sales of licenses to BMS pursuant to the
distribution agreement. All revenue recognized from BMS is included in "License
revenue from related parties" in the accompanying Consolidated Statements of
Operations.
In addition, the Company outsourced to BMS certain of its (the Company's)
employees and provided to BMS certain billing, collection, and other back office
services pursuant to a separate services agreement. Under that agreement, BMS
reimbursed the Company for the actual costs of the personnel assigned as well as
other direct expenditures made by the Company on BMS's behalf. It also paid an
additional 15% of these reimbursed costs as a surcharge for the administrative
and back office services the Company provided. That amount was approximately
$7.5 million in 1998. Such amounts are recognized as a reduction in "General and
administrative expenses" in the accompanying Consolidated Statements of
Operations.
The Company's distribution agreement with BMS at no time permitted stock
balancing, returns, or exchanges (since there were no extended payment or return
provisions in that contract), and there has never been any stock balancing,
returns, or exchanges from BMS to the Company. The Company likewise is not aware
that BMS had any such arrangements with any of the VARs or distributors it
managed. In January 1999, BMS sold its remaining stock of inventory at a
discount to an independent third-party distributor. In connection with the
Company's purchase of BMS's core assets in January 1999 (described in detail
below), the Company paid VV $2 million on execution of that purchase agreement,
representing approximately one-half the discount negotiated by the independent
third-party purchaser of BMS's inventory.
Prior to 1998, with the indirect channel still ramping up and providing
modest contribution to the Company's overall revenue generation, the Company
recognized revenue on a sell-in model into the channel. Consistent with industry
practice, the Company adopted the sell-in model of placing inventory in the
channel to ensure the VARs were investing in the business plan to resell the
Company's products.
Over the course of 1998, however, BMS better than doubled the number of
channel partners selling the Company's products into the midmarket - ending 1998
with approximately 215 independent, third-party VARs and approximately 15 VBS
resellers. With a related party acting as the sole distributor for indirect
sales, and with indirect sales in early 1998 showing the potential to grow
significantly as a percentage of the Company's total sales, the Company
announced in the second quarter of 1998 that it would change to the sell-through
model for channel revenue recognition. With this change, sales to BMS were made
based on BMS's reports of the VAR's sell-through to end-users.
With the exception of the limited sales the Company made directly to
resellers in the first quarter of 1998, all of the 230 or so VARs bought
licenses from BMS. As a result, virtually all of the Company's indirect channel
revenue in 1998 was reported under the "License revenue from related parties"
item in the accompanying Consolidated Statement of Operations. During the course
of 1998, sales to BMS, recognized by the Company as related party revenue, were
$15.3 million in the first quarter, $32.6 million in the second quarter, and
$23.2 million in the third
54
<PAGE> 56
quarter. With respect to the fourth quarter of that year, BMS advised the
Company that $17 million in licenses had been sold through to end-users during
that quarter. As described in the next subsection, however, the Company did not
sell new licenses to BMS in the fourth quarter as part of a strategy to address
inventory levels in the channel in light of declining ERP demand.
3. Channel inventory. BMS's records provided to the Company indicate there
was approximately $56 million in total inventory in the indirect channel at the
start of 1998. The Company reported in its 1997 Form 20-F that, based on
estimates BMS confirmed, the Company understood that $11 million of this total
channel inventory was with related parties ($3 million with BMS, and
approximately $8 million with VBS). Subsequent review of VBS's records in late
1998 indicate that apparently approximately $23 million of the $56 million in
total channel inventory at the start of 1998 was actually in related party hands
(the $12 million difference being attributable to additional inventory that
apparently was with VBS at the commencement of 1998). Thus, according to VBS's
and BMS's records, the Company began 1998 with $56 million in total channel
inventory, of which $23 million was with related parties and the remainder was
with independent, third-party VARs.
The BMS records also reflect that total channel inventory did not increase
during 1998; inventory as of September 30, 1998 was at the same $56 million
total. The mix of related party and third-party inventory levels did change,
however, consistent with BMS's role as channel manager. At the end of the third
quarter of 1998, total BMS inventory had increased to $40 million of the $56
million total, as channel inventory was aggregated over the year within BMS.
According to BMS's figures, BMS inventory levels were approximately $13 million
at end of the first quarter of 1998; $30 million at end of the second quarter;
and $40 million at end of the third quarter. Again, total inventory in the
channel had not grown during this time, meaning that third-party inventory
levels had been reduced to approximately $16 million over the course of the
year.
The Company entered 1998 in what appeared to be an expanding ERP market.
Based on a review of the public filings and analyst estimates of 20 leading
enterprise application vendors, the data suggests that license revenues for
these companies grew overall 58% in 1997. That growth rate continued strong at
47% in the first quarter of 1998 (year over year), and softened some to 35% in
the second quarter; but in the third quarter the license revenue growth rate for
these companies had declined to 20%, and it dropped even further to just 4% in
the fourth quarter.
As it became clear following the third quarter of 1998 that license revenue
growth rates industry-wide were declining, and in connection with the Company's
determination to undertake a comprehensive reorganization plan in the fourth
quarter, the Company acted to address the issue of indirect channel inventory.
To eliminate the approximate $56 million in indirect channel inventory existing
at the end of the third quarter: (i) approximately $17 million in inventory was
sold by the Company's indirect channel to end-users during the fourth quarter,
thus reducing the inventory number by that amount; and (ii) as to the remaining
channel inventory of approximately $39 million, the Company reversed that amount
from fourth quarter revenue and recorded it as deferred revenue in the quarter.
The Company undertook this latter reversal even though product had been
delivered, approximately $34 million for such licenses had been paid, and there
were no cancellation or return provisions. The practical effect of these actions
was to eliminate inventory from the channel, since remaining levels that were
now recorded as deferred revenue will only be recognized as revenue as it is
sold through to end-users.
55
<PAGE> 57
The $23 million in BMS inventory that existed at the end of the fourth
quarter (which comprised all remaining related party inventory) was purchased at
a discount by an independent third-party distributor pursuant to an agreement
between it and BMS in January 1999. As a result of that transaction, there was
no related party channel inventory as of January 1999. All channel inventory
(approximately $39 million) is in the hands of independent distributors and
VARs, and the Company will recognize revenue from the sale of such inventory
only as it is sold to end-users.
4. The Company's acquisition of core BMS assets. In connection with its
October 1998 announcement that VV's lenders were selling the Company shares VV
owned and had pledged as collateral to pay down VV's debt obligations, VV also
announced that it would reorganize its business, and potentially liquidate or
substantially restructure certain of its assets.
One of the assets immediately and significantly put at risk by these events
was the BMS joint venture with the Company. Given the importance of the indirect
channel to the Company's strategy going forward, the Company decided to purchase
the core BMS assets. In January 1999, the Company entered into an agreement with
VV pursuant to which the Company purchased (or was assigned) all VAR agreements
that had previously been assigned to BMS and/or that BMS had entered into since
its creation. Approximately 130 BMS employees also transferred to the Company as
part of the transaction.
The purchase price is comprised of the following: (i) $2 million paid in
cash upon execution, representing one-half the total discount negotiated by the
third-party distributor that purchased the BMS inventory existing at the end of
1998; and (ii) a three-year, 15% royalty on the Company's net revenues from its
indirect channel that includes a minimum payment and maximum potential earn out.
The minimum guaranteed payment is approximately $41 million. To the extent this
minimum is not earned in full via the royalty the Company would be obligated to
pay VV the difference between the earned amounts and the minimum guaranty. The
maximum potential earn out is the guaranteed minimum payment plus up to an
additional $44 million.
The surviving entity of what had been BMS is now owned 100% by VV. The
principal remaining assets of that entity are outstanding accounts receivables;
it is expected the surviving entity will be liquidated once those accounts
receivables are collected. The Company was advised on the transaction by outside
U.S. and Dutch legal counsel. Credit Suisse First Boston issued a fairness
opinion as to the fairness from a financial point of view to the Company of the
consideration being paid for BMS.
As a result of this transaction, management of the Company's approximately
230 channel partners is now under the Company's direct control. Included in that
number are the approximately 15 VBS resellers, but the current VBS agreement
(assumed by the Company as part of the acquisition) requires VBS to purchase
licenses of the Company's products for resale from an independent third-party
distributor. The net result is that, commencing in the first quarter of 1999, it
is the Company's intention that it will no longer have related party license
software revenue associated with the indirect channel.
In addition, as part of the BMS agreement, VV has agreed to eliminate the
"Baan" name from any and all of its operations, and VV has recognized the
Company's ownership of all right, title, and interest in and to the "Baan" name
for commercial purposes. Any use of the "Baan" name by VV going forward must be
based on written agreement with the Company; but it is the intention
56
<PAGE> 58
of the Company, except in isolated cases to aid in a particular VV entity's
transition to another name, that it will not grant permission to such use by VV.
OTHER COMPANY-VV RELATIONSHIPS DURING 1998. During early 1998, the Company
sold to or acquired from VV (or VV-related entities) the following
assets/entities:
- - Pursuant to a decision to eliminate its two remaining joint investments
with VV (other than BMS), the Company sold its minority interests in
two software companies (Top Tier and B.A. Intelligence Networks, in
which VV also had an interest) to VV for approximately $9.7 million.
The proceeds approximated the Company's carrying value in such
investments; therefore, the Company did not realize a gain or loss on
these transactions;
- - Having concluded that certain of its Latin American subsidiaries were
operating in countries in which the midmarket presented the most
attractive market opportunity, and thus should more appropriately be
part of the Company's indirect channel, the Company sold those
subsidiaries to VV for approximately $5.2 million. The Company
recognized a loss of approximately $7.2 million from the sale of such
subsidiaries. Such loss is included in "Loss on disposals of assets" in
the accompanying Consolidated Statements of Operations; and
- - The Company also acquired ownership in certain work flow engine
technology from LEY GmBH ("LEY"), a company in which VV had a 58%
equity interest at that time. The Company paid $5.5 million to acquire
this technology, based on an independent valuation, which is recorded
in "Software development costs" on the accompanying Balance Sheet. The
agreement also provides LEY with the right to sell the product on a
stand-alone, royalty basis (the Company has need to sell this engine
only as a bundled product). LEY did not have stand-alone sales in 1998
according to its reports to the Company, so no royalties were recorded.
During 1997 and 1998, the Company also charged VV the following amounts
for certain IT and marketing services:
- - $5.0 million and $16.5 million, respectively, pursuant to an IT
services agreement between the parties under which the Company provides
VV use of the Company's IT and telephony infrastructure. Pricing was
based on third-party information the Company obtained concerning
outsource rates charged for similar arrangements by third parties. VV
has indicated it expects that at some point during 1999 it will no
longer require these services and this agreement will be terminated;
and
- - $3.6 million and $5.3 million, respectively, for marketing costs
(including without limitation for its use of the "Baan" name). Due to
VV's election in late 1998 to close or sell a substantial number of its
investments, and its agreement to cease use of the "Baan" name
(described above), the Company will not be charging VV any such
marketing costs in 1999.
Such amounts have been reflected as reductions in operating expenses in
the accompanying Consolidated Statements of Operations.
During 1998, the Company entered into OEM agreements with certain software
companies owned or controlled by VV. The Company recognized royalties and
development expenses in connection with such agreements during 1998 of
approximately $1.4 million and $2.5 million, respectively. Such royalties and
development expenses are included in "Cost of license revenue" and "Research and
development expense," respectively, in the accompanying Consolidated Statements
of Operations.
In addition, the Company has entered into several agreements with VV
entities under which the Company paid VV certain product, services, or lease
57
<PAGE> 59
fees during 1997 and 1998. These agreements include royalty agreements under
which the Company is authorized to resell instructional or other materials
created by certain companies owned or controlled by VV; subcontracting
agreements whereby the Company retains the services of certain VV entities to
assist in fulfilling customer commitments; and lease agreements for certain of
the Company's Netherlands facilities that are properties owned by VV entities.
The total costs and expenses incurred by the Company in 1997 and 1998 associated
to these agreements were not material.
VV has indicated that it intends to continue the process of closing or
selling certain of its investments. Certain of the assets VV is prepared to sell
may fit within the Company's strategy going forward and may add value to its
product offerings or ability to better serve its customers. The Company will
evaluate any such opportunities with the advice and approval of its independent
directors and independent valuations as appropriate.
58
<PAGE> 60
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
Not applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See pages 61-92 incorporated herein by reference.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Annual Financial Statements:
Report of PricewaterhouseCoopers N.V.,
Independent Accountants..................................... 61
Report of Moret Ernst & Young Accountants, Independent
Auditors ................................................... 62
Consolidated Balance Sheets .................................... 63
Consolidated Statements of Operations .......................... 64
Consolidated Statements of Comprehensive Income (Loss) ......... 65
Consolidated Statements of Shareholders' Equity ................ 66
Consolidated Statements of Cash Flows .......................... 67
Notes to Consolidated Financial Statements ..................... 68
</TABLE>
(b) EXHIBITS
<TABLE>
<S> <C>
1.1 English translation of Articles of Association of the Company lodged
with the Chamber of Commerce and Industry for Arnhem, The Netherlands*
2.1 Indenture, dated as of December 15, 1996, between the Company and
Marine Midland Bank, as Trustee, relating to the 4.5% Convertible
Subordinated Notes***
2.2 Form of Notes included in Exhibit 2.1.***
2.3 Agreement and Plan of Reorganization, dated as of May 13, 1997, among
Baan Company N.V., Green Software Acquisition Corporation and Aurum
Software, Inc. ****
2.4 Share Rights Agreement, dated December 31, 1998, between Baan Company
N.V. and Fletcher International Limited
</TABLE>
59
<PAGE> 61
<TABLE>
<S> <C>
3.1 Form of Indemnification Agreement between the Company and directors and
officers*
3.2 1993 Stock Plan, as amended on May 1, 1995, and form of Option Agreement
thereunder*
3.3 1995 Director Option Plan*
3.4 1995 Employee Stock Purchase Plan for U.S. Employees*
3.5 1995 Employee Stock Purchase Plan for Non-U.S. Employees*
3.6 Management Agreement between the Company and Jan Baan B.V., together
with form of Agreement among the Company, Jan Baan B.V. and Jan Baan*
3.7 Management Agreement between the Company and Paul Baan B.V., together
with form of Agreement among the Company, Paul Baan B.V. and J.G. Paul
Baan*
3.9 Agreement dated as of August 3, 1994 between the Company and Boeing*+
3.13 Agreement dated May 15, 1995 between the Company and Baan Deutschland
GmbH regarding the Company's acquisition of Baan Deutschland GmbH*
3.14 Employment Agreement between the Company and Tom Tinsley**
3.19 Employment Agreement dated as of September 29, 1994 between the Company
and Amal Johnson*
3.20 Recommended Offer by Goldman Sachs International on behalf of Baan
Company N.V. for The CODA Group plc. dated March 13, 1998.
3.21 Agreement and Plan of Reorganization, Escrow Agreement, and Shareholder
Agreement, each dated as of September 23, 1998 regarding acquisition of
CAPS Logistics, Inc.
3.22 Baan Midmarket Solutions B.V. Share Purchase and Asset Purchase
Agreements among Baan Company N.V., Vanenburg Ventures B.V. and Baan
Midmarket Solutions B.V. dated January 20, 1999.
A.1 Subsidiaries of the Company
A.2 Consent of PricewaterhouseCoopers N.V., Independent Accountants
A.3 Consent of Ernst & Young Accountants, Independent Auditors
</TABLE>
- ---------------
* Incorporated by reference to the Registration Statement (Registration
Statement No. 33-91598) on Form F-1 effective on May 19, 1995
** Incorporated by reference to the Registration Statement (Registration
Statement No. 333-00800) on Form F-1 effective on March 1, 1996
*** Incorporated by reference to the Registration Statement (Registration
Statement No. 333-24201) on Form F-3 filed on March 31, 1997
**** Incorporated by reference to the Registration Statement (Registration
Statement No. 333-31999) on Form F-4 effective on July 24, 1997
+ Confidential treatment granted.
60
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Baan Company N.V.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, comprehensive income (loss),
shareholders' equity and of cash flows present fairly, in all material respects,
the financial position of Baan Company N.V. and subsidiaries (the "Company") at
December 31, 1998, and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting principles
in the United States of America. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers N.V.
Amsterdam, The Netherlands
March 1, 1999
61
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Baan Company N.V.
We have audited the accompanying consolidated balance sheet of Baan Company N.V.
and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1997. 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.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Baan Company N.V.
and subsidiaries at December 31, 1997, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997 in conformity with accounting principles generally accepted in
the United States.
MORET ERNST & YOUNG ACCOUNTANTS
Utrecht, The Netherlands
May 4, 1998
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<PAGE> 64
BAAN COMPANY N.V.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 111,417 $ 205,751
Marketable securities ................................. 104,847 1,080
Accounts receivable, net of allowance for doubtful
accounts of $15,054 in 1997 and $46,595 in 1998 .... 226,798 252,129
Income tax receivables ................................ -- 45,045
Due from related parties (includes $16,500
of trade accounts receivable for 1997) ............. 42,765 6,297
Other current assets .................................. 47,680 67,032
--------- ---------
Total current assets .......................... 533,507 577,334
Property and equipment, at cost ......................... 91,143 129,267
Less accumulated depreciation and amortization .......... (39,137) (66,569)
--------- ---------
Net property and equipment .............................. 52,006 62,698
Software development costs, net of accumulated
amortization of $13,396 in 1997 and $22,620 in 1998 ... 49,424 78,319
Intangible assets, net of accumulated amortization of
$19,840 in 1997 and $32,336 in 1998 ................... 41,085 52,644
Other non-current assets ................................ 35,599 52,156
Deferred tax asset ...................................... 10,788 --
--------- ---------
Total assets .................................. $ 722,409 $ 823,151
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings from banks and current
portion of long-term Debt .......................... $ 1,730 $ 523
Accounts payable ...................................... 59,729 74,508
Accrued liabilities ................................... 63,823 162,771
Payroll taxes payable ................................. 10,641 16,758
Income taxes payable .................................. 52,468 43,441
Other current liabilities ............................. 5,803 7,529
Deferred revenue ...................................... 29,872 147,933
--------- ---------
Total current liabilities ..................... 224,066 453,463
Long-term debt .......................................... 200,718 191,013
Other long-term liabilities ............................. 4,305 4,084
Long-term deferred revenue .............................. 2,855 17,831
Commitments and contingencies
Shareholders' equity:
Common shares, par value - NLG 0.06 per share,
700,000,000 shares authorized; 193,698,784
and 204,886,317 issued and outstanding in
1997 and 1998, respectively ........................ 5,939 6,193
Additional paid-in capital ............................ 174,994 387,406
Retained earnings (accumulated deficit) ............... 116,224 (235,261)
Accumulated other comprehensive income ................ (6,692) (1,578)
--------- ---------
Total shareholders' equity .................... 290,465 156,760
--------- ---------
$ 722,409 $ 823,151
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
63
<PAGE> 65
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net revenues:
License revenue .............................. $ 226,135 $ 367,101 $ 285,778
License revenue from related parties ......... 14,532 66,325 50,600
--------- --------- ---------
Total license revenue ..................... 240,667 433,426 336,378
Maintenance and service revenue .............. 174,875 246,170 399,271
--------- --------- ---------
Total net revenues ........................ 415,542 679,596 735,649
Cost of revenues:
Cost of license revenue ...................... 14,442 31,212 30,741
Cost of maintenance and service revenue ...... 143,746 189,871 302,063
--------- --------- ---------
Total cost of revenues .................... 158,188 221,083 332,804
--------- --------- ---------
Gross profit ................................... 257,354 458,513 402,845
--------- --------- ---------
Operating and non-recurring expenses:
Sales and marketing .......................... 102,191 171,572 272,497
Research and development ..................... 45,843 90,849 151,369
General and administrative ................... 49,136 72,489 156,148
Asset write-downs ............................ -- 3,393 36,899
Loss on disposal of assets ................... -- -- 58,030
Restructuring and other non-recurring expenses -- 8,675 59,972
--------- --------- ---------
Total operating and non-recurring expenses 197,170 346,978 734,915
--------- --------- ---------
Income (loss) from operations .................. 60,184 111,535 (332,070)
Interest income ................................ 1,137 14,408 8,668
Interest expense ............................... (1,889) (12,338) (11,750)
Other income (expense), net .................... 435 (95) (40)
--------- --------- ---------
Income (loss) before income taxes .............. 59,867 113,510 (335,192)
Provision (benefit) for income taxes ........... 23,255 36,354 (20,000)
--------- --------- ---------
Net income (loss) .............................. $ 36,612 $ 77,156 $(315,192)
========= ========= =========
Net income (loss) per share
Basic ........................................ $ 0.20 $ 0.40 $ (1.59)
Diluted ...................................... $ 0.19 $ 0.37 $ (1.59)
Shares used in computing per share amounts
Basic ........................................ 179,512 190,842 198,519
Diluted ...................................... 196,496 206,071 198,519
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
<PAGE> 66
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) ................. $ 36,612 $ 77,156 $(315,192)
Other comprehensive income (loss):
Currency translation adjustment (3,993) (5,956) 5,114
--------- --------- ---------
Comprehensive income (loss) ....... $ 32,619 $ 71,200 $(310,078)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
65
<PAGE> 67
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
ADDITIONAL EARNINGS OTHER TOTAL
COMMON SHARES PAID-IN (ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) INCOME EQUITY
----------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ..... 174,292,236 $ 5,344 $ 82,612 $ 9,147 $ 3,257 $ 100,360
Issuance of common shares
for business acquisitions ...... 2,918,000 89 -- (548) -- (459)
Issuance of common shares
under stock purchase plan,
and upon exercise of stock
options including $797 tax
benefit ........................ 5,053,622 155 10,082 -- -- 10,237
Reclass due to elimination of
mandatory redemption provisions
related to convertible preferred
stock and conversion to common
stock (Aurum) .................. 3,530,028 108 18,248 -- -- 18,356
Issuance of common shares
pursuant to initial public
offering (Aurum) ............... 2,062,626 63 41,840 -- -- 41,903
Repurchase of common stock
(Aurum) ........................ (38,966) -- -- -- -- --
Currency translation adjustment .. -- -- -- -- (3,993) (3,993)
Net income ....................... -- -- -- 36,612 -- 36,612
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 ..... 187,817,546 5,759 152,782 45,211 (736) 203,016
Issuance of common shares
for business acquisitions ...... 1,300,198 40 4,044 (6,143) -- (2,059)
Issuance of common shares
Under stock purchase plan,
and upon exercise of stock
options ........................ 4,581,040 140 18,168 -- -- 18,308
Currency translation adjustment .. -- -- -- -- (5,956) (5,956)
Net income ....................... -- -- -- 77,156 -- 77,156
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 ..... 193,698,784 5,939 174,994 116,224 (6,692) 290,465
Issuance of common shares
for business acquisitions ...... 4,473,684 138 88,266 (36,293) -- 52,111
Issuance of common shares
under stock purchase plan,
and upon exercise of stock
options ........................ 6,300,813 103 39,363 -- -- 39,466
Common shares subscribed, net of
issuance costs ................ -- -- 74,900 -- -- 74,900
Conversion of convertible notes to
common shares .................. 413,036 13 9,883 -- -- 9,896
Currency translation adjustment .. -- -- -- -- 5,114 5,114
Net loss ......................... -- -- -- (315,192) -- (315,192)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 ..... 204,886,317 $ 6,193 $ 387,406 $ (235,261) $ (1,578) $ 156,760
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
66
<PAGE> 68
BAAN COMPANY N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income (loss) ............................................................ $ 36,612 $ 77,156 $(315,192)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................................ 19,782 29,104 51,511
Provision for doubtful accounts .......................................... 1,635 12,415 55,304
Provision (benefit) for deferred income taxes ............................ (7,187) (10,592) 10,788
Asset write-downs ........................................................ -- 3,393 36,899
Loss on disposal of assets ............................................... -- -- 45,988
Restructuring and other expenses ......................................... -- -- 14,693
Foreign currency transaction (gains) losses .............................. 170 (6,452) 3,648
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable .................................................... (91,155) (97,592) (59,289)
Due to/from related parties ............................................ -- (42,765) 36,817
Other current assets ................................................... (6,026) (39,356) (78,709)
Accounts payable ....................................................... 12,312 19,599 (12,408)
Accrued liabilities .................................................... 14,367 42,727 49,685
Payroll taxes payable .................................................. 2,899 5,125 1,533
Income taxes payable ................................................... 14,023 33,909 (7,923)
Other current liabilities .............................................. 746 (3,256) 2,198
Deferred revenue ....................................................... 1,923 17,924 123,465
--------- --------- ---------
Net cash provided by (used in) operating activities .......................... 101 41,339 (40,992)
--------- --------- ---------
Investing activities:
Property and equipment purchased ............................................. (23,856) (42,457) (38,674)
Property and equipment sold .................................................. 3,893 7,604 8,377
Increase in capitalized software development costs ........................... (10,705) (29,518) (29,581)
Payment for acquisitions and investments, net of cash acquired ............... (3,806) (59,922) (23,240)
Proceeds from sale of investments and subsidiaries ........................... -- -- 18,689
Purchases of marketable securities ........................................... (14,286) (539,233) (209,451)
Proceeds from maturities of marketable securities ............................ 33,982 438,253 313,218
Other ........................................................................ 1,095 (2,231) (11,856)
--------- --------- ---------
Net cash (used in) provided by investing activities ......................... (13,683) (227,504) 27,482
--------- --------- ---------
Financing activities:
Payments under short-term credit facilities .................................. (3,249) (742) (917)
Payments of long-term borrowings ............................................. (414) (1,108) (266)
Issuance costs of convertible subordinated notes ............................. (4,375) (875) --
Proceeds from sale of accounts receivable .................................... 17,000 17,500 --
Proceeds from issuance of convertible subordinated notes ..................... 175,000 25,000 --
Proceeds from issuance of mandatorily redeemable convertible preferred stock . 882 -- --
Proceeds from issuance and subscription of common shares ..................... 51,147 18,002 114,466
--------- --------- ---------
Net cash provided by financing activities .................................... 235,991 57,777 113,283
Effect of foreign currency exchange rates on cash and cash equivalents ....... (383) 2,819 (5,439)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ............................. 222,026 (125,569) 94,334
Cash and cash equivalents at beginning of year ............................... 14,960 236,986 111,417
--------- --------- ---------
Cash and cash equivalents at end of year ..................................... $ 236,986 $ 111,417 $ 205,751
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ................................................................... $ 657 $ 10,924 $ 11,732
Taxes ...................................................................... $ 12,869 $ 6,561 $ 17,204
Tax benefit related to issuance of common shares ............................. $ 797 $ -- $ --
Conversion of convertible notes to common shares ............................. $ -- $ -- $ 9,896
Issuance of common shares for business acquisitions .......................... $ 459 $ 2,059 $ 52,111
</TABLE>
The accompanying notes are an integral part of these financial statements.
67
<PAGE> 69
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 United States generally accepted accounting principles.
These consolidated financial statements do not represent the Dutch statutory
financial statements.
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 corporate headquarters in Barneveld, 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. Investments in companies in which the Company does not have
significant influence are carried at cost or estimated realizable value, if
less.
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. Also, included in shareholders' equity are the effects of
exchange rate changes on intercompany transactions of a long-term nature.
Foreign currency transaction gains and losses are included in sales and
marketing expenses in the accompanying statements of 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
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<PAGE> 70
results of operations. Any realized and unrealized gains and losses on contracts
used to hedge intracompany transactions of a long-term 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. License and hardware revenue is recognized upon delivery if the
Company has a signed agreement in place, the license fee is fixed and
determinable, and collection of the resulting receivable is deemed probable.
Sales to third party and related party indirect channel partners are recorded
upon product shipment subject to the conditions noted above, and reported sales
by such partners to end-users. 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. Returns and allowances 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 as the services
are performed. Revenues under software contracts requiring product customization
or service contracts containing fixed-price arrangements are recorded under
contract accounting on a percent-of-completion basis.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9 (SOP 98-9), "Modification of SOP 97-2,
Software Revenue Recognition with Respect to Certain Transactions". SOP 98-9 is
effective for all transactions entered into by the Company in fiscal year 2000.
The adoption of this statement is not expected to have a material impact on the
Company's operating results, financial position or cash flows.
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
affect 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
$2,464,000, $5,947,000 and $14,828,000 for the years ended December 31, 1996,
1997 and 1998, respectively. Such amortization is included in cost of license
revenue.
69
<PAGE> 71
PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property, equipment and intangible assets are stated at cost. Intangible
assets consists primarily of goodwill and represents the excess of purchase
price and related costs over the value assigned to the net tangible assets of
businesses acquired.
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 and other ........................ 5 - 7 years
- Leasehold improvements ..................... lesser of lease term or estimated useful life
- Goodwill ................................... 8 years
- Customer lists ............................. 5 years
- Assembled workforce ........................ 7 years
</TABLE>
Upon the disposition of assets, the costs and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in the statements of operations.
PER SHARE INFORMATION
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 computation for net loss per share excludes any
anti-dilutive common equivalent shares.
The following table sets forth the computation of basic and diluted net
income (loss) per share for the years ended December 31, (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss) .......................................... $ 36,612 $ 77,156 $ (315,192)
======== ======== ===========
Denominator:
Denominator for basic income (loss) per share -
Weighted average shares ................................ 179,512 190,842 198,519
Common equivalent shares ............................... 16,984 15,229 --
-------- -------- -----------
Denominator for diluted income (loss) per share -
Adjusted weighted average shares and assumed conversions
196,496 206,071 198,519
======== ======== ===========
Basic income (loss) per share ................................ $ 0.20 $ 0.40 $ (1.59)
Diluted income (loss) per share .............................. $ 0.19 $ 0.37 $ (1.59)
</TABLE>
At December 31, 1996, 1997 and 1998, 7,955,000, 9,091,000 and 8,641,000,
respectively, 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 anti-dilutive. At December 31, 1998, 7,425,000
common equivalent shares were excluded from the computation of diluted earnings
per share because the effect was anti-dilutive. See Note 6 to Notes to
Consolidated Financial Statements.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") on December 31, 1998. Under SFAS
130, the Company is required to display comprehensive income and its components
70
<PAGE> 72
as part of the financial statements. Comprehensive income is comprised of net
income (loss) and other comprehensive income, which includes certain changes in
equity that are excluded from net income (loss).
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.
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.
LONG-LIVED ASSETS
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" which requires the Company
to review for impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. When such an event occurs, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the undiscounted expected future cash flows is less than the carrying amount
of the asset, an impairment loss is recognized.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period presentation.
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.
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<PAGE> 73
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 is effective for fiscal years beginning after June 15,
1999 and cannot be applied retroactively. The Statement establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. The
Company is evaluating the impact of SFAS 133.
2 PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- --------
<S> <C> <C>
Computer equipment ........... $ 60,445 $ 73,803
Furniture and other .......... 23,561 43,392
Leasehold improvements ....... 7,137 12,072
-------- --------
$ 91,143 $129,267
======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$11,038,000, $17,665,000 and $27,799,000 for the years ended December 31, 1996,
1997, and 1998, respectively.
3 INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of the
following (in thousands):
<TABLE>
<CAPTION>
GOODWILL CUSTOMER LIST WORK FORCE TOTAL
-------- ------------- ---------- --------
<S> <C> <C> <C> <C>
Book value at December, 31 1997 $ 25,213 $ 9,226 $ 6,646 $ 41,085
Purchases and additions ....... 42,999 3,249 7,065 53,313
Disposals ..................... (17,988) (6,732) (7,331) (32,051)
Amortization .................. (4,718) (2,743) (1,298) (8,759)
Foreign exchange difference ... (575) (77) (292) (944)
-------- -------- -------- --------
Book value at December, 31 1998 $ 44,931 $ 2,923 $ 4,790 $ 52,644
======== ======== ======== ========
Total accumulated amortization $ 15,504 $ 13,194 $ 3,638 $ 32,336
======== ======== ======== ========
</TABLE>
Amortization expense related to intangible assets was $6,125,000,
$6,054,000, and $8,759,000 for the years ended December 31, 1996, 1997, and
1998, respectively.
4 MARKETABLE SECURITIES
The following is a summary of available-for-sale debt and equity securities
(in thousands):
72
<PAGE> 74
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
Corporate notes ......................... $135,624 $ --
US government agency notes .............. 20,951 --
Other ................................... 337 1,080
-------- --------
$156,912 $ 1,080
======== ========
Amounts included in cash equivalents .... $ 52,065 $ --
Amounts included in marketable securities 104,847 1,080
-------- --------
$156,912 $ 1,080
======== ========
</TABLE>
All securities held as of December 31, 1998 are due within one year. As of
December 31, 1997 and 1998, all securities were designated as available for
sale. Accordingly, these securities are carried at fair value. Since the
difference between the cost and fair values at such dates was immaterial, no
adjustments have been made to the historical carrying value of the investments
and no unrealized gains or losses have been recorded as a separate component of
shareholders' equity. The cost of securities sold is based on specific
identification.
5 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 ($21,208,800 based on the exchange rate
at December 31, 1998). Interest on borrowings under the credit facility accrues
at the Dutch Central Bank's promissory note discount rate plus 1.5% (a total of
4.75% at December 31, 1998) with a minimum interest rate of 4% and is payable
quarterly. There were no outstanding borrowings under the credit facility at
December 31, 1997 and 1998.
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.
As of December 31, 1998, one of the Company's subsidiaries has a $3 million
line of credit with its local bank (reduced to $1 million in January 1999). The
Dutch Bank has guaranteed repayment on the line of credit to the local bank.
Accordingly, the Company's ability to borrow on its NLG 40 million credit
facility is reduced by the amount of the guarantee. At December 31, 1998, the
local subsidiary had borrowings of $101,000 on its line of credit.
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 $877,000 and $20,000 at
December 31, 1997 and 1998, respectively.
The weighted average interest rates on the short-term borrowings were
11.33% and 6.87% as of December 31, 1997 and 1998, respectively.
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<PAGE> 75
LONG-TERM DEBT
The Company's long-term debt obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
Convertible subordinated notes, 4.50%, due
December 15, 2001 ........................ $200,000 $190,103
Other .................................... 1,571 1,312
-------- --------
201,571 191,415
Less current portion ..................... 853 402
-------- --------
$200,718 $191,013
======== ========
</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. As of December 31, 1998, $9.9 million of notes had been converted to
common shares.
Costs of $5,000,000 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 and $1,000,000 were amortized in
the years ended December 31, 1997 and 1998, respectively. Remaining unamortized
costs are included in Other non-current assets in the accompanying Consolidated
Balance Sheets.
The aggregate amount of maturities subsequent to December 31, 1998 for all
long-term debt based on the exchange rates at December 31, 1998 are as follows
(in thousands):
<TABLE>
<S> <C>
1999 ........................................ $ 402
2000 ........................................ 778
2001 ........................................ 190,235
--------
$191,415
========
</TABLE>
6 SHAREHOLDERS' EQUITY
COMMON SHARES
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. Each holder of common shares is entitled
to one vote per share on all matters presented to a vote of the Company's
shareholders.
In December 1998, the Company received a $75 million equity investment from
Fletcher International Limited ("Fletcher"). Fletcher paid $75 million to the
Company in exchange for subscription to common shares, which will be purchased
during the period August 1, 1999 through December 31, 2001. The number of common
shares and the price per share will be based on future stock price movement and
will be calculated when the shares are purchased. In no event may the exercise
price exceed $16.00 per share, which results in the minimum issuance of
approximately 5 million common shares. Subject to certain terms, the agreement
also provides for an additional investment of up to $150 million in the Company
over the next three years (again based on a formula based on the market price of
the Company shares at or around the time of exercise). For nine months
commencing October 1, 1999, the Company has the right to require Fletcher to
purchase up to $75 million worth of additional common shares. To the extent that
the Company has not fully exercised its right, Fletcher has the right to
purchase any unexercised portion during the remaining term of the agreement.
Also, for 27 months
74
<PAGE> 76
commencing October 1, 1999, Fletcher has the additional right to purchase
another $75 million in common shares.
COMPANY STOCK PLAN
In December 1993, shareholders approved the 1993 Stock Plan (the "Company
Plan"). Through this Plan and subsequent amendments, the Company has reserved a
total of 40,000,000 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. As of December 31, 1997 and 1998, 2,222,000
and 3,071,000 common shares, respectively, remain available for grant.
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 five
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.
ASSUMED STOCK PLANS
As a result of the Company's acquisition of Berclain Group, Inc.
("Berclain") in May 1996, the Company assumed the outstanding options under The
Berclain Stock Option Plan (the "Berclain Plan"). The Berclain Plan provided for
grants of non-qualified stock options to employees and eligible participants of
Berclain. The term of each option was not to exceed a period of five years from
the grant date and each option generally vested over one year. At December 31,
1998, the Company had reserved 6,926 of its common shares for issuance under the
Berclain Plan. No additional grants will be made under the Berclain Plan.
As a result of the Company's acquisition of Aurum Software, Inc. ("Aurum")
in 1997, the Company assumed the outstanding options under Aurum's Stock Option
Plans (the "Aurum Plans"). The Aurum Plans provided for grants of incentive and
repurchaseable stock options to employees and non-qualified 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 four years. At
December 31, 1998, the Company had reserved 1,567,952 of its common shares for
issuance under the Aurum Plans. No additional grants will be made under the
Aurum Plans.
As a result of the Company's acquisition of Beologic A/S ("Beologic") in
November 1997, the Company assumed the outstanding options under The Beologic
Warrant Scheme (the "Beologic Plan"). The Beologic Plan provided for grants of
non-qualified stock options to employees and eligible participants of Beologic.
The term of each option was not to exceed a period of 32 months and 31 days from
the grant date and each option generally vested over 2.6 years. At December 31,
1998, the Company had reserved 122,796 of its common shares for issuance under
the Beologic Plan. No additional grants will be made under the Beologic Plan.
As a result of the Company's acquisition of CODA ("Coda") in May 1998, the
Company assumed the outstanding options under Coda's three stock options plans:
the Coda Worldwide Scheme, Coda Incorporated Scheme (U.S.), and Coda Executive
Scheme (U.K.) (the "Coda Plans"). The Coda Plans provided for grants of
incentive stock options to employees and non-qualified options to eligible
participants of Coda. The term of each option was not to exceed a period of ten
years from the grant date and each option generally vested over three years. At
75
<PAGE> 77
December 31, 1998, the Company had reserved 97,207 of its common shares for
issuance under the Coda Plans. No additional grants will be made under the Coda
Plans.
EMPLOYEE STOCK PURCHASE PLANS
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 2,185,750 common shares were issued
under these plans through December 31, 1998.
DIRECTOR STOCK OPTION PLAN
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 five 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.
Option activity under the Company Plans, excluding employee stock purchase
plans, was as follows:
<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED
NUMBER OF AVERAGE PRICE
OPTIONS PER OPTION
----------- -----------
<S> <C> <C>
Balance at December 31, 1995 ............ 18,432,000 $ 1.74
Granted ................................. 5,752,000 $ 14.16
Canceled or expired ..................... (1,461,000) $ 2.94
Exercised ............................... (3,779,000) $ 1.28
----------- -----------
Balance at December 31, 1996 ............ 18,944,000 $ 7.74
Granted ................................. 7,901,000 $ 31.66
Canceled or expired ..................... (616,000) $ 15.39
Exercised ............................... (4,185,000) $ 4.69
----------- -----------
Balance at December 31, 1997 ............ 22,044,000 $ 18.62
Granted ................................. 11,706,000 $ 16.18
Canceled or expired ..................... (8,629,000) $ 23.86
Exercised ............................... (5,575,000) $ 4.68
----------- -----------
Balance at December 31, 1998 ............ 19,546,000 $ 11.42
=========== ===========
</TABLE>
76
<PAGE> 78
As of December 31, 1997 and 1998, stock options were exercisable for
6,189,000 and 7,425,000 common shares, respectively.
In November 1998, the Company's Supervisory Board of Directors approved an
option repricing program. Under the repricing program, current employees (other
than designated members of senior management) holding outstanding options with
exercise prices at or above $11.13 per share could elect to amend such options
to change the exercise price to $11.13 per share, the average of the fair market
value on three consecutive trading days. All other terms of such options
remained unchanged, except that the repriced options are not exercisable for a
period of six months after the effective date of the repricing. If an employee
voluntarily terminates his or her employment prior to the end of the six-month
non-exercise period, the amended options will be forfeited and the unexercised
shares returned to the 1993 Stock Plan.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<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>
$0.01 - $5.68 1.0 year 3,511,000 $ 1.27 2,611,000 $ 1.15
$5.69 - $11.36 2.4 years 9,918,000 $ 10.72 3,825,000 $ 10.41
$11.37 - $17.03 3.9 years 3,352,000 $ 12.21 204,000 $ 13.72
$17.04 - $22.71 2.7 years 1,289,000 $ 18.20 285,000 $ 18.77
$22.72 - $28.39 5.5 years 11,000 $ 27.27 8,000 $ 27.74
$28.40 - $34.07 3.1 years 1,217,000 $ 31.25 400,000 $ 31.08
$34.08 - $39.75 3.3 years 181,000 $ 36.59 75,000 $ 36.82
$39.76 - $45.42 3.1 years 43,000 $ 43.62 3,000 $ 44.63
$45.43 - $51.10 6.7 years 13,000 $ 49.69 6,000 $ 49.69
$51.11 - $56.78 0.5 years 11,000 $ 55.85 8,000 $ 56.60
------------ -----------
19,546,000 7,425,000
============ ===========
</TABLE>
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
77
<PAGE> 79
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
---------------------------- ----------------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (months) .......... 56 56 59 6 6 6
Expected volatility ............. 50% 50% 75% 50% 50% 75%
Risk-free interest rate ......... 6.1% 5.7% 5.1% 6.2% 5.4% 5.1%
</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 1996,
1997 and 1998 is as follows (in thousands except for net income per share):
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported ................ $ 36,612 $ 77,156 $ (315,192)
Pro forma .................. $ 28,616 $ 50,479 $ (383,920)
Basic income (loss) per share
As reported ................ $ 0.20 $ 0.40 $ (1.59)
Pro forma .................. $ 0.16 $ 0.26 $ (1.93)
Diluted income (loss) per share
As reported ................ $ 0.19 $ 0.37 $ (1.59)
Pro forma .................. $ 0.15 $ 0.25 $ (1.93)
</TABLE>
The weighted-average fair value of options granted during 1996, 1997 and
1998 was $5.30, $11.25 and $14.73 respectively. The weighted average fair value
of employee stock purchase rights granted under the U.S. ESPP and Non-U.S. ESPP
during 1996, 1997 and 1998 was $3.61, $6.28 and $11.57, respectively.
7 INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109. Deferred income taxes are provided, using the
liability method, for all temporary differences between tax and financial
reporting.
Income (loss) before taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
The Netherlands ................. $ 49,229 $ 81,629 $(119,744)
Rest of the world ............... 10,638 31,881 (215,448)
--------- --------- ---------
Income (loss) before income taxes $ 59,867 $ 113,510 $(335,192)
========= ========= =========
</TABLE>
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
The Netherlands .................. $ 22,184 $ 31,316 $(31,088)
Germany .......................... 4,393 4,536 (6,000)
United States .................... 3,168 7,579 1,300
Other countries .................. 697 3,515 5,000
-------- -------- --------
Total current .................. 30,442 46,946 (30,788)
</TABLE>
78
<PAGE> 80
<TABLE>
<S> <C> <C> <C>
Deferred:
The Netherlands .................. (7,410) (11,741) 13,708
Germany .......................... 223 415 (4,629)
United States .................... -- 734 1,709
-------- -------- --------
Total deferred ................. (7,187) (10,592) 10,788
-------- -------- --------
Provision (benefit) for income taxes $ 23,255 $ 36,354 $(20,000)
======== ======== ========
</TABLE>
In 1996, the Company recognized tax benefits related to stock option plans
of $797,000. Such benefits were recorded as an increase to additional paid-in
capital.
The Company's effective income tax rate differs from The Netherlands'
standard rate of 35% due to the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected tax at standard rate ............. $ 20,953 $ 39,729 $(117,317)
Amortization of goodwill .................. 661 2,106 8,341
Foreign earnings taxed at higher rates .... 1,881 239 --
Dutch qualifying income tax reduction ..... -- (4,382) --
Increase in valuation allowance ........... -- -- 116,404
Rate differential on subsidiary write-downs -- -- (50,600)
Other, net ................................ (240) (1,338) 23,172
--------- --------- ---------
Provision (benefit) for income taxes ...... $ 23,255 $ 36,354 $ (20,000)
========= ========= =========
Effective tax rate ........................ 39% 32% 6%
========= ========= =========
</TABLE>
The components of the deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Expenses not currently deductible $ 1,709 $ 13,210
Net operating losses ............. 13,708 137,349
Deferred revenue ................. -- 7,760
Credits .......................... -- 3,348
--------- ---------
Total deferred tax assets ...... 15,417 161,667
Less valuation allowance ....... -- (116,404)
--------- ---------
Total deferred tax assets ...... 15,417 45,263
--------- ---------
Deferred tax liabilities:
Software development costs ....... -- 2,663
Reduction in value of subsidiaries -- 42,600
Intangible assets ................ 4,629 --
--------- ---------
Total deferred tax liabilities . 4,629 45,263
Total net deferred tax asset ....... $ 10,788 $ --
========= =========
</TABLE>
At December 31, 1998 the Company had net operating losses generated in
various countries totaling approximately $445,449,000 of which $333,000,000,
$25,074,000 and $67,905,000 were generated in The Netherlands, Germany and the
United States, respectively. The Netherlands and Germany net operating losses
can be carried forward indefinitely to offset future taxable income. The net
operating losses generated in the United States expire in 2008 or later.
Approximately $29,100,000 of the net operating losses generated in the United
States relate to disqualifying dispositions of qualified incentive stock options
and will not result in a tax rate benefit when these losses are utilized. The
benefit of the net operating losses generated in 1996 and 1997 was
79
<PAGE> 81
recorded as a reduction of the provision for Dutch income taxes in 1996 and
1997. As of December 31, 1998, the Company has established a valuation allowance
for all net operating losses.
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 benefits indefinitely. A determination of that liability is not
practicable.
During 1997, the Company was notified by the Dutch authorities that it
qualified for a reduced tax rate on certain part of its qualifying income which
included net interest income from intercompany loans, and for money held on the
convertible debt, and on royalties from the direct license revenue. The reduced
tax rate on certain qualifying income may be subject to review by the European
commission.
8 FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments are limited to
short-term foreign currency forward contracts and the purchase of foreign
exchange put and call options. The Company uses these contracts primarily to
offset the effects of exchange rate changes on intercompany 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.
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.
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,
-----------------------
1997 1998
------- -------
<S> <C> <C>
European currencies .... $45,124 $ 2,811
Asian currencies ....... 29,584 --
Other currencies ....... 1,210 --
------- -------
Total .................. $75,918 $ 2,811
======= =======
</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.
80
<PAGE> 82
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>
1997 1998
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents ........ $111,417 $111,417 $205,751 $205,751
Marketable securities ............ 104,847 104,847 1,080 1,080
Financial liabilities
Short-term borrowings ............ 877 877 121 121
Convertible subordinated notes ... 200,000 316,060 190,103 143,053
Other long-term borrowings
(including current portion) ... 1,571 1,571 1,312 1,312
Off-balance sheet instruments
Foreign currency forward contracts -- 75,014 -- 2,972
</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 decrease in share price
of the Company's common stock since the Notes were issued.
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, 1998.
9 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.
81
<PAGE> 83
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, 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. For the
year ended December 31, 1998, the Company charged $55.3 million to bad debt
expense and recorded bad debt write-offs of $23.8 million.
10 TRANSACTIONS WITH RELATED PARTIES
Jan Baan, formerly Chief Executive Officer and a Managing Director of the
Company, and J.G. Paul Baan, formerly a Supervisory Director of the Company, and
the Company's founders, effectively control a Netherlands limited liability
company called Vanenburg Ventures B.V. ("VV," formerly Baan Investment B.V.). As
of April 9, 1999, VV owns approximately 20% of the Company's outstanding Common
Shares. All of the shares of VV are in turn held by a share administration
foundation of which Messrs. Baan and Baan are directors, thereby providing them
with effective voting control of VV's shares in the Company. The economic
interest in VV's shares is held by the Oikonomos Foundation, a foundation the
Baan brothers established under Netherlands law in 1994 to carry out charitable
activities throughout the world.
VV was created in 1994 as a venture capital company that invests in the
form of corporations, joint ventures, or partnerships in various new
technologies, educational programs, research projects and sales, consulting, and
support activities principally in the ERP and other technology markets. As
described further below, the Company has entered into various agreements with
entities owned or controlled by VV and has recognized revenue and reimbursement
of expenses from, and incurred costs for goods and services provided by, such
related parties. The Company believes that all such transactions have been
entered into in the ordinary course of business and have been on terms no less
favorable than would have been obtained from unrelated third parties. During
1998, it has been Company policy to have all material agreements with VV
approved by the independent directors of the Company's Supervisory Board, and
information on all material VV relationships has also been provided to the
Company's Audit Committee.
As reported in the Company's Form 20-F for 1997, VV owned approximately 39%
of the Company's outstanding shares as of April 1998. In October 1998, however,
VV publicly disclosed that it had secured $500 million in loans to help fund
certain of its operations and investments, with VV's shares in the Company
serving as collateral on those loans. When the publicly traded share price in
the Company's stock declined over the summer and into the fall of 1998, VV
reported that its lenders began selling the VV collateral shares to pay down the
VV debt obligations. As a consequence of these actions, VV's holdings of the
Company's shares had declined to 20.12% as of April 9, 1999. VV also indicated
that it would undertake a review of its operations/investments, with an eye
toward reorganizing and/or selling certain of its assets.
Revenues from VV during 1996, 1997 and 1998, were $14.5 million, $66.3
million and $50.6 million, respectively. As of December 31, 1997 and 1998, the
outstanding balances with VV (reflected in amounts (due to) and due from related
parties) consisted of the following (in thousands):
82
<PAGE> 84
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
------- -------
<S> <C> <C>
Baan Midmarket Solutions(BMS) .... $19,396 $ 2,648
Vanenburg Business Systems(VBS) .. 9,935 1,142
Vanenburg Ventures ............... 9,079 (1,463)
Other ............................ 4,355 3,970
------- -------
$42,765 $ 6,297
======= =======
</TABLE>
THE COMPANY'S INDIRECT CHANNEL. Since 1996, one of the principal
relationships between VV and the Company has been VV's involvement as both a
reseller and manager of the Company's indirect channel. As indicated above, the
Company began building an indirect channel in 1996 as part of its strategy to
penetrate the SME market (or so-called midmarket). Because the go-to-market
strategy and demands of the midmarket differ significantly from those of the
high-end ERP sector, the Company believed then (and continues to believe) that
the midmarket could likely best be served through creation of an indirect
channel. Commencing in 1996, therefore, the Company embarked on a strategy of
signing resellers as part of this midmarket strategy.
1. The BBS relationship. Consistent with its venture capital philosophy,
and in an effort to participate in the indirect channel the Company was
creating, VV and a third party in 1996 created a joint venture known as BBS
Holding B.V. (now owned 100% by VV). That company in turn owns a series of
approximately fifteen companies operating as resellers in the midmarket space.
These companies were commonly referred to throughout 1996-1998 as the Baan
Business Systems network, or "BBS." In April 1999, BBS changed its name to the
Vanenburg Business Systems network, or "VBS."
Commencing in 1996 and continuing through 1997, the Company entered into a
reseller relationship with VBS. Prior to 1997, VBS, like each of the Company's
resellers, paid a fee to the Company for licenses resold based on a percentage
of the resale price. In 1997, when the Company amended its reseller license fee
terms to provide for a straight per-seat license fee, VBS negotiated a volume
discount fee structure reflecting the greater volume of its purchases (at that
time VBS comprised greater than 50% of sales of the Company's products in the
indirect channel; that number today is approximately 30% of channel sales) as
well as its willingness to pay for the seats up front in cash in exchange for
the lower rate. In all other respects, VBS's terms have been materially the same
as those provided other resellers; it has not been given special payment,
return, or exchange terms.
The Company recognized revenues of approximately $4.5 million and $32.3
million from VBS during 1996 and 1997, respectively, from sales of licenses
pursuant to the VBS reseller agreement. In addition, during 1996 and 1997, the
Company assigned to VBS a number of customer contracts that the Company believed
could best be served by VBS. In connection with assigning those contracts: (i)
the Company assigned the related outstanding accounts receivable balances in the
aggregate amount of $4.6 million and $0.3 million, respectively, and VBS paid
for such outstanding receivables; and (ii) VBS paid the Company for these
contracts $10.0 million, $18.0 million and $2.9 million in 1996, 1997 and 1998,
respectively, representing the value of certain potential future license revenue
forgone by the Company as a result of pricing differences between customary
terms in direct sales versus indirect channel, third-party contracts. Finally,
during 1997 the Company recognized $8.7 million from the VBS holding company for
the non-recourse assignment of the remaining rights and obligations under a
license agreement with an
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<PAGE> 85
unrelated third-party. All revenue recognized from VBS is included in "License
revenue from related parties" in the accompanying Consolidated Statements of
Operations.
The Company recorded no license revenues from VBS in 1998 because it and
the Company's other resellers began buying directly from a newly formed company,
Baan Midmarket Solutions B.V. ("BMS"), a joint venture between the Company and
VV created in late 1997 as wholesaler and manager of the indirect channel.
2. Creation of BMS. Over the course of 1997, the Company's indirect channel
grew to approximately 110 resellers, including approximately 15 VBS companies.
Given that growth, and the potential for future growth of the channel, the
Company determined that a stronger infrastructure to manage and support the
channel was needed. To provide that "backbone," the Company and VV entered into
a joint venture agreement in the fourth quarter of 1997 under which BMS was
created (85% owned by VV, 15% by the Company). As envisioned, BMS would act as
the wholesaler to the indirect channel distributors and resellers, and would
provide training, lead generation and sales support to further develop and
sustain the channel. With the creation of BMS, the Company ceased to sell
directly to VBS and its other resellers (with the exception of minor direct
sales to independent third-party resellers in the first quarter of 1998 in the
amount of $5.3 million, $1.3 million of which was recorded as deferred revenue).
In connection with creating BMS in 1997, the Company entered into a
software distribution agreement under which it: (i) provided BMS with
distribution rights to the Company's products; and (ii) assigned a majority of
the Company's existing VAR (value added reseller) agreements to BMS. In
consideration for that assignment, BMS paid the Company $13 million,
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. In addition, the Company
recognized revenues of approximately $3.0 million and $47.7 million during
1997 and 1998, respectively, from sales of licenses to BMS pursuant to the
distribution agreement. All revenue recognized from BMS is included in "License
revenue from related parties" in the accompanying Consolidated Statements of
Operations.
In addition, the Company outsourced to BMS certain of its (the Company's)
employees and provided to BMS certain billing, collection, and other back office
services pursuant to a separate services agreement. Under that agreement, BMS
reimbursed the Company for the actual costs of the personnel assigned as well as
other direct expenditures made by the Company on BMS's behalf. It also paid an
additional 15% of these reimbursed costs as a surcharge for the administrative
and back office services the Company provided. That amount was approximately
$7.5 million in 1998. Such amounts are recognized as a reduction in "General and
administrative expenses" in the accompanying Consolidated Statements of
Operations.
The Company's distribution agreement with BMS at no time permitted stock
balancing, returns, or exchanges (since there were no extended payment or return
provisions in that contract), and there has never been any stock balancing,
returns, or exchanges from BMS to the Company. The Company likewise is not aware
that BMS had any such arrangements with any of the VARs or distributors it
managed. In January 1999, BMS sold its remaining stock of inventory at a
discount to an independent third-party distributor. In connection with the
Company's purchase of BMS's core assets in January 1999 (described in detail
below), the Company paid VV $2 million on execution of that purchase agreement
representing approximately one-half the discount negotiated by the independent
third-party purchaser of BMS's inventory.
Prior to 1998, with the indirect channel still ramping up and providing
modest contribution to the Company's overall revenue generation, the Company
recognized revenue on a sell-in model into the channel. Consistent with industry
practice, the Company adopted the sell-in model of placing inventory in the
channel to ensure the VARs were investing in the business plan to resell the
Company's products.
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<PAGE> 86
Over the course of 1998, however, BMS better than doubled the number of
channel partners selling the Company's products into the midmarket - ending 1998
with approximately 215 independent, third-party VARs and approximately 15 VBS
resellers. With a related party acting as the sole distributor for indirect
sales, and with indirect sales in early 1998 showing the potential to grow
significantly as a percentage of the Company's total sales, the Company
announced in the second quarter of 1998 that it would change to the sell-through
model for channel revenue recognition. With this change, sales to BMS were made
based on BMS's reports of the VAR's sell-through to end-users.
With the exception of the limited sales the Company made directly to
resellers in the first quarter of 1998, all of the 230 or so VARs bought
licenses from BMS. As a result, virtually all of the Company's indirect channel
revenue in 1998 was reported under the "License revenue from related parties"
item in the accompanying Consolidated Statement of Operations. During the course
of 1998, sales to BMS, recognized by the Company as related party revenue, were
$15.3 million in the first quarter, $32.6 million in the second quarter, and
$23.2 million in the third quarter. With respect to the fourth quarter of that
year, BMS advised the Company that $17 million in licenses had been sold through
to end-users during that quarter. As described in the next subsection, however,
the Company did not sell new licenses to BMS in the fourth quarter as part of a
strategy to address inventory levels in the channel in light of declining ERP
demand.
3. Channel inventory. BMS's records provided to the Company indicate there
was approximately $56 million in total inventory in the indirect channel at the
start of 1998. The Company reported in its 1997 Form 20-F that, based on
estimates BMS confirmed, the Company understood that $11 million of this total
channel inventory was with related parties ($3 million with BMS, and
approximately $8 million with VBS). Subsequent review of VBS's records in late
1998 indicate that apparently approximately $23 million of the $56 million in
total channel inventory at the start of 1998 was actually in related party hands
(the $12 million difference being attributable to additional inventory that
apparently was with VBS at the commencement of 1998). Thus, according to VBS's
and BMS's records, the Company began 1998 with $56 million in total channel
inventory, of which $23 million was with related parties and the remainder was
with independent, third-party VARs.
The BMS records also reflect that total channel inventory did not increase
during 1998; inventory as of September 30, 1998 was at the same $56 million
total. The mix of related party and third-party inventory levels did change,
however, consistent with BMS's role as channel manager. At the end of the third
quarter of 1998, total BMS inventory had increased to $40 million of the $56
million total, as channel inventory was aggregated over the year within BMS.
According to BMS's figures, BMS inventory levels were approximately $13 million
at end of the first quarter of 1998; $30 million at end of the second quarter;
and $40 million at end of the third quarter. Again, total inventory in the
channel had not grown during this time, meaning that third-party inventory
levels had been reduced to approximately $16 million over the course of the
year.
The Company entered 1998 in what appeared to be an expanding ERP market.
Based on a review of the public filings and analyst estimates of 20 leading
enterprise application vendors, the data suggests that license revenues for
these companies grew overall 58% in 1997. That growth rate continued strong at
47% in the first quarter of 1998 (year over year), and softened some to
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<PAGE> 87
35% in the second quarter; but in the third quarter the license revenue growth
rate for these companies had declined to 20%, and it dropped even further to
just 4% in the fourth quarter.
As it became clear following the third quarter of 1998 that license revenue
growth rates industry-wide were declining, and in connection with the Company's
determination to undertake a comprehensive reorganization plan in the fourth
quarter, the Company acted to address the issue of indirect channel inventory.
To eliminate the approximate $56 million in indirect channel inventory existing
at the end of the third quarter: (i) approximately $17 million in inventory was
sold by the Company's indirect channel to end-users during the fourth quarter,
thus reducing the inventory number by that amount; and (ii) as to the remaining
channel inventory of approximately $39 million, the Company reversed that amount
from fourth quarter revenue and recorded it as deferred revenue in the quarter.
The Company undertook this latter reversal even though product had been
delivered, approximately $34 million for such licenses had been paid, and there
were no cancellation or return provisions. The practical effect of these actions
was to eliminate inventory from the channel, since remaining levels that were
now recorded as deferred revenue will only be recognized as revenue as it is
sold through to end-users.
The $23 million in BMS inventory that existed at the end of the fourth
quarter (which comprised all remaining related party inventory) was purchased at
a discount by an independent third-party distributor pursuant to an agreement
between it and BMS in January 1999. As a result of that transaction, there was
no related party channel inventory as of January 1999. All channel inventory
(approximately $39 million) is in the hands of independent distributors and
VARs, and the Company will recognize revenue from the sale of such inventory
only as it is sold to end-users.
4. The Company's acquisition of core BMS assets. In connection with its
October 1998 announcement that VV's lenders were selling the Company shares VV
owned and had pledged as collateral to pay down VV's debt obligations, VV also
announced that it would reorganize its business, and potentially liquidate or
substantially restructure certain of its assets.
One of the assets immediately and significantly put at risk by these events
was the BMS joint venture with the Company. Given the importance of the indirect
channel to the Company's strategy going forward, the Company decided to purchase
the core BMS assets. In January 1999, the Company entered into an agreement with
VV pursuant to which the Company purchased (or was assigned) all VAR agreements
that had previously been assigned to BMS and/or that BMS had entered into since
its creation. Approximately 130 BMS employees also transferred to the Company as
part of the transaction.
The purchase price is comprised of the following: (i) $2 million paid in
cash upon execution, representing one-half the total discount negotiated by the
third-party distributor that purchased the BMS inventory existing at the end of
1998; and (ii) a three-year, 15% royalty on the Company's net revenues from its
indirect channel that includes a minimum payment and maximum potential earn out.
The minimum guaranteed payment is approximately $41 million. To the extent this
minimum is not earned in full via the royalty the Company would be obligated to
pay VV the difference between the earned amounts and the minimum guaranty). The
maximum potential earn out is the guaranteed minimum payment plus up to an
additional $44 million.
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<PAGE> 88
The surviving entity of what had been BMS is now owned 100% by VV. The
principal remaining assets of that entity are outstanding accounts receivables;
it is expected the surviving entity will be liquidated once those accounts
receivables are collected. The Company was advised on the transaction by outside
U.S. and Dutch legal counsel. Credit Suisse First Boston issued a fairness
opinion as to the fairness from a financial point of view to the Company of the
consideration being paid for BMS.
As a result of this transaction, management of the Company's approximately
230 channel partners is now under the Company's direct control. Included in that
number are the approximately 15 VBS resellers, but the current VBS agreement
(assumed by the Company as part of the acquisition) requires VBS to purchase
licenses of the Company's products for resale from an independent third-party
distributor. The net result is that, commencing in the first quarter of 1999, it
is the Company's intention that it will no longer have related party license
revenue associated with the indirect channel.
In addition, as part of the BMS agreement, VV has agreed to eliminate the
"Baan" name from any and all of its operations, and VV has recognized the
Company's ownership of all right, title, and interest in and to the "Baan" name
for commercial purposes. Any use of the "Baan" name by VV going forward must be
based on written agreement with the Company; but it is the intention of the
Company, except in isolated cases to aid in a particular VV entity's transition
to another name, that it will not grant permission to such use by VV.
OTHER COMPANY-VV RELATIONSHIPS DURING 1998. During early 1998, the Company
sold to or acquired from VV (or VV-related entities) the following
assets/entities:
- - Pursuant to a decision to eliminate its two remaining joint investments
with VV (other than BMS), the Company sold its minority interests in
two software companies (Top Tier and B.A. Intelligence Networks, in
which VV also had an interest) to VV for approximately $9.7 million.
The proceeds approximated the Company's carrying value in such
investments; therefore, the Company did not realize a gain or loss on
these transactions;
- - Having concluded that certain of its Latin American subsidiaries were
operating in countries in which the midmarket presented the most
attractive market opportunity, and thus should more appropriately be
part of the Company's indirect channel, the Company sold those
subsidiaries to VV for approximately $5.2 million. The Company
recognized a loss of approximately $7.2 million from the sale of such
subsidiaries. Such loss is included in "Loss on disposals of assets" in
the accompanying Consolidated Statements of Operations; and
- - The Company also acquired ownership in certain work flow engine
technology from LEY GmBH ("LEY"), a company in which VV had a 58%
equity interest at that time. The Company paid $5.5 million to acquire
this technology, based on an independent valuation, which is recorded
in "Software development costs" on the accompanying Balance Sheet. The
agreement also provides LEY with the right to sell the product on a
stand-alone, royalty basis (the Company has need to sell this engine
only as a bundled product). LEY did not have stand-alone sales in 1998
according to its reports to the Company, so no royalties were recorded.
During 1997 and 1998, the Company also charged VV the following amounts for
certain IT and marketing services:
- - $5.0 million and $16.5 million, respectively, pursuant to an IT
services agreement between the parties under which the Company provides
VV use of the Company's IT and telephony infrastructure. Pricing was
based on third-party information the Company obtained
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<PAGE> 89
concerning outsource rates charged for similar arrangements by third
parties. VV has indicated it expects that at some point during 1999 it
will no longer require these services and this agreement will be
terminated; and
- - $3.6 million and $5.3 million, respectively, for marketing costs
(including without limitation for its use of the "Baan" name). Due to
VV's election in late 1998 to close or sell a substantial number of its
investments, and its agreement to cease use of the "Baan" name
(described above), the Company will not be charging VV any such
marketing costs in 1999.
Such amounts have been reflected as reductions in operating expenses in the
accompanying Consolidated Statements of Operations.
During 1998, the Company entered into OEM agreements with certain software
companies owned or controlled by VV. The Company recognized royalties and
development expenses in connection with such agreements during 1998 of
approximately $1.4 million and $2.5 million, respectively. Such royalties and
development expenses are included in "Cost of license revenue" and "Research and
development expense," respectively, in the accompanying Consolidated Statements
of Operations.
In addition, the Company has entered into several agreements with VV
entities under which the Company paid VV certain product, services, or lease
fees during 1997 and 1998. These agreements include royalty agreements under
which the Company is authorized to resell instructional or other materials
created by certain companies owned or controlled by VV; subcontracting
agreements whereby the Company retains the services of certain VV entities to
assist in fulfilling customer commitments; and lease agreements for certain of
the Company's Netherlands facilities that are properties owned by VV entities.
The total costs and expenses incurred by the Company in 1997 and 1998 associated
to these agreements were not material.
VV has indicated that it intends to continue the process of closing or
selling certain of its investments. Certain of the assets VV is prepared to sell
may fit within the Company's strategy going forward and may add value to its
product offerings or ability to better serve its customers. The Company will
evaluate any such opportunities with the advice and approval of its independent
directors and independent valuations as appropriate.
11 ACQUISITIONS
In May 1996, the shareholders of Berclain Group Inc. ("Berclain") agreed to
exchange their shares in Berclain for approximately 1.1 million 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 approximately 1.8 million 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.
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<PAGE> 90
In August 1997, the Company acquired all of the outstanding shares of Aurum
Software Inc. ("Aurum") for approximately 8.3 million 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 results of the Company and Aurum for the periods
prior to the acquisition were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS ENDED
DECEMBER 31, 1996 AUGUST 31, 1997
----------------- ------------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Net Revenues:
Aurum Software, Inc. $ 27,584 $ 24,232
Baan Company ....... 387,958 319,098
--------- ---------
$ 415,542 $ 343,330
========= =========
Net Income (Loss):
Aurum Software, Inc. $ 279 $ (3,538)
Baan Company ....... 36,333 2,537
--------- ---------
$ 36,612 $ (1,001)
========= =========
</TABLE>
In November 1997, the Company acquired all of the outstanding shares of
Beologic A/S ("Beologic") for approximately 1.3 million 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 non-recurring charges related to direct transaction and integration
costs as a result of the combinations with Aurum and Beologic. Such costs
included asset write-downs of $3.4 million for capitalized software, goodwill
and other intangible assets, professional fees of $4.6 million, and
restructuring charges of $4.1 million. The restructuring charges consisted of
$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
Company completed the actions associated with the restructuring as of December
31, 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
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liabilities, $1.5 million was allocated to customer lists, $7.2 million to
assembled workforce and $21.3 million to goodwill.
In May 1998, the Company completed the acquisition of the outstanding
shares of CODA Group plc. ("CODA"). CODA is a provider of financial software.
Under the terms of the share exchange, the Company issued 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 were assumed and converted into Baan options at the same exchange
ratio. The business combination was accounted for as a pooling of interests.
CODA's historical financial statements are not material to the consolidated
historical financial statements of the Company. The Company did not restate any
of its consolidated financial statements prior to the combination. In connection
with the acquisition of CODA, the Company recognized a $9.6 million write-down
of duplicative capitalized software development costs, a $3.0 million
non-recurring charge for related professional fees, and a $1.8 million
restructuring charge, primarily severance related costs and other costs
associated with the consolidation of operations. None of the $1.8 million
restructuring charge remains unpaid as of December 31, 1998.
In September 1998, the Company acquired all of the outstanding shares of
CAPS Logistics, Inc. ("CAPS"), a provider of optimization software for logistics
planning and scheduling. The Company issued 2.5 million of the Company's common
shares, with an aggregate fair value on the acquisition date of approximately
$68 million and incurred other acquisition costs of approximately $3 million,
resulting in a total purchase price of approximately $71 million. The purchase
price was allocated as follows: capitalized software of $31 million, goodwill of
$37 million, assembled workforce of $2 million, and net tangible assets of $1
million.
12 COMMITMENTS AND CONTINGENCIES
LEASES
The Company has operating leases for substantially all of its offices
globally, certain data-processing equipment, telephone equipment, and other
office equipment. Rental expense for operating leases for the years ended
December 31, 1996, 1997, and 1998 was approximately $8,075,000, $14,701,000, and
$24,827,000, respectively.
Minimum annual rental commitments under noncancelable operating leases for
periods subsequent to December 31, 1998, (based upon the exchange rates at
December 31, 1998), are as follows (in thousands):
<TABLE>
<S> <C>
1999 ...................................... $28,027
2000 ...................................... 20,266
2001 ...................................... 16,496
2002 ...................................... 11,596
2003 ...................................... 4,856
Thereafter ................................ 3,355
-------
Total minimum rental commitments .......... $84,596
=======
</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 adverse effect upon
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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.
In October of 1998, the Company and certain of its current or former
officers and directors were named as defendants in a purported shareholder class
action lawsuit entitled Salerno v. Baan Company N.V. et al., which was brought
in the United States District Court for the District of Columbia. Six additional
purported shareholder class action lawsuits were subsequently brought, each in
the same court with substantially similar allegations: that the Company
allegedly violated certain of the U.S. securities laws by making purportedly
false and misleading statements about the Company's operations during the period
from, in or around the end of January 1998 through mid-October 1998.
On February 16, 1999, the Court consolidated the actions and, as a
consequence, plaintiffs' leave to file a consolidated amended complaint has been
granted. Plaintiffs' motion for appointment of lead plaintiffs and lead counsel
remains pending. The Company has retained outside counsel and intends to
vigorously defend. Management, with the advice of outside legal counsel, expects
that the outcome of the actions will not have a materially adverse impact on the
Company's consolidated financial position.
13 INDUSTRY SEGMENT, GEOGRAPHIC AND OTHER INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in the fiscal year ended December 31, 1998. SFAS establishes standards for
reporting information about operating segments and related disclosures products
and services, geographic areas, and major customers. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company
designs, manufactures, and markets applications software for business processes
and operates in a single industry segment. As such, the financial information
disclosed herein, materially represents all of the financial information related
to the Company's principal operating segment.
The following table presents revenues and certain long-lived assets by
geographic region for the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net revenues from unaffiliated customers:
The Netherlands ................................. $ 82,622 $ 78,695 $ 79,475
Germany ......................................... 54,073 90,122 95,167
United States ................................... 157,441 250,343 256,804
Other international ............................. 106,874 194,111 253,603
-------- -------- --------
Total net revenues from unaffiliated customers 401,010 613,271 685,049
Related-party revenue ........................... 14,532 66,325 50,600
-------- -------- --------
Total net revenues ........................... $415,542 $679,596 $735,649
======== ======== ========
Long-lived assets:
The Netherlands ................................. $ 53,082 $103,965 $173,789
Other international ............................. 26,665 74,149 72,028
-------- -------- --------
Total long-lived assets ...................... $ 79,747 $178,114 $245,817
======== ======== ========
</TABLE>
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No customer accounted for 10% or more of consolidated net revenues in 1996,
1997 or 1998. Related party revenue for all such parties as a group accounted
for 10% of the Company's total net revenue for 1997.
14 NON-RECURRING ACTIVITIES
In October 1998, the Company announced a comprehensive reorganization plan
to reduce the Company's expense levels and to streamline operations. In
connection with the reorganization, the Company recognized a non-recurring
charge of approximately $140.5 million during the fourth quarter of 1998.
Approximately $58.0 million of the non-recurring charge related to the disposal
of certain non-strategic business entities and recognized losses on disposal of
those assets. Approximately $27.3 million related to the write-down of certain
long-lived assets in connection with the reorganization.
Restructuring costs were approximately $55.2 million and consisted of (i)
severance-related costs for over 1,000 employees affected by the
reduction-in-force, (ii) costs related to the consolidation and closure of
approximately 50 offices where the Company had redundant operations as a result
of acquisitions, and (iii) costs associated with the cancellation of certain
marketing and sales programs, including Expo 2000 and Baan World 1999. The
reduction-in-force affected employees in sales and marketing, services and
support, research and development, and general and administrative departments.
In connection with the reorganization, the Company evaluated the net
carrying value of certain intangible assets and determined that the net carrying
values had been impaired. Accordingly, the Company recognized a charge of
approximately $27.3 million to write-down these assets to their net realizable
value.
In connection with the acquisition of CODA in May 1998, the Company
recognized approximately $1.8 million of restructuring charge related the
closing of certain offices. None of the $1.8 million restructuring charge
remains unpaid as of December 31, 1998.
The following table, expressed in thousands, summarizes the Company's
non-recurring expenses and activity for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Total Cash Asset Accrual Balance at
Costs Paid Write-offs December 31, 1998
-------- -------- ---------- ------------------
<S> <C> <C> <C> <C>
Reorganization:
Asset write-downs .......... $ 27,299 -- 27,299 $ --
Loss on disposal of assets . 58,030 -- 45,988 12,042
Severance-related costs .... 22,204 13,897 -- 8,307
Sales and marketing programs 21,694 -- 14,693 7,001
Closure of offices ......... 9,849 6,754 -- 3,095
Other non-recurring charges 1,425 538 -- 887
-------- -------- -------- --------
140,501 21,189 87,980 31,332
-------- -------- -------- --------
Coda acquisition:
Software development costs . 9,600 -- 9,600 --
Closure of offices ......... 1,800 1,800 -- --
Professional fees .......... 3,000 3,000 -- --
-------- -------- -------- --------
14,400 4,800 9,600 --
-------- -------- -------- --------
Total non-recurring expenses .. $154,901 $ 25,989 $ 97,580 $ 31,332
======== ======== ======== ========
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BAAN COMPANY N.V.
By: /s/ Tom C. Tinsley
-------------------------------
Tom C. Tinsley
Managing Director
By: /s/ N.M. (Klaas) Wagenaar
-------------------------------
N.M. (Klaas) Wagenaar
Executive Vice President,
Operational and
Strategic Initiatives
(Chief Financial Officer
during 1998)
Date: June 2, 1999
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ---------------------------------------
<S> <C>
1.1 English translation of Articles of Association of the Company lodged
with the Chamber of Commerce and Industry for Arnhem, The Netherlands*
2.1 Indenture, dated as of December 15, 1996, between the Company and
Marine Midland Bank, as Trustee, relating to the 4.5% Convertible
Subordinated Notes***
2.2 Form of Notes included in Exhibit 2.1.***
2.3 Agreement and Plan of Reorganization, dated as of May 13, 1997, among
Baan Company N.V., Green Software Acquisition Corporation and Aurum
Software, Inc. ****
2.4 Share Rights Agreement, dated December 31, 1998, between Baan Company
N.V. and Fletcher International Limited
3.1 Form of Indemnification Agreement between the Company and directors and
officers*
3.2 1993 Stock Plan, as amended on May 1, 1995, and form of Option Agreement
thereunder*
3.3 1995 Director Option Plan*
3.4 1995 Employee Stock Purchase Plan for U.S. Employees*
3.5 1995 Employee Stock Purchase Plan for Non-U.S. Employees*
3.6 Management Agreement between the Company and Jan Baan B.V., together
with form of Agreement among the Company, Jan Baan B.V. and Jan Baan*
3.7 Management Agreement between the Company and Paul Baan B.V., together
with form of Agreement among the Company, Paul Baan B.V. and J.G. Paul
Baan*
3.9 Agreement dated as of August 3, 1994 between the Company and Boeing*+
3.13 Agreement dated May 15, 1995 between the Company and Baan Deutschland
GmbH regarding the Company's acquisition of Baan Deutschland GmbH*
3.14 Employment Agreement between the Company and Tom Tinsley**
3.19 Employment Agreement dated as of September 29, 1994 between the Company
and Amal Johnson*
3.20 Recommended Offer by Goldman Sachs International on behalf of Baan
Company N.V. for The CODA Group plc. dated March 13, 1998.
3.21 Agreement and Plan of Reorganization, Escrow Agreement, and Shareholder
Agreement, each dated as of September 23, 1998 regarding acquisition of
CAPS Logistics, Inc.
3.22 Baan Midmarket Solutions B.V. Share Purchase and Asset Purchase
Agreements among Baan Company N.V., Vanenburg Ventures B.V. and Baan
Midmarket Solutions B.V. dated January 20, 1999.
A.1 Subsidiaries of the Company
A.2 Consent of PricewaterhouseCoopers N.V., Independent Accountants
A.3 Consent of Ernst & Young Accountants, Independent Auditors
</TABLE>
- ---------------
* Incorporated by reference to the Registration Statement (Registration
Statement No. 33-91598) on Form F-1 effective on May 19, 1995
** Incorporated by reference to the Registration Statement (Registration
Statement No. 333-00800) on Form F-1 effective on March 1, 1996
*** Incorporated by reference to the Registration Statement (Registration
Statement No. 333-24201) on Form F-3 filed on March 31, 1997
**** Incorporated by reference to the Registration Statement (Registration
Statement No. 333-31999) on Form F-4 effective on July 24, 1997
+ Confidential treatment granted.
<PAGE> 1
EXHIBIT 2.4
SHARE RIGHTS AGREEMENT
This Share Rights Agreement (this "Agreement") dated as of
December 31, 1998 is entered into by and between Baan Company N.V., a
corporation organized under the laws of the Netherlands (together with its
successors, "Baan"), and Fletcher International Limited, a company organized
under the laws of the Cayman Islands (together with its successors, "Fletcher").
The parties hereto agree as follows:
1. Initial Exchange; Additional Rights. In consideration of and
upon the basis of the representations, warranties and agreements and subject to
the terms and conditions set forth in this Agreement:
a. Initial Exchange. On the Initial Closing Date (as defined in
Section 2 hereof), Fletcher shall pay to Baan $75,000,000 in cash (the "Initial
Issuance Price") in exchange for the right (the "Initial Investor Right") to
cause Baan to issue to Fletcher common shares of Baan, par value NLG 0.06 per
share (the "Common Shares") in one or more tranches as determined below (such
issued shares, the "Initial Common Shares") at Fletcher's discretion from time
to time during the period beginning seven months after the Initial Closing Date
and ending on the third anniversary of the Initial Closing Date, provided that
Fletcher may elect to receive all or part of the Initial Common Shares at any
time during the first seven months after the Initial Closing Date in accordance
with this Section 1.a. at a price of $16.00 per share. As used herein, the term
"Trading Day" means any day on which Common Shares are quoted on both the NASDAQ
National Market (or such other U.S. national securities exchange on which the
Common Shares are then listed) and the Official Market of the Amsterdam Stock
Exchange (AEX-Effectenbeurs N.V.) (the "AEX"); the term "Registration
Requirement" means that the Registration Statement (as defined in Section 3.A.a)
is effective and contains a current prospectus that can be used by Fletcher for
resale purposes; and the term "Additional Common Shares" means all Common Shares
issued or issuable pursuant to this Agreement other than the Initial Common
Shares. The Initial Common Shares and the Additional Common Shares shall be
issued, at Fletcher's option, either in registered form as New York Registry
shares or in bearer form, or any combination thereof. To exercise the Initial
Investor Right, Fletcher shall deliver one or more written notices to Baan in
the form attached hereto as Annex A (each such notice, an "Initial Investment
Notice") specifying, among other required information, the date on which a
specified number of Initial Common Shares shall be issued to Fletcher (such
date, an "Initial Investment Issuance Date"), which date shall take place at
Fletcher's option on (i) the third Trading Day following delivery of the Initial
Investment Notice or (ii) if the Initial Common Shares are not freely tradable
by Fletcher under the U.S. Securities Act of 1933, as amended (the "Securities
Act"), the tenth Trading Day excluding and following the date on which Baan
notifies Fletcher that the Registration Requirement is satisfied, or at such
other date and time as Fletcher and Baan shall mutually agree. Effective
immediately upon receipt by Baan of the Initial Issuance Price, Baan shall
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<PAGE> 2
automatically become and be obligated to issue to Fletcher as a demand
obligation the Initial Issuance Price in the form of Initial Common Shares. The
specified number of Initial Common Shares issuable by Baan and the issue price
of the Initial Common Shares (such issue price shall not be less than the par
value of such shares) on any Initial Investment Issuance Date shall be
determined by dividing the Aggregate Dollar Value by the Share Price, where:
"Aggregate Dollar Value" means the amount specified by Fletcher
in the applicable Initial Investment Notice as the "Specified Amount" (the
"Specified Amount"). For each exercise of the Initial Investor Right, the
cumulative Specified Amounts for all Initial Investment Notices delivered by
Fletcher (the "Aggregate Specified Amount") cannot exceed $75,000,000 in the
aggregate, and the Specified Amount for any particular Initial Investment Notice
must be in a minimum amount of $10,000,000 (or, in the case of the final Initial
Investment Notice, such lesser amount as may apply in the event that the
Aggregate Specified Amount exceeds $65,000,000); and
"Share Price" means (i) the average of the daily volume-weighted
average prices as reported by Bloomberg, L.P. on Nasdaq (or as otherwise agreed
between Baan and Fletcher) for the 30-Trading Day period ending and excluding 5
Trading Days immediately prior to the date an Initial Investment Notice is
delivered, but not greater than the average of the daily volume-weighted average
prices of the first 5 Trading Days of such 30-Trading Day period (such amount,
the "Average Price") minus (ii) an amount equal to the Average Price multiplied
by 8.5% per annum (pro rata for partial years) from the Initial Closing Date
through and including the specified Initial Investment Issuance Date, provided
that for purposes of this Agreement, the Average Price shall not exceed $16.00
per share.
b. Baan Rights. Fletcher grants Baan rights (the "Baan Rights")
to issue and sell to Fletcher, from time to time, and Fletcher agrees to
subscribe for and accept, Additional Common Shares determined in accordance with
clause d. below for an aggregate purchase price for all Baan Rights of
$75,000,000 (the "Baan Rights Cap"). To exercise any Baan Rights, Baan shall
deliver one or more written notices in the form attached hereto as Annex B (a
"Baan Notice") to Fletcher from time to time commencing from the date nine
months after the Initial Closing Date but not later than 18 months after the
Initial Closing Date (such date, the "Baan Rights Expiration Date"). Upon
satisfaction or, if applicable, waiver of the relevant conditions set forth in
Sections 9 and 10 hereof, the closing for each exercise of Baan Rights (a "Baan
Closing") shall take place initially via facsimile on the date that is thirty
five (35) Trading Days following delivery of the Baan Notice or at such other
date and time as Baan and Fletcher shall mutually agree (such date and time
being referred to herein as the "Baan Closing Date"). Notwithstanding anything
else in this paragraph, the Baan Rights may not be exercised unless: (i) the
Common Shares are listed on the NASDAQ National Market (or such other U.S.
national securities exchange on which the Common Shares are then listed) and the
AEX at the time of the Baan Notice and the corresponding closing date; (ii) the
Registration Requirement is satisfied at the time of the Baan Notice and the
corresponding closing date; (iii) there is no Blackout Period (as defined in
Section 3.A) or any other period in effect in which the Registration Statement
is not effective or not able to be used by Fletcher for resales on the
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<PAGE> 3
date of the Baan Notice or such corresponding closing date; (iv) the volume
weighted average price for each of the 30 Trading Days through but excluding the
third Trading Day immediately prior to the corresponding closing date has
continually exceeded $3.00; (v) shareholders' equity of Baan for the immediately
preceding month end is greater than $50 million; (vi) the Additional Issuance
Price of the exercise is less than or equal to ten times the average daily
trading volume on, as selected by Baan, either (x) NASDAQ (or such other U.S.
national securities exchange on which the Common Shares are then listed) or (y)
the AEX, for the 45 Trading Day period ending and excluding three Trading Days
prior to the closing date multiplied by the closing sale price on NASDAQ (or
such other U.S. national securities exchange on which the Common Shares are then
listed) as reported by Bloomberg, L.P. on the third Trading Day immediately
prior to and excluding such closing date; and (vii) Baan has not exercised a
Baan Right in the last three months.
c. Fletcher Rights. Baan grants Fletcher rights (the "Fletcher
Rights", and together with the Baan Rights, the "Rights") to require Baan to
issue to it from time to time Additional Common Shares determined in accordance
with clause d. below for an aggregate purchase price for all Fletcher Rights of
$75,000,000 (the "Fletcher Rights Cap"). To exercise any Fletcher Rights,
Fletcher shall have delivered one or more written notices in the form attached
hereto as Annex C (a "Fletcher Notice") to Baan from time to time commencing
from the date nine months after the Initial Closing Date (subject to Section 6)
but not later than 36 months after the Initial Closing Date. Upon satisfaction
or, if applicable, waiver of the relevant conditions set forth in Sections 9 and
10 hereof, and the closing of each exercise of Fletcher Rights (a "Fletcher
Closing", and together with a Baan Closing, a "Rights Closing") shall take place
at Fletcher's option on (i) the date that is three Trading Days following
delivery of the Fletcher Notice or (ii) if the Additional Common Shares are not
freely tradable by Fletcher under the Securities Act, the date that is 10
Trading Days excluding and following the date on which Baan notifies Fletcher
that the Registration Requirement is satisfied, or at such other date and time
as Fletcher and Baan shall mutually agree (such date and time being referred to
herein as the "Fletcher Closing Date", and together with a Baan Closing Date, a
"Rights Closing Date"). A Fletcher Closing shall take place initially via
facsimile. In the event a Fletcher Closing is to take place and the Registration
Requirement is not satisfied, the applicable notice of exercise of such Fletcher
Rights shall be deemed to have been rescinded unless prior to such Fletcher
Closing Date, Fletcher consents in writing to such Fletcher Closing by delivery
of such written consent.
d. Additional Issuance Mechanics. On each Rights Closing Date,
Fletcher shall pay to Baan in cash the "Additional Issuance Price" specified in
the applicable Baan Notice or Fletcher Notice (the "Additional Issuance Price")
in exchange for the right (the "Additional Investor Right") to cause Baan to
issue Additional Common Shares to Fletcher from time to time during the period
beginning on that Rights Closing Date and ending on the third anniversary of the
Rights Closing Date. In all cases, the Additional Issuance Price must be in a
minimum amount of $25,000,000 (or, in the case of Baan Rights, such lower amount
as Baan is eligible to specify in accordance with the requirements of Section
1.b.(vi)) and a maximum amount of $75,000,000. To exercise the Additional
Investor Right, Fletcher shall deliver one or more written notices to Baan in
3
<PAGE> 4
the form attached hereto as Annex D (each such notice, an "Additional Investment
Notice") specifying, among other required information, the date on which a
specified number of Additional Common Shares shall be issued to Fletcher (such
date, an "Additional Investment Issuance Date"), which date shall take place at
Fletcher's option on (i) the third Trading Day following delivery of the
applicable Additional Investment Notice or (ii) if the Registration Requirement
is not satisfied, the tenth Trading Day excluding and following the date on
which Baan notifies Fletcher that the Registration Requirement is satisfied, or
at such other date and time as Fletcher and Baan shall mutually agree. An
Additional Investment Notice may be delivered initially via facsimile. Effective
immediately upon the occurrence of a Rights Closing and the receipt by Baan of
the Additional Issuance Price, Baan shall automatically become and be obligated
to issue to Fletcher as a demand obligation the Additional Issuance Price in the
form of Additional Common Shares. In the event an Additional Investment Issuance
Date is to take place and the Registration Requirement is not satisfied, the
applicable Additional Investment Notice for that date shall be deemed to have
been rescinded unless prior to such Additional Investment Issuance Date,
Fletcher consents in writing to such date by delivery of such written consent.
The specified number of Additional Common Shares issuable by Baan and the
issuance price of the Additional Common Shares (such issuance price shall not be
less than the par value of such shares) on any Additional Investment Issuance
Date shall be determined by dividing the Additional Aggregate Dollar Value by
the Additional Share Price, where:
"Additional Aggregate Dollar Value" means the amount specified by
Fletcher in the applicable Additional Investment Notice as the "Additional
Specified Amount" (the "Additional Specified Amount"). For each exercise of a
Right, the cumulative Additional Specified Amounts for all Additional Investment
Notices delivered by Fletcher (the "Aggregate Additional Specified Amount")
cannot exceed the Additional Issuance Price in the aggregate, and the Additional
Specified Amount for any particular Additional Investment Notice must be in a
minimum amount of $10,000,000 (or, in the case of the final Additional
Investment Notice, such lesser amount as may apply in the event that the
difference between the Additional Issuance Price and the Aggregate Additional
Specified Amount is less than $10,000,000); and
"Additional Share Price" means (i) the average of the daily
volume-weighted average prices as reported by Bloomberg, L.P. on Nasdaq (or as
otherwise agreed between Baan and Fletcher) for the 30-Trading Day period ending
and excluding 5 Trading Days immediately prior to the Additional Investment
Notice Date, but not greater than the average of the daily volume-weighted
average prices of the first 5 Trading Days of such 30-Trading Day period (the
"Additional Average Price") minus (ii) an amount equal to the Additional Average
Price multiplied by 8.5% per annum (pro rata for partial years) from the
Additional Closing Date through and including the specified Additional
Investment Issuance Date, provided that for purposes of this Agreement, the
Additional Average Price shall not exceed $16.00 per share.
e. Rollover Option. On the Baan Rights Expiration Date, the
Fletcher Rights Cap would be increased by an amount equal to the unexercised
portion (if any) of the Baan Rights Cap on the Baan Rights Expiration Date,
provided that Fletcher may not at any time submit an Additional
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<PAGE> 5
Investment Notice under this Section 1.e. if following delivery of Common Shares
pursuant to such notice, Fletcher would own 10% or more of Baan's outstanding
Common Shares.
f. Price Conversions. As used throughout this Agreement, the
monetary symbol "$" refers to U.S. dollars. The Initial Issuance Price and each
subsequent Additional Issuance Price shall be payable in U.S. dollars and the
number of Common Shares issuable therefor (and the issue price per Common Share)
shall be calculated in U.S. dollars in accordance with the terms of this
Agreement. After calculating the number of Common Shares issuable to Fletcher
based on the amount of the Initial Issuance Price or Additional Issuance Price
designated by Fletcher for a particular Initial Investment Issuance Date or
Additional Investment Issuance Date (such amount, the "US Issuance Price"),
then, for purposes of determining that the payment obligation for the Common
Shares to be issued to Fletcher has been met, the US Issuance Price shall be
converted into Dutch Guilders or Euro's at the U.S. Dollar-Dutch Guilder or U.S.
Dollar-Euro exchange rate in effect (i) on the date the Private Deed of Issuance
is executed and such Common Shares are actually issued (the "Date of Issuance")
or (ii) on any day between two months before the Date of Issuance and the Date
of Issuance itself, as reported in the Official Price List of the AEX Exchanges
N.V. (Officiele prijscourant) for that date (such conversion rate on that date,
the "Conversion Rate" and such aggregate issue price on that date based on the
Conversion Rate, the "Guilder/Euro Aggregate Issue Price"). For purposes of
fulfilling the payment obligation on the Common Shares pursuant to the Private
Deed of Issuance executed on such Date of Issuance, the Guilder/Euro Aggregate
Issue Price shall be paid by Fletcher to Baan by deducting the equivalent of the
Guilder/Euro Aggregate Issue Price denominated in U.S. Dollars using the
Conversion Rate (which equals the US Issuance Price) from the Initial Issuance
Price or the Additional Issuance Price, as the case may be, already paid by
Fletcher to Baan.
By way of example, assuming that Fletcher had paid an Initial Issuance Price of
$100 and subsequently delivered an Initial Investment Notice to Baan to deliver
$50 worth of Common Shares at an assumed Share Price of $10 per share, then the
following calculations would be made:
First, the $50 amount specified by Fletcher in its notice (which
is the "US Issuance Price" as defined earlier in this paragraph) would
be divided by the Share Price of $10, with the result that Fletcher will
be entitled to receive 5 Common Shares from Baan on the specified
Initial Investment Issuance Date;
Second, on that Initial Investment Issuance Date, based on an
assumed exchange rate of US$1:NLG2, the US Issuance Price of $50 will be
converted into NLG100 (which is the "Guilder/Euro Aggregate Issue Price"
defined earlier in this paragraph), or NLG 20 per share for each of the
5 Common Shares to be issued to Fletcher; and
Third, on that same Initial Investment Issuance Date, the
Guilder/Euro Aggregate Issue Price shall be paid by Fletcher to Baan by
deducting the equivalent of the Guilder/Euro Aggregate Issue Price
denominated in U.S. Dollars using the Conversion Rate of $1:NLG2.
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<PAGE> 6
Consequently, the issue price for the 5 Common Shares being NLG 100 will
be paid by deducting $50 from the original $100 Initial Issue Price
already paid by Fletcher to Baan.
2. Closings; Issuance Dates.
A. The closing of the initial exchange specified in Section 1.a
shall take place initially via facsimile on December 31, 1998, upon satisfaction
or, if applicable, waiver of the conditions set forth in Sections 9 and 10
hereof, or at such other date and time as Fletcher and Baan shall mutually agree
(such date and time being referred to herein as the "Initial Closing Date").
At the Initial Closing, the following deliveries shall be made:
a. Initial Issuance Price. Fletcher shall cause to be wire
transferred to Baan, in accordance with instructions set forth in
Section 15, the Initial Issuance Price, in immediately available United
States dollars.
b. Closing Documents. The closing documents required by Sections
9 and 10 shall be delivered to Fletcher and Baan, respectively.
The foregoing deliveries shall be deemed to occur simultaneously
as part of a single transaction, and no delivery shall be deemed to have been
made until all such deliveries have been made.
B. On each Initial Investment Issuance Date, the following
deliveries shall be made:
a. Initial Common Shares. Baan shall issue to Fletcher stock
certificates, each representing an equal number of Initial Common Shares
and collectively representing the Initial Common Shares to be issued on
that Initial Investment Issuance Date, and shall register such shares in
the shareholder register of Baan.
b. Private Deed of Issuance. A copy of the Private Deed of
Issuance in the form attached hereto as Annex E shall be executed by
Baan and Fletcher, which private deed shall confirm (i) the number of
Initial Common Shares to be issued by Baan and accepted by Fletcher on
such date and the issue price of such Common Shares, (ii) that the
resulting payment obligation of Fletcher for those shares shall have
been met by the Initial Issuance Price paid on the Initial Closing Date,
and (iii) the remaining amount of the Initial Issuance Price after
giving effect to all prior issuances of Initial Common Shares.
The foregoing deliveries shall be deemed to occur simultaneously
as part of a single transaction, and no delivery shall be deemed to have
been made until all such deliveries have been made.
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<PAGE> 7
C. On each Rights Closing Date, the following deliveries shall be
made:
a. Additional Issuance Price. Fletcher shall cause to be wire
transferred to Baan, in accordance with instructions set forth in
Section 15, the Additional Issuance Price payable on such Rights Closing
Date, in immediately available United States dollars.
b. Closing Documents. The closing documents required by Sections
9 and 10 shall be delivered to Fletcher and Baan, respectively.
The foregoing deliveries shall be deemed to occur simultaneously
as part of a single transaction, and no delivery shall be deemed to have been
made until all such deliveries have been made.
D. On each Additional Investment Issuance Date, the following
deliveries shall be made:
a. Additional Common Shares. Baan shall issue to Fletcher stock
certificates, each representing an equal number of Additional Common
Shares and collectively representing the Additional Common Shares to be
issued on that Additional Investment Issuance Date, and shall register
such shares in the shareholder register of Baan.
b. Private Deed of Issuance. A copy of the Private Deed of
Issuance in the form attached hereto as Annex F shall be executed by
Baan and Fletcher, which private deed shall confirm (i) the number of
Additional Common Shares to be issued by Baan and accepted by Fletcher
on such date and the issuance price of such Common Shares, (ii) the date
of the applicable Rights Closing Date and that the resulting payment
obligation of Fletcher for those shares shall have been met by the
Additional Issuance Price paid on such date, and (iii) the remaining
amount of such Additional Issuance Price after giving effect to all
prior issuances of Additional Common Shares attributable to that Rights
Closing Date.
The foregoing deliveries shall be deemed to occur simultaneously
as part of a single transaction, and no delivery shall be deemed to have been
made until all such deliveries have been made. The original certificates
representing the Initial Common Shares and Additional Common Shares shall be
delivered via Federal Express to Fletcher at the address set forth in Section 15
hereof, unless Fletcher shall have delivered to Baan a written notice specifying
a different address. Each original stock certificate issued in accordance with
this Section 2 shall represent 250,000 Common Shares (except that to the extent
the number of Common Shares to be delivered to Fletcher at any given time is not
evenly divisible by 250,000, one stock certificate shall represent the remaining
shares). Baan shall make the appropriate notifications on its shareholder
register evidencing such issuance of Initial Common Shares or Additional Common
Shares to Fletcher.
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<PAGE> 8
3. Representations and Warranties of Baan. Baan hereby represents
and warrants to Fletcher on the date hereof, on the Initial Closing Date, on
each Rights Closing Date, on each Initial Investment Issuance Date and on each
Additional Investment Issuance Date as follows:
a. Baan has been duly incorporated and is validly existing under
the laws of The Netherlands, or after the Closing Date, if another
entity has succeeded Baan in accordance with the terms hereof, under the
laws of the jurisdiction of its organization.
b. The execution, delivery and performance of this Agreement
(including the issuance of the Initial Common Shares and the Additional
Common Shares) by Baan have been duly authorized by all requisite
corporate action and no further consent or authorization of Baan, its
Management and Supervisory Boards of Directors or its shareholders
(other than the Required Consent (as defined below), if applicable) is
required. This Agreement has been duly executed and delivered by Baan
and, when this Agreement is duly authorized, executed and delivered by
Fletcher, will be a valid and binding agreement enforceable against Baan
in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general
principles of equity.
c. Baan has full corporate power and authority necessary to
execute and deliver this Agreement and to perform its obligations
hereunder (including the issuance of the Initial Common Shares and all
Additional Common Shares).
d. No consent, approval, authorization or order of any court,
governmental agency or other body is required for execution and delivery
by Baan of this Agreement or the performance by Baan of any of its
obligations hereunder other than such as may already have been received.
e. Neither the execution and delivery by Baan of this Agreement
nor the performance by Baan of any of its obligations hereunder:
(1) violates, conflicts with, results in a breach of, or
constitutes a default (or an event which with the giving of
notice or the lapse of time or both would be reasonably likely to
constitute a default) under (A) the Articles of Association of
Baan or any of its material subsidiaries (which shall mean any
subsidiary, or group of subsidiaries considered in the aggregate
as a single subsidiary, that would constitute a "significant
subsidiary" as defined in Regulation S-X), (B) any decree,
judgment, order, law, treaty, rule, regulation or determination
of which Baan is aware of any court, governmental agency or body,
or arbitrator having jurisdiction over Baan or any of its
material subsidiaries or any of their respective properties or
assets, (C) the terms of any bond, debenture, note or any other
evidence of indebtedness, or any agreement, stock option or other
similar plan, indenture, lease, mortgage, deed
8
<PAGE> 9
of trust or other instrument to which Baan or any of its material
subsidiaries is a party, by which Baan or any of its material
subsidiaries is bound, or to which any of the properties or
assets of Baan or any of its material subsidiaries is subject,
except to the extent such violation, breach or default could not
reasonably be expected to have a material adverse effect on Baan
or its material subsidiaries, (D) the terms of any "lock-up" or
similar provision of any underwriting or similar agreement to
which Baan or any of its material subsidiaries is a party or (E)
any rules of the National Association of Securities Dealers, Inc.
or the NASDAQ National Market or any rules or regulations of the
AEX or any other exchange where Baan's securities are publicly
traded applicable to Baan or the transactions contemplated
hereby; or
(2) results in the creation or imposition of any lien,
charge or encumbrance upon (A) any Initial Common Shares or
Additional Common Shares or (B) any of the properties or assets
of Baan or any of its material subsidiaries.
f. Baan has validly reserved for issuance to Fletcher the Initial
Common Shares and any Additional Common Shares as required under this
Agreement. When issued to Fletcher against payment therefor in
accordance with the terms of this Agreement, each of the Initial Common
Shares and the Additional Common Shares:
(1) will have been duly and validly authorized, duly and
validly issued, fully paid and non-assessable;
(2) will be free and clear of any security interests,
liens, claims or other encumbrances; and
(3) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any
securities of Baan.
g. Baan is a "foreign private issuer" as such term is defined in
the U.S. Securities Exchange Act of 1934, as amended (the "Exchange
Act").
h. Baan satisfies all quantitative maintenance criteria of the
NASDAQ National Market and the AEX or, after the Closing Date, has a
valid exemption from such criteria. The Common Shares when issued
pursuant to this Agreement will be duly listed and admitted for trading
on the NASDAQ National Market, the AEX and any other exchange where
Common Shares are publicly traded.
i. On the Closing Date, there is no pending or, to the best
knowledge of Baan, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having
jurisdiction over Baan or any of its affiliates that would
9
<PAGE> 10
materially affect the execution by Baan of, or the performance by Baan
of its obligations under, this Agreement.
j. It is Baan's good faith belief that none of its filings with
the United States Securities and Exchange Commission (the "SEC") under
the Securities Act or under Section 13(a) or 15(d) of the Exchange Act
(each an "SEC Filing") at the time they were filed contained any untrue
statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
k. The offer and issuance of the Initial Common Shares and the
Additional Common Shares to Fletcher pursuant to this Agreement will,
subject to compliance by Fletcher with the applicable representations
and warranties contained in Section 4 hereof and with the applicable
covenants and agreements contained in Section 8 hereof, be made in
accordance with the provisions and requirements of Regulation D
promulgated under the Securities Act and any applicable state securities
law.
l. As of the date hereof, the authorized capital stock of Baan
consists of 700,000,000 Common Shares. As of December 1, 1998,
204,886,317 Common Shares were issued and outstanding and no Common
Shares were held in the treasury of Baan. Within seven business days of
the date hereof, Baan will deliver to Fletcher the aggregate number, as
of December 1, 1998, of (i) Common Shares reserved for issuance upon
exercise of outstanding stock options, warrants or other convertible
rights and (ii) Common Shares currently subject to issuance upon the
exercise of outstanding stock options, warrants or other convertible
rights. All of the outstanding Common Shares are, and all shares which
may be issued pursuant to stock options, warrants or other convertible
rights will be, when issued and paid for in accordance with the
respective terms thereof, duly authorized, validly issued, fully paid
and non-assessable and free of any preemptive rights in respect thereof.
As of the date hereof, except as set forth above, and except for Common
Shares or other securities issued upon conversion, exchange, exercise or
purchase associated with the securities, options, warrants, rights and
other instruments referenced above, (i) no shares of capital stock or
other voting securities of Baan were outstanding, (ii) no equity
equivalents, interests in the ownership or earnings of Baan or other
similar rights were outstanding and (iii) there were no existing
options, warrants, calls, subscriptions or other rights or agreements or
commitments relating to the capital stock of Baan or any of its
subsidiaries or obligating Baan or any of its subsidiaries to issue,
transfer, sell or redeem any shares of capital stock, or other equity
interest in, Baan or any of its subsidiaries or obligating Baan or any
of its subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement or commitment.
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3.A Registration Provisions.
a. Baan shall use best efforts at its own expense to file a
registration statement under the Securities Act (the "Registration
Statement") by January 31, 1999 covering the sale or resale of
25,000,000 Common Shares issued or issuable under this Agreement, shall
use its best efforts to cause such Registration Statement to be declared
effective not later than April 30, 1999, and in any event not later than
June 30, 1999 and shall promptly amend such Registration Statement or
file an additional Registration Statement from time to time if the
maximum number of Initial Common Shares and Additional Common Shares
issued or issuable under this Agreement is greater than the number of
Common Shares registered pursuant to such Registration Statement (each
such Common Share registered pursuant to a Registration Statement, a
"Covered Security"), provided that Fletcher shall have provided such
information and cooperation in connection therewith as Baan may
reasonably request. If the Registration Statement has not been declared
effective by June 30, 1999, the calculation of the Aggregate Dollar
Value and the Additional Aggregate Dollar Value for purposes of Section
1 hereof shall be permanently increased by 2.5% for each month (or
portion thereof) following June 30, 1999 that such Registration
Statement shall not have been declared effective.
b. Baan will use its best efforts to: (i) keep such Registration
Statement effective until the earlier of (A) the second anniversary of
the issuance of each Covered Security (provided that the resale
restrictions of Rule 144 under the Securities Act ("Rule 144") shall no
longer apply to Fletcher), (B) the later of the date all of the Covered
Securities shall have been sold by Fletcher and the date the Rights
expire or (C) such time as all of the Covered Securities held by
Fletcher can be sold by Fletcher or any of its affiliates within a
three-month period without compliance with the registration requirements
of the Securities Act pursuant to Rule 144; (ii) prepare and file with
the SEC such amendments and supplements to the Registration Statement
and the prospectus used in connection with the Registration Statement
(as so amended and supplemented from time to time, the "Prospectus") as
may be necessary to comply with the provisions of the Securities Act
with respect to the disposition of all Covered Securities by Fletcher or
any of its affiliates; (iii) furnish such number of Prospectuses and
other documents incident thereto, including any amendment of or
supplement to the Prospectus, as Fletcher from time to time may
reasonably request; (iv) cause all Covered Securities to be listed on
each securities exchange and quoted on each quotation service on which
similar securities issued by Baan are then listed or quoted; (v) provide
a transfer agent and registrar for all Covered Securities and a CUSIP
number for all Covered Securities; (vi) otherwise use its best efforts
to comply with all applicable rules and regulations of the SEC; and
(vii) file the documents required of Baan, if any, and otherwise use its
best efforts to obtain and maintain requisite blue sky clearance, if
necessary, in New York, California and all other jurisdictions in which
any of the Common Shares were originally sold.
c. Baan shall furnish to Fletcher upon request a reasonable
number of copies of a supplement to or an amendment of such Prospectus
as may be necessary in order to
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<PAGE> 12
facilitate the public sale or other disposition of all or any of the
Covered Securities by Fletcher or any of its affiliates pursuant to the
Registration Statement.
d. With a view to making available to Fletcher and its affiliates
the benefits of Rule 144 and Form F-3 under the Securities Act, Baan
covenants and agrees to: (i) make and keep available adequate current
public information (within the meaning of Rule 144(c)) concerning Baan,
until the earlier of (A) the second anniversary of the issuance of each
Covered Security (provided that the resale restrictions of Rule 144
shall no longer apply to Fletcher) or (B) such date as all of the
Covered Securities shall have been resold by Fletcher or any of its
affiliates; and (ii) furnish to Fletcher upon request, as long as
Fletcher owns any Covered Securities, (A) a written statement by Baan
that it has complied with the reporting requirements of the Securities
Act and the Exchange Act, (B) a copy of the most recent annual or
quarterly report of Baan, and (C) such other information as may be
reasonably requested in order to avail Fletcher and its affiliates of
Rule 144 or Form F-3 with respect to such Covered Securities.
e. Notwithstanding anything else in this Section 3.A, if, at any
time during which a Prospectus is required to be delivered in connection
with the sale of any Covered Securities, Baan determines in good faith
that a development has occurred or a condition exists as a result of
which the Registration Statement or the Prospectus contains a material
misstatement or omission, Baan will immediately notify Fletcher thereof
by telephone and in writing. Upon receipt of such notification, Fletcher
and its affiliates will immediately suspend all offers and sales of any
Covered Securities pursuant to the Registration Statement. In such
event, Baan will amend or supplement the Registration Statement as
promptly as practicable and will take such other steps as may be
required to permit sales of the Covered Securities thereunder by
Fletcher and its affiliates in accordance with applicable federal and
state securities laws. Baan will promptly notify Fletcher after it has
determined in good faith that such sales have become permissible in such
manner and will promptly deliver copies of the Registration Statement
and the Prospectus (as so amended or supplemented) to Fletcher in
accordance with paragraph (b) of this Section 3.A. Notwithstanding the
foregoing, (A) under no circumstances shall Baan be entitled to exercise
its right to suspend sales of any Covered Securities pursuant to the
Registration Statement more than two times in any twelve-month period,
(B) the period during which such sales may be suspended (each a
"Blackout Period") shall not exceed thirty days and (C) no Blackout
Period may commence less than 30 days after the end of the preceding
Blackout Period.
Upon the commencement of a Blackout Period pursuant to this
Section 3.A, Fletcher will notify Baan of any contracts to sell any
Covered Securities (each a "Sales Contract") that Fletcher or any of its
affiliates has entered into prior to the commencement of such Blackout
Period and that would require delivery of such Covered Securities during
such Blackout Period, which notice will contain the aggregate sale price
and volume of Covered Securities pursuant to such Sales Contract. Upon
receipt of such notice, Baan will immediately notify
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<PAGE> 13
Fletcher of its election either (i) to terminate the Blackout Period
and, as promptly as practicable, amend or supplement the Registration
Statement or the Prospectus in order to correct the material
misstatement or omission and deliver to Fletcher copies of such amended
or supplemented Registration Statement and Prospectus in accordance with
paragraph (b) of this Section 3.A or (ii) to continue the Blackout
Period in accordance with this paragraph. If Baan elects to continue the
Blackout Period, and Fletcher or any of its affiliates is therefore
unable to consummate the sale of Covered Securities pursuant to the
Sales Contract (such unsold Covered Securities being hereinafter
referred to herein as the "Unsold Securities"), Baan will promptly
indemnify each Fletcher Indemnified Party (as such term is defined in
Section 13 below) against any Proceeding (as such term is defined in
Section 13 below) that each Fletcher Indemnified Party may incur arising
out of or in connection with Fletcher's breach or alleged breach of any
such Sales Contract, and Baan shall reimburse each Fletcher Indemnified
Party for any reasonable costs or expenses (including reasonable legal
fees) incurred by such party in investigating or defending any such
Proceeding (collectively, the "Indemnification Amount"); provided,
however, that each Fletcher Indemnified Party shall take all actions
reasonably necessary or appropriate to mitigate such Indemnification
Amount; and provided further, however, that the Indemnification Amount
shall be reduced by an amount equal to the number of Unsold Securities
multiplied by the difference between (x) the actual per share price
received by Fletcher or any of its affiliates upon the sale of the
Unsold Securities (if such sale occurs within three Trading Days of the
end of the Blackout Period) or the closing sale price of the Common
Shares on the NASDAQ National Market or other U.S. national securities
exchange on which the Common Shares are then listed on the third Trading
Day after the end of the Blackout Period (if the Unsold Securities are
not sold by Fletcher or any of its affiliates within three Trading Days
of the end of the Blackout Period), and (y) the per share sale price for
the Unsold Securities provided in the Sales Contract.
3.B. Additional Agreements.
a. The parties hereto acknowledge that Fletcher, without amending
any of the representations, warranties, covenants and agreements of Baan
contained herein, has neither requested of nor received from Baan any
non-public information relating to Baan or the business affairs or
business prospects of Baan.
b. If on any date that Baan presents a Baan Notice, the aggregate
number of Common Shares issuable upon exercise of Baan Rights (without
regard to any notice periods), when added to the aggregate number of
shares of (i) Common Shares previously issued under this Agreement, and
(ii) the aggregate number of Common Shares issuable under this Agreement
would exceed the number of shares equal to 15% of the total number of
Common Shares outstanding (adjusted to reflect any split, subdivision,
combination or consolidation of the Common Shares, whether by
reclassification, distribution of a dividend with respect to the
outstanding Common Shares payable in Common Shares, or otherwise,
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<PAGE> 14
or any recapitalization of the Common Shares) on the Initial Closing
Date (the "Original Number"), Baan's right to exercise the Baan Rights
shall be suspended unless and until Baan obtains the Required Consent
(as defined below) for the issuance of 20% or more of Baan's Common
Shares under this Agreement.
c. If on any date that Fletcher presents a Fletcher Notice, an
Initial Investment Notice or an Additional Investment Notice ("Fletcher
Notice Date"), the aggregate number of Common Shares issuable pursuant
to such notice in the aggregate (without regard to any notice periods),
when added to the aggregate number of (i) the Initial Common Shares and
any Additional Common Shares previously issued and (ii) any other Common
Shares issued or issuable under exercised Rights (as if issued on that
date) required to be included by NASDAQ, would exceed the number of
shares equal to 20% of the Original Number and such circumstance would
require the approval (the "Required Consent") of the holders of the
Common Shares pursuant to the listing requirements or rules of the
NASDAQ National Market (or such other U.S. national securities exchange
on which the Common Shares are then listed), Baan (A) shall not issue
Common Shares (the "Issuance Blockage") to the extent that the total
number of Common Shares issued hereunder would exceed 19.9% of the
Original Number, and (B) shall use its best efforts to obtain, within 90
days from the Fletcher Notice Date, whichever is applicable, the
Required Consent for the issuance of 20% or more of Baan's Common Shares
under this Agreement. In the event the Required Consent is not obtained
within 90 days in accordance with the preceding sentence, or Baan
otherwise does not have sufficient authorized shares to fulfill its
obligation, Fletcher shall have the right to convert up to that amount
of the Fletcher Rights, the exercise of which would result in the total
number of shares issued hereunder exceeding 19.9% of the Original Number
or that number which is unavailable for issuance, as the case may be,
into a debt obligation of Baan (the "Obligation"), which Obligation
shall be evidenced by a note (an "Excess Note"). Such Obligation shall
come into existence upon delivery of an Excess Note Notice (as defined
below) to Baan regardless of when the Excess Note actually is issued or
delivered. Fletcher shall exercise such right to convert by delivery to
Baan of the Excess Note Notice, and the amount of the Obligation (and
the principal amount of the Excess Note) shall be in an amount equal to
the product of (x) the positive excess of the closing price (the "Excess
Closing Price") as reported by Bloomberg, L.P. of the Common Shares on
the NASDAQ National Market (or such other U.S. national securities
exchange on which the Common Shares are then listed) on the Excess
Notice Date (as defined below) over the applicable Share Price or
Additional Share Price and (y) the number of Common Shares that would be
issuable in respect of the complete exercise of the applicable rights
but for the Issuance Blockage. All computations in the preceding
sentence with respect to the applicable Share Price and the number of
Common Shares issuable shall be determined as if the Excess Notice Date
were the Fletcher Notice Date. In addition, in the event the Required
Consent is not obtained and any Excess Note is outstanding, Baan shall
not issue any securities or incur any indebtedness for borrowed money,
except in connection with the repurchase of Excess Notes.
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<PAGE> 15
To convert Fletcher Rights into an Excess Note, Fletcher shall
deliver one or more written notices in the form attached hereto as Annex
G (an "Excess Note Notice") to Baan from time to time. The date upon
which Fletcher causes an Excess Note Notice to be delivered to Baan, by
hand, facsimile, electronic transmission or otherwise, shall be the
"Excess Notice Date" with respect to such exercise of the Rights, which
date shall be deemed to be a Rights Closing Date for purposes of Section
3 hereof. Each Obligation (whether or not yet evidenced by an Excess
Note) shall be due and payable 180 days after the date of issuance and
bear interest at an interest rate of 15% per annum. Notwithstanding
anything else in this section 3.B.c., if at any time Fletcher delivers a
Fletcher Notice, an Initial Investment Notice or an Additional
Investment Notice and Baan is unable to issue all or any portion of the
shares identified therein as a result of the Issuance Blockage, Baan
shall automatically be liable to Fletcher in amount equal to, and shall
issue an Excess Note reflecting as a principal Obligation, the product
of (x) the positive excess of the closing price as reported by
Bloomberg, L.P. of the Common Shares on the NASDAQ National Market (or
such other U.S. national securities exchange on which the Common Shares
are then listed) on the Excess Notice Date over the applicable Share
Price or Additional Share Price and (y) the number of Common Shares that
would be issuable in respect of such exercise of the applicable rights
but for the Issuance Blockage.
d. The Initial Common Shares and the Additional Common Shares
shall be issuable only up to the Maximum Number of Common Shares.
Initially, the "Maximum Number" is equal to the sum of 18,439,768 plus
the Exercisable Number. The "Exercisable Number" is initially zero and
thereafter may be increased upon expiration of a 65 day period (the
"Notice Period") after either (i) the holder delivers a notice (a"65 Day
Notice") to Baan designating an aggregate number of Common Shares in
excess of the Maximum Number which will become convertible, or (ii) Baan
delivers a notice (an "Increase Notice") stating the increase, if any,
in the aggregate number (the "Increased Number") of Common Shares
outstanding as of the last day of the preceding month over the number
outstanding as of the last day of the third preceding month, or in the
case of the last day of the second month immediately following the
Initial Closing Date, the number of shares outstanding specified in
Section 3.l, in which event the Exercisable Number shall be
automatically increased by the number which is 9.75% of the Increased
Number. A 65 Day Notice may be given at any time. Unless expressly
waived by Fletcher, Baan shall deliver an Increase Notice to Fletcher on
or before the 10th day of every second calendar month from and including
the Initial Closing Date. If the initial 65 Day Notice does not
designate all of the Common Shares then issuable upon exercise of any
Fletcher Right, additional Common Shares will become issuable for some
or all of the remaining Common Shares upon delivery of one or more 65
Day Notices increasing the Exercisable Number after a further Notice
Period. From time to time following the Notice Period, Common Shares may
be issued on any Business Day for any quantity of Common Shares, such
that the aggregate number of Common Shares issued hereunder is less than
or equal to the Maximum Number.
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<PAGE> 16
e. Baan shall use best efforts to obtain from the Baan
shareholders, if required, the requisite authority to issue Initial
Common Shares and Additional Common Shares to Fletcher in accordance
with the terms of this Agreement.
4. Representations and Warranties of Fletcher. Fletcher hereby
represents and warrants to Baan on the date hereof, on the Initial
Closing Date, and on each Rights Closing Date as follows:
a. Fletcher has been duly incorporated and is validly existing in
good standing under the laws of the Cayman Islands, or after the Initial
Closing Date, under the laws of the jurisdiction of its organization.
b. The execution, delivery and performance of this Agreement by
Fletcher have been duly authorized by all requisite corporate action and
no further consent or authorization of Fletcher, its Board of Directors
or its stockholders is required. This Agreement has been duly executed
and delivered by Fletcher and, when duly authorized, executed and
delivered by Baan, will be a valid and binding agreement enforceable
against Fletcher in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and
to general principles of equity.
c. Fletcher understands that no United States federal or state
agency has passed on, reviewed or made any recommendation or endorsement
of the Initial Common Shares or the Additional Common Shares.
d. In making the decision to subscribe for and accept the Initial
Common Shares or the Additional Common Shares in accordance with this
Agreement, Fletcher has relied solely upon independent investigations
made by it and not upon any representations, warranties, covenants and
agreements made by Baan other than the representations, warranties,
covenants and agreements made in this Agreement. Without amending any of
the representations, warranties, covenants and agreements of Baan
contained in this Agreement, Fletcher assumes the risk that the
knowledge of any of the non-public information described in Section
3.B.a. might have materially influenced Fletcher's decision to enter
into and perform this Agreement and undertakes not to assert any damage
claims against Baan for the alleged failure by Baan to disclose such
non-public information to Fletcher prior to entering into this
Agreement.
e. Subject to Section 3.A hereof, Fletcher understands that the
Initial Common Shares and the Additional Common Shares have not been
registered under the Securities Act and may not be re-offered or resold
in the United States other than pursuant to registration thereunder or
an available exemption therefrom.
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<PAGE> 17
f. Fletcher is an "accredited investor" as such term is defined
in Regulation D promulgated under the Securities Act.
g. Fletcher is subscribing to the Initial Common Shares and the
Additional Common Shares for its own account for investment only and not
with a view to, or for resale in connection with, the public sale or
distribution thereof in the United States, except pursuant to sales
registered under the Securities Act.
h. Fletcher understands that the Initial Common Shares and the
Additional Common Shares are being or will be offered and sold to it in
reliance on specific exemptions from the registration requirements of
United States federal securities laws and that Baan is relying on the
truth and accuracy of, and Fletcher's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of Fletcher set forth herein in order to determine the
availability of such exemptions and the eligibility of Fletcher to
acquire Initial Common Shares and the Additional Common Shares.
i. The transactions contemplated by this Agreement are not part
of a plan or scheme on the part of Fletcher, any of its affiliates or
any person acting on its or their behalf to evade the registration
requirements of the Securities Act.
j. Assuming the accuracy of the representations and warranties of
Baan herein made as of such date, no consent, approval, authorization or
order of any court, governmental agency or other body is required for
execution and delivery by Fletcher of this Agreement or the performance
by Fletcher of any of its obligations hereunder, other than such as may
already have been received.
k. Neither the execution and delivery by Fletcher of this
Agreement nor the performance by Fletcher of any of its obligations
hereunder violates, conflicts with, results in a breach of, or
constitutes a default (or an event which with the giving of notice or
the lapse of time or both would be reasonably likely to constitute a
default) under the Memorandum or Articles of Association of Fletcher.
5. Stock Dividends, Stock Splits, Etc. In case Baan shall, after
the Initial Closing Date, (A) pay a dividend or make a distribution on its
Common Shares, (B) subdivide its outstanding Common Shares into a greater number
of shares, or (C) combine its outstanding Common Shares into a smaller number of
shares, which becomes effective on a Trading Day which is included in the
calculation of the Share Price or the Additional Share Price, then the Share
Price or Additional Share Price will be proportionately adjusted to reflect such
event by adjusting the average of the daily volume-weighted average prices of
the Common Shares for the period from the first Trading Day included in the
calculation of the Share Price or Additional Share Price to but excluding the
effective date of such event (the "Adjustable Average Price"). By way of
example, if the event in question causes an increase in the total number of
outstanding Common Shares, then
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<PAGE> 18
the Adjustable Average Price will be proportionately decreased, and if the event
in question causes a decrease in the total number of outstanding Common Shares,
then the Adjustable Average Price will be proportionately increased. In case
Baan shall, after the date of the Initial Closing Date, issue any shares of
capital stock by reclassification of its Common Shares (excluding any
transaction as to which Section 6 applies), each of the Rights shall thereafter
be exercisable into the kind and in the proportion of shares of stock and other
securities and property ("Reclassification Consideration") receivable by a
holder of one Common Share immediately prior to the record date or effective
date of such reclassification, as appropriate, and the Share Price or Additional
Share Price in such circumstances shall be determined based upon weighted prices
of the Reclassification Consideration. In the event the market price of any
portion of the Reclassification Consideration cannot be determined in a manner
reasonably consistent with Section 1, the market value of such portion of the
Reclassification Consideration shall be determined in good faith by Baan's
Supervisory Board of Directors. In addition, the Share Price or Additional Share
Price following such a reclassification shall be adjusted as appropriate in a
manner consistent with the first three sentences of this Section 5. Adjustments
made pursuant to this Section 5 shall become effective immediately after the
close of business on the record date in the case of a dividend or distribution
and shall become effective immediately after the close of business on the record
date in the case of subdivision, combination or reclassification.
6. Consolidation, Merger, Etc. In case Baan shall be a party to
any transaction providing for (a) any acquisition of Baan by means of merger or
other form of corporate reorganization in which outstanding shares of Baan are
exchanged for securities or other consideration issued, or caused to be issued,
by the acquiring corporation (the "Acquirer") or its subsidiary or (b) a sale of
all or substantially all of the assets of Baan (on a consolidated basis) or (c)
any other transaction or series of related transactions by Baan in which in
excess of 50% of Baan's voting power is transferred to a single entity or group
acting in concert (each of the foregoing being referred to as a "Combination"),
Fletcher, at its sole option, may choose to exercise before the Combination is
closed (the "Combination Closing") its rights to (1) receive all the Initial
Common Shares not previously issued to Fletcher, (2) receive all the Additional
Common Shares for which Fletcher had previously paid the applicable Additional
Issuance Price and (3) subject to the second succeeding sentence, exercise the
Fletcher Rights (in whole or in part) and receive Common Shares therefor. Baan
shall provide Fletcher with written notice of any proposed Combination as soon
as the existence of a proposed Combination is made public by any person (the
"Combination Notice"). In the event that a Combination Notice is issued during
the first 9 months after the Initial Closing Date in connection with a potential
Combination for which the accounting treatment is pooling of interest
accounting, and Fletcher thereafter delivers a Fletcher Notice to exercise a
Fletcher Right during such 9 month period, then Baan shall (i) first use its
best efforts to obtain the consent of its regular independent auditors that such
action by Fletcher would not cause such Combination to not be eligible for
pooling of interest accounting, (ii) if such consent is not obtained, then Baan
and its independent auditors shall request the informal opinion of the staff of
the Securities and Exchange Commission (the "SEC") that such action would not
prevent pooling of interest accounting treatment, and (iii) in the event the SEC
does not so consent, then Baan and Fletcher shall in good
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<PAGE> 19
faith work to develop an acceptable alternative resolution that does not prevent
pooling of interest accounting treatment; provided, that in no event shall any
such resolution be permitted or required that prevents pooling of interest
accounting treatment for such Combination and provided further that Fletcher has
the right to rescind its delivery of such Fletcher Notice in whole or in part at
any time in the event that (x) the Rights Closing relating to such Fletcher
Notice does not take place pursuant to the schedule set forth in Section 1.c. or
(y) the Combination Closing does not occur, and Fletcher thereafter has the
further right, at its discretion, to submit one or more new Fletcher Notices to
the extent otherwise permissible by this Agreement. Baan Rights may not be
exercised following a Combination Closing.
7. Covenants of Baan. Baan covenants and agrees with Fletcher as
follows:
a. For so long as Fletcher owns any Initial Common Shares
or Additional Common Shares or any Rights exist, and in any case for a
period of 90 days thereafter, Baan will use its best efforts to (i)
maintain the eligibility of the Common Shares for quotation on the
NASDAQ National Market or listing on a national securities exchange (as
defined in the Exchange Act) and the AEX and (ii) regain the eligibility
of the Common Shares for quotation on all markets and exchanges
including the NASDAQ National Market and the AEX in the event that the
Common Shares are delisted by the NASDAQ National Market, the AEX or
other applicable markets and exchanges. Baan shall file with the SEC its
quarterly financial statements on Form 6-K and its annual report on Form
20-F consistent with SEC rules and regulations.
b. Baan will provide Fletcher with an opportunity to
review and comment on any public disclosure by Baan of information
regarding this Agreement and the transactions contemplated hereby.
Beginning on the date hereof and for so long as any Rights exist, and in
any case for a period of 90 days thereafter, Baan will (i) promptly
notify Fletcher if there is any public disclosure by Baan of material
information regarding Baan or its financial condition, prospects or
results of operation and (ii) provide Fletcher with copies of all Baan's
publicly available SEC filings.
c. As soon as such information is available (but in no
event later than January 15, 1999), Baan shall deliver to Fletcher a
written notice stating the number of outstanding Common Shares as of the
Initial Closing Date.
d. Baan will make all filings required by law with respect
to the transactions contemplated hereby.
e. Baan will cause the Common Shares issuable under this
Agreement to be duly listed and admitted for trading on the AEX and on
the NASDAQ National Market or, if the NASDAQ National Market is not then
the principal U.S. trading market for the
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<PAGE> 20
Common Shares, on a U.S. national securities exchange (as defined in the
Exchange Act) or the principal U.S. exchange or market for the Common
Shares.
f. Within three business days following the Initial
Closing Date, Baan will make the appropriate filing for the shares of
Initial Common Shares to become duly listed and admitted for trading on
the NASDAQ National Market or other U.S. national securities exchange
and the AEX and thereafter Baan shall use its best efforts to ensure
that any Additional Common Shares become listed and admitted for trading
as soon as practicable. Moreover, Baan will immediately notify Fletcher
in writing pursuant to Section 15 once the shares are duly listed.
g. For a period beginning on the date hereof and ending on
the day which is one year after the Initial Closing Date or a Rights
Closing Date, whichever is later, Baan will not offer or sell any of its
or its subsidiaries' preferred stock, Common Shares or other equity
securities (or any securities convertible into or exchangeable for such
Preferred Stock, Common Shares or other equity securities) in reliance
upon Section 4(2) of the Securities Act or Regulation D promulgated
thereunder (any such offer or sale, a "Private Placement") without
Fletcher's written consent; provided, however, that, notwithstanding the
foregoing sentence, Baan may from time to time offer or sell such
securities in a private placement without such consent to (A) Vanenburg
Ventures BV, any entity that invests through or is an affiliated entity
of General Atlantic Partners LLC, any current or future member of the
Baan Supervisory Board of Directors, any officer or employee of Baan,
and any shareholder of Baan owning more than 15% of the Common Shares
(collectively, the "Related Entities"), (B) subject to the Fletcher
Review Process, third parties unaffiliated with Baan or the Related
Entities (such parties, the "Third Party Investors") and (C) pursuant to
the acquisition approved in good faith by the Baan Board of Directors of
another corporation or other entity by Baan by merger, purchase of all
or substantially all of the capital stock or assets, or other
reorganization as a result of which the Baan stockholders will continue
to hold more than 50% of the voting securities of Baan. As used herein,
the "Fletcher Review Process" means that, in the event Baan proposes to
conduct a Private Placement of any magnitude with any Third Party
Investors, senior management of Baan will first describe in writing to
senior management of Fletcher the terms of the proposed transaction and
Baan's preliminary assessment of it in sufficient detail to allow
Fletcher to make an informed evaluation. Fletcher will then have up to
eight business days (the "Eight-Day Period") to consider the merits of
the proposed transaction and to advise Baan of any bona fide
commercially reasonable concerns about it. If Fletcher timely advises
Baan that it has such concerns, Baan will suspend the proposed
transaction for up to 30 calendar days (the "Thirty-Day Period"), while
Fletcher seeks to develop with Baan one or more alternative
transactions. If by the end of an Eight-Day Period, Fletcher does not
have bona fide commercially reasonable concerns about the proposed
transaction or if, at the end of a Thirty-Day Period, Baan and Fletcher
do not agree on an alternative transaction, then Baan may elect to
proceed with the proposed transaction so long as the terms are not
substantially
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<PAGE> 21
different from those first presented to Fletcher. If the terms are
substantially different, then Baan will first brief Fletcher in writing
in a commercially reasonable manner as to the nature of altered terms
and Fletcher may, at its option, initiate a new Eight-Day Period (and to
the extent applicable, a new Thirty-Day Period) to evaluate those terms.
h. Fractional Common Shares shall not be issued upon
exercise of any Initial Investor Rights or other Rights. In lieu of
issuance of a fractional share, Baan shall pay to Fletcher a cash amount
equal to such fraction multiplied by the applicable Initial Issuance
Price or the Additional Issuance Price.
8. Covenants of Fletcher. Fletcher hereby covenants and agrees
with Baan that neither Fletcher nor any of its affiliates nor any person acting
on its or their behalf will at any time offer or sell any Initial Common Shares
or Additional Common Shares other than pursuant to registration under the
Securities Act or pursuant to an available exemption therefrom.
8.A. Legend. Subject to Section 3.A., Fletcher understands that
the certificates or other instruments representing the Initial Common Shares and
the Additional Common Shares shall bear a restrictive legend in substantially
the following form (and a stop transfer order may be placed against transfer of
such certificates or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE UNITED STATES IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and Baan shall issue
a certificate without such legend to any holder of Initial Common Shares or
Additional Common Shares if, unless otherwise required by state securities laws,
(a) such shares are sold pursuant to an effective Registration Statement under
the Securities Act, or (b) such holder provides Baan with assurances reasonably
satisfactory to Baan that such shares may be publicly sold pursuant to Rule 144
(or similar regulation hereinafter adopted) without restriction.
8.B. Voting Limitations.
a. Fletcher will take such action as may be reasonably
required so that all Common Shares owned by Fletcher and its
subsidiaries are voted (in person or by proxy) for Baan's
nominees to the Management and Supervisory Boards of Directors
21
<PAGE> 22
of Baan in accordance with the recommendation of the Board of
Directors. On all other matters to be voted on by holders of
Common Shares, Fletcher shall take such action as may reasonably
be required so that all Common Shares or other voting securities
of Baan owned by Fletcher are voted with management on all other
matters to be voted on by holders of Common Shares in not less
than the same proportion as the votes cast by the other holders
of Common Shares with respect to such matters. So long as
Fletcher holds more than five percent of the Common Shares,
Fletcher shall be present, in person or by proxy, at all duly
held meetings of shareholders of Baan so that all Common Shares
held by Fletcher may be counted for the purposes of determining
the presence of a quorum at such meetings. Notwithstanding any
other provision of this Agreement to the contrary, Fletcher and
its subsidiaries may vote their Common Shares in their discretion
on a proposed Combination as long as the average of the daily
volume-weighted average prices of the Common Shares as reported
by Bloomberg L.P. (or as otherwise agreed between Baan and
Fletcher) for the 30-Trading Day period ending and excluding 10
Trading Days immediately prior to the date such vote occurs is
less than $4.00.
b. Except as consented to by Baan in writing, Fletcher
shall not deposit any Common Shares owned by it in a voting trust
or, except as otherwise provided in this Agreement, subject any
such shares to any similar arrangement or agreement with respect
to the voting of such shares.
c. Without Baan's prior written consent, Fletcher shall
neither solicit proxies with respect to any Common Shares, nor
shall it become a "participant" in any "election contest" as such
terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act relating to the election of directors of Baan.
d. With respect to voting rights, Fletcher shall not join
any group or otherwise act in concert with any third person for
the purpose of acquiring, holding or disposing of Common Shares,
except that Fletcher may engage in such transactions with its
affiliates and may effect market-based acquisitions and
dispositions of Common Shares so long as Fletcher is not
knowingly buying shares from or selling shares to any holder of
ten percent or more of the outstanding Common Shares.
e. Notwithstanding the foregoing, Fletcher and its
subsidiaries shall not be required to observe any of the voting
limitations set forth in the preceding clauses a.-d. so long as
(i) such limitation is prohibited by NASDAQ or other applicable
U.S. national securities exchange or the AEX, (ii) Baan is in
material breach of any of its material obligations to Fletcher
under this Agreement, (iii) Fletcher and its subsidiaries do not
in the aggregate own more than 2.5% of the outstanding Common
Shares, or (iv) the following core conditions have not been
satisfied at all relevant
22
<PAGE> 23
times: (x) Baan must be "solvent," which is understood to mean
that the book value of Baan's assets exceeds its liabilities, as
set forth on Baan's most recent quarterly balance sheet and (y)
the Common Shares must be listed on the AEX and NASDAQ National
Market or as otherwise provided by Section 7.e.
9. Conditions Precedent to Fletcher's Obligations. The
obligations of Fletcher hereunder are subject to the performance by Baan of its
obligations hereunder and to the satisfaction of the following additional
conditions precedent, unless expressly waived in writing by Fletcher:
a. On the Initial Closing Date and each Rights Closing Date, (i)
to the extent provided in Section 3 hereof, the representations and
warranties made by Baan in this Agreement shall be true and correct, and
(ii) Baan shall have complied fully with all the covenants and
agreements in this Agreement; and Fletcher shall have received on each
such date a certificate of the Chief Executive Officer or the Chief
Financial Officer of Baan dated such date and to such effect.
b. On the Initial Closing Date and each Rights Closing Date, Baan
shall have delivered to Fletcher an opinion of DeBrauw Blackstone
Westbroek reasonably satisfactory to Fletcher, dated the date of
delivery, confirming in substance the matters covered in paragraphs (a),
(b), (c), (d), (e), (f), and (h) (as it relates to the AEX) of Section 3
hereof.
c. On the Initial Closing Date and each Rights Closing Date, Baan
shall have delivered to Fletcher an opinion of Wilson, Sonsini, Goodrich
& Rosati Professional Corporation reasonably satisfactory to Fletcher,
dated the date of delivery, confirming in substance the matters covered
in paragraphs (b) (as it relates to enforceability), (d) (as it relates
to U.S. and California governmental authorities) and (h) (as it relates
to NASDAQ) of Section 3 hereof.
d. On the Initial Closing Date and each Rights Closing Date, Baan
shall have delivered to Fletcher an opinion of Wilson, Sonsini, Goodrich
& Rosati Professional Corporation reasonably satisfactory to Fletcher,
dated the date of delivery, to the effect that the offer and sale of
Common Shares hereunder do not require registration under the Securities
Act.
10. Conditions Precedent to Baan's Obligations. The obligations
of Baan hereunder are subject to the performance by Fletcher of its obligations
hereunder and to the satisfaction of the following additional conditions
precedent, unless expressly waived in writing by Baan that on the Closing Date
and each Rights Closing Date, if any, (i) the representations and warranties
made by Fletcher in this Agreement shall be true and correct, and (ii) Fletcher
shall have complied fully with all the covenants and agreements in this
Agreement; and Baan shall have received on each such date a certificate of an
appropriate officer of Fletcher dated such date and to such effect.
23
<PAGE> 24
11. Fees and Expenses. Each of Fletcher and Baan agrees to pay
its own expenses incident to the performance of its obligations hereunder,
including, but not limited to the fees, expenses and disbursements of such
party's counsel, except as is otherwise expressly provided in this Agreement.
12. Non-Performance.
If, on the date hereof, on the Initial Closing Date, or on any
Rights Closing Date, Initial Investment Issuance Date, or Additional Investment
Issuance Date, Baan shall fail to issue the Initial Common Shares and the
Additional Common Shares to Fletcher required to be issued pursuant to this
Agreement for any reason other than the failure of any condition precedent to
Baan's obligations hereunder or the failure by Fletcher to comply with its
obligations hereunder, then Baan shall:
a. hold Fletcher harmless against any loss, claim or damage
(including without limitation, incidental and consequential damages)
arising from or as a result of such failure by Baan; and
b. reimburse Fletcher for all of its reasonable out-of-pocket
expenses, including fees and disbursements of its counsel, incurred by
Fletcher in connection with this Agreement and the transactions
contemplated herein and therein;
provided, however, that Baan shall then be under no further liability to
Fletcher except as provided in this Section 12 and Section 13 hereof and
provided further that Baan shall have no liability to Fletcher under this
Section 12 to the extent that the failure to issue Initial Common Shares or
Additional Common Shares is attributable solely to the existence of an Issuance
Blockage and Baan is complying with the remedial provisions set forth in Section
3.B.c. for such blockage.
13. Indemnification.
a. Indemnification of Fletcher. Baan hereby agrees to indemnify
Fletcher and each of its officers, directors, employees, agents and
affiliates and each person that controls (within the meaning of Section
20 of the Exchange Act) any of the foregoing persons (each a "Fletcher
Indemnified Party") against any claim, demand, action, liability,
damages, loss, cost or expense (including, without limitation,
reasonable legal fees) (a "Proceeding"), that it may incur in connection
with any of the transactions contemplated hereby arising out of or based
upon:
(1) any untrue or alleged untrue statement of a
material fact in an SEC Filing by Baan or any of its affiliates
or any person acting on its or their behalf or omission or
alleged omission to state therein any material fact necessary in
order
24
<PAGE> 25
to make the statements, in the light of the circumstances under
which they were made, not misleading by Baan or any of its
affiliates or any person acting on its or their behalf;
(2) any of the representations or warranties made
by Baan herein being untrue or incorrect at the time such
representation or warranty was made; and
(3) any breach or non-performance by Baan of any of
its covenants, agreements or obligations under this Agreement;
and Baan hereby agrees to reimburse each Fletcher Indemnified Party for
any reasonable legal or other expenses incurred by such Fletcher
Indemnified Party in investigating or defending any such Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the
gross negligence or wilful misconduct of Fletcher in connection
therewith. Furthermore, the foregoing indemnity rights will not take
effect unless or until the total amount of the indemnification is
$10,000 or greater.
b. Indemnification of Baan. Fletcher hereby agrees to indemnify
Baan and each of its officers, directors, employees, agents and
affiliates and each person that controls (within the meaning of Section
20 of the Exchange Act) any of the foregoing persons (each a "Baan
Indemnified Party") against any Proceeding, that it may incur in
connection with any of the transactions contemplated hereby arising out
of or based upon:
(1) any untrue or alleged untrue statement of a
material fact by Fletcher or any of its affiliates or any person
acting on its or their behalf or omission or alleged omission to
state any material fact necessary in order to make the
statements, in the light of the circumstances under which they
were made, not misleading by Fletcher or any of its affiliates or
any person acting on its or their behalf;
(2) any of the representations or warranties made
by Fletcher herein being untrue or incorrect; and
(3) any breach or non-performance by Fletcher of
any of its covenants, agreements or obligations under this
Agreement;
and Fletcher hereby agrees to reimburse each Baan Indemnified Party for
any reasonable legal or other expenses incurred by such Baan Indemnified
Party in investigating or defending any such Proceeding;
25
<PAGE> 26
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the
gross negligence or wilful misconduct of Baan in connection therewith.
c. Conduct of Claims.
(1) Whenever a claim for indemnification shall
arise under this Section, the party seeking indemnification (the
"Indemnified Party"), shall notify the party from whom such
indemnification is sought (the "Indemnifying Party") in writing
of the Proceeding and the facts constituting the basis for such
claim in reasonable detail;
(2) Upon delivery of such notice, such Indemnified
Party shall have a duty to take all reasonable steps to mitigate
any losses, liabilities, costs, charges and expenses relating to
any such Proceeding;
(3) Such Indemnifying Party shall have the right to
retain the counsel of its choice in connection with such
Proceeding and to participate at its own expense in the defense
of any such Proceeding; provided, however, that counsel to the
Indemnifying Party shall not (except with the consent of the
relevant Indemnified Party) also be counsel to such Indemnified
Party. In no event shall the Indemnifying Party be liable for
fees and expenses of more than one counsel (in addition to any
local counsel) separate from its own counsel for all Indemnified
Parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the
same general allegations or circumstances; and
(4) No Indemnifying Party shall, without the prior
written consent of the Indemnified Parties (which consent shall
not be unreasonably withheld), settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever in respect of
which indemnification could be sought under this Section unless
such settlement, compromise or consent (A) includes an
unconditional release of each Indemnified Party from all
liability arising out of such litigation, investigation,
proceeding or claim and (B) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on
behalf of any Indemnified Party.
14. Survival of the Representations, Warranties, etc. The
respective representations, warranties, and agreements made herein by or on
behalf of the parties hereto shall remain in full force and effect, regardless
of any investigation made by or on behalf of the other party to this Agreement
or any officer, director or employee of, or person controlling or under common
control
26
<PAGE> 27
with, such party and will survive issuance of and payment for any Common Shares
issuable hereunder.
15. Notices. All communications hereunder shall be in writing,
and
a. if sent to Fletcher, shall be delivered by hand, sent
by registered mail or transmitted and confirmed by facsimile to
Fletcher, unless otherwise notified in writing of a substitute
address, at:
Original Copy:
Fletcher International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman, Cayman Islands, B.W.I.
Attn: Pamela Clements
Telephone: (345) 914-7515
Facsimile: (345) 949-7634
Provided, however, all certificates representing
securities be sent to Fletcher International Limited,
unless otherwise notified in writing of a substitute
address, at:
c/o Lehman Brothers, Inc.
3 World Financial Center 6th Floor
New York, New York 10285
Attention: Lou Amodeo, Prime Broker Services
Telephone (212) 526-9040
with a copy to:
Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 284-4800
Facsimile: (212) 284-4801
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
27
<PAGE> 28
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Stephen W. Hamilton
Telephone: (202) 371-7010
Facsimile: (202) 393-5760
b. if sent to Baan, shall be delivered by hand, sent by
registered mail or transmitted and confirmed by facsimile to
Baan, unless otherwise notified in writing of a substitute
address, at:
Baan Company N.V.
11911 Freedom Drive, Suite 300
Reston, Virginia 20190
Attention: Tom Tinsley/R. Goudie
Telephone: 703-471-8785
Facsimile: 703-471-8786
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Mark A. Bertelsen
Telephone: 650-493-9300
Facsimile: 650-493-6811
and to:
DeBrauw Blackstone Westbroek
Tripolis 300 Burgerweeshuispad 301
PO Box 75084
1070 AB Amsterdam
The Netherlands
Attention: Paul Cronheim
Telephone: 011-3120-577-1771
Facsimile: 011-3120-577-1775
To the extent that any funds shall be delivered to Baan by
wire transfer, unless otherwise instructed by Baan, such
funds should be delivered in accordance with the following
wire instructions:
Baan USA, Inc.
28
<PAGE> 29
Acct# 4277156741
ABA# 121000248
Bank: Wells Fargo Bank, N.A.
16. Miscellaneous.
a. This Agreement may be executed in one or more counterparts and
it is not necessary that signatures of all parties appear on the same
counterpart, but such counterparts together shall constitute but one and
the same agreement.
b. This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their respective successors and assigns and,
with respect to Section 13 hereof, their respective officers, directors,
employees, agents, affiliates and controlling persons, and no other
person shall have any right or obligation hereunder. Baan may not assign
this Agreement. Fletcher may assign any of its rights, in whole or in
part, at its sole discretion (including, without limitation, any
Fletcher Rights), provided that the assignee of Fletcher Rights must
expressly assume Fletcher's obligations relating to such assigned
Rights.
c. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York, and each of
the parties hereto hereby submits to the non-exclusive jurisdiction of
any State or Federal court in the State of New York and any court
hearing any appeal therefrom, over any suit, action or proceeding
against it arising out of or based upon this Agreement (a "Related
Proceeding"). Each of the parties hereto hereby waives any objection to
any Related Proceeding in such courts whether on the grounds of venue,
residence or domicile or on the ground that the Related Proceeding has
been brought in an inconvenient forum.
d. The parties shall take all actions reasonably necessary to
cause the transaction contemplated hereby to be consummated in
accordance with the terms hereof.
e. The headings of the sections of this document have been
inserted for convenience of reference only and shall not be deemed to be
a part of this Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties hereto with respect to the subject
matter of this Agreement. This Agreement is not intended to confer upon
any person other than the parties hereto any rights or remedies
hereunder or under the terms of the term sheets between such parties.
17. Time of Essence. Time shall be of the essence in this
Agreement.
29
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, all as of the day and year first above written.
BAAN COMPANY N.V.
By: /s/ TOM C. TINSLEY
------------------------------------
Name: Tom Tinsley
Title: Chairman & CEO
FLETCHER INTERNATIONAL LIMITED
By: /s/ A. FLETCHER, JR.
------------------------------------
Name: A. Fletcher, Jr.
Title: President
30
<PAGE> 31
SHARE RIGHTS AGREEMENT
BETWEEN BAAN COMPANY N.V.
AND FLETCHER INTERNATIONAL, LTD.
DATED DECEMBER 31, 1998
<PAGE> 32
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
65 Day Notice...............................................................................16
Acquirer....................................................................................19
Additional Aggregate Dollar Value............................................................4
Additional Average Price.....................................................................4
Additional Common Shares.....................................................................1
Additional Investment Issuance Date..........................................................4
Additional Investment Notice.................................................................4
Additional Investor Right....................................................................3
Additional Issuance Price....................................................................3
Additional Share Price.......................................................................4
Additional Specified Amount..................................................................4
Adjustable Average Price....................................................................18
AEX..........................................................................................1
Aggregate Additional Specified Amount........................................................4
Aggregate Specified Amount...................................................................2
Agreement....................................................................................1
Average Price................................................................................2
Baan.........................................................................................1
Baan Closing.................................................................................2
Baan Closing Date............................................................................2
Baan Indemnified Party......................................................................26
Baan Notice..................................................................................2
Baan Rights..................................................................................2
Baan Rights Cap..............................................................................2
Baan Rights Expiration Date..................................................................2
Blackout Period.............................................................................13
Combination.................................................................................19
Combination Closing.........................................................................19
Combination Notice..........................................................................19
Common Shares................................................................................1
Conversion Rate..............................................................................5
Covered Security............................................................................11
Date of Issuance.............................................................................5
Eight-Day Period............................................................................21
Excess Closing Price........................................................................15
Excess Note.................................................................................15
Excess Note Notice..........................................................................15
Excess Notice Date..........................................................................15
</TABLE>
i
<PAGE> 33
<TABLE>
<S> <C>
Exchange Act 10
Exercisable Number..........................................................................16
Fletcher.....................................................................................1
Fletcher Closing.............................................................................3
Fletcher Closing Date........................................................................3
Fletcher Indemnified Party..................................................................25
Fletcher Notice..............................................................................3
Fletcher Notice Date........................................................................14
Fletcher Review Process.....................................................................21
Fletcher Rights..............................................................................3
Fletcher Rights Cap..........................................................................3
Guilder/Euro Aggregate Issue Price...........................................................5
Increase Notice.............................................................................16
Increased Number............................................................................16
Indemnification Amount......................................................................13
Indemnified Party...........................................................................27
Indemnifying Party..........................................................................27
Initial Closing Date.........................................................................6
Initial Common Shares........................................................................1
Initial Investment Issuance Date.............................................................1
Initial Investment Notice....................................................................1
Initial Investor Right.......................................................................1
Initial Issuance Price.......................................................................1
Issuance Blockage...........................................................................14
Maximum Number..............................................................................16
Notice Period...............................................................................16
Obligation..................................................................................15
Original Number.............................................................................14
Private Placement...........................................................................21
Proceeding..................................................................................25
Prospectus..................................................................................12
Reclassification Consideration..............................................................18
Registration Requirement.....................................................................1
Registration Statement......................................................................11
Related Entities............................................................................21
Related Proceeding..........................................................................30
Required Consent............................................................................14
Rights.......................................................................................3
Rights Closing...............................................................................3
Rights Closing Date..........................................................................3
Rule 144....................................................................................11
Sales Contract..............................................................................13
</TABLE>
ii
<PAGE> 34
<TABLE>
<S> <C>
SEC10
SEC Filing..................................................................................10
Securities Act..............................................................................10
Specified Amount.............................................................................2
Third Party Investors.......................................................................21
Thirty-Day Period...........................................................................21
Trading Day..................................................................................1
Unsold Securities...........................................................................13
US Issuance Price............................................................................5
</TABLE>
iii
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Initial Exchange; Additional Rights..................................................1
2. Closings; Issuance Dates.............................................................6
3. Representations and Warranties of Baan...............................................8
3.A Registration Provisions.............................................................11
3.B. Additional Agreements...............................................................14
4. Representations and Warranties of Fletcher..........................................16
5. Stock Dividends, Stock Splits, Etc..................................................18
6. Consolidation, Merger, Etc..........................................................19
7. Covenants of Baan...................................................................20
8. Covenants of Fletcher...............................................................22
8.A. Legend..............................................................................22
8.B. Voting Limitations..................................................................22
9. Conditions Precedent to Fletcher's Obligations......................................24
10. Conditions Precedent to Baan's Obligations..........................................24
11. Fees and Expenses...................................................................25
12. Non-Performance.....................................................................25
13. Indemnification.....................................................................25
14. Survival of the Representations, Warranties, etc....................................28
15. Notices.............................................................................28
16. Miscellaneous.......................................................................30
17. Time of Essence.....................................................................31
Annexes
- -------
Annex A Form of Initial Investment Notice
Annex B Form of Baan Notice
Annex C Form of Fletcher Notice
Annex D Form of Additional Investor Notice
Annex E Form of Private Deed of Issuance of Initial Common Shares
Annex F Form of Private Deed of Issuance of Additional Common Shares
Annex G Form of Excess Note Notice
</TABLE>
i
<PAGE> 1
EXHIBIT 3.20
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
When considering what action you should take, you are recommended immediately to
seek your own financial advice from your stockbroker, bank manager, solicitor,
accountant or other independent financial adviser authorised under the Financial
Services Act 1986.
If you have sold or otherwise transferred all of your CODA Shares, please send
this document, together with the accompanying documents, as soon as possible to
the purchaser or transferee, or to the stockbroker, bank or other agent through
whom the sale or transfer was effected for onward transmission to the purchaser
or transferee. HOWEVER, SUCH DOCUMENTS SHOULD NOT BE FORWARDED OR TRANSMITTED IN
OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN, SUBJECT TO CERTAIN
EXCEPTIONS.
- --------------------------------------------------------------------------------
Recommended Offer
by
Goldman Sachs International
on behalf of
Baan Company N.V.
for
The CODA Group plc
- --------------------------------------------------------------------------------
A letter of recommendation from the Chairman of The CODA Group plc is set out on
pages 3 to 5 of this document.
Completed Forms of Acceptance should be returned as soon as possible, but, in
any event, so as to be received by no later than 3.00 p.m. on Friday, 3 April
1998. The procedure for acceptance of the Offer is set out on pages 12 to 15 of
this document and in the accompanying Form of Acceptance.
The new Baan Shares to be issued pursuant to the Offer are bearer shares
tradeable on the Amsterdam Stock Exchange and have not been, and will not be,
registered under the United States Securities Act of 1933 or any state laws of
the United States (and the relevant clearances have not been, and will not be,
obtained from the securities commission of Japan, any province of Canada or any
state of Australia) and may not be offered, sold or delivered, directly or
indirectly, in or into the United States, Canada, Australia or Japan, except
pursuant to exemptions from the applicable requirements of such jurisdictions.
Goldman Sachs International, which is regulated in the United Kingdom by The
Securities and Futures Authority Limited is
<PAGE> 2
acting for Baan and for no one else in connection with the Offer and will not be
responsible to anyone other than Baan for providing the protections afforded to
its customers or for giving advice in relation to the Offer.
Lazard Brothers, which is regulated by The Securities and Futures Authority
Limited, is acting for CODA and for no one else in connection with the Offer and
will not be responsible to anyone other than CODA for providing the protections
afforded to its customers or for giving advice in relation to the Offer.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LETTER FROM THE CHAIRMAN OF CODA.......................................... 3
LETTER FROM THE PRESIDENT AND CHIEF OPERATING OFFICER OF BAAN............. 6
LETTER FROM GOLDMAN SACHS INTERNATIONAL................................... 7
1. Introduction........................................................ 7
2. The Offer .......................................................... 7
3. Accounting Treatment ............................................... 8
4. Financial Effects of Acceptance .................................... 9
5. Information on Baan and current trading ............................ 9
6. Information on CODA and current trading ............................ 10
7. Background to and reasons for the Offer ............................ 10
8. Management and Employees ........................................... 10
9. CODA Share Option Schemes .......................................... 10
10. Taxation .......................................................... 10
11. Procedures for the acceptance of the Offer ........................ 12
12. Settlement ........................................................ 15
13. Further Information ............................................... 16
14. Action to be Taken ................................................ 16
Appendix I: Conditions and Further Terms of the Offer..................... I-1
Appendix II: Financial information on Baan................................ II-1
Appendix III: Financial information on CODA............................... III-1
Appendix IV: Additional information....................................... IV-1
</TABLE>
EXPECTED TIMETABLE OF EVENTS
Announcement of the Offer Monday, 23 February 1998
Posting of the Offer Document Friday, 13 March 1998
First Closing Date of the Offer 3.00 p.m. on Friday, 3 April 1998
RULE 8 NOTICES
Any person who, alone or acting together with any other person(s)
pursuant to any agreement (formal or informal), owns or controls, or becomes the
owner or controller of, directly or indirectly, 1 per cent, or more of the CODA
Shares or the Baan Shares is required, under the provisions of Rule 8 of the
Code, to notify the Company Announcements Office of the London Stock Exchange,
which will notify the Panel and the United Kingdom press, of every dealing in
any CODA Shares or Baan Shares until such time as the Offer is declared
unconditional as to acceptances or lapses, in accordance with Rule 8. Dealings
by "associates" (within the meaning of the Code) of Baan or CODA in Baan Shares
or CODA Shares until such time must also be disclosed. Please consult your legal
adviser if you believe Rule 8 may be applicable to you.
Directors:
Colin S. Gaskell (Non-Executive Chairman)
Robert N. Brown (Chief Executive)
Donna M. Angiulo (Chief Finance Director)
<PAGE> 3
Phillip G. Dawes (Senior Vice-President)
David J. Eggleton (Non-Executive Director)
William O. Grabe (Non-Executive Director)
13 March 1998
To CODA Shareholders and, for information only, to participants in the CODA
Share Option Schemes
Dear Shareholder,
RECOMMENDED OFFER ON BEHALF OF BAAN
INTRODUCTION
The Boards of CODA and Baan announced on 23 February 1998 that they had reached
agreement on the terms of a recommended Offer to be made by Goldman Sachs
International on behalf of Baan, for the whole of the issued share capital of
CODA. I am writing to explain the background to the Offer and the reasons why
CODA's Independent Directors consider that the terms of the Offer are fair and
reasonable and are unanimously recommending that you accept the Offer.
TERMS OF THE OFFER
The Offer, which is set out in the letter from Goldman Sachs International
beginning on page 7 of this document, is being made on the following basis:
FOR EACH CODA SHARE 0.0695 NEW BAAN SHARES
and so in proportion for any other number of CODA Shares held, except that
fractions of new Baan Shares will be rounded down to the nearest whole number of
new Baan Shares and any fractional entitlement ignored.
On the basis set out below, the Offer values the whole of the existing issued
share capital of CODA at approximately Pound Sterling 52.9 million. The Offer
represents a premium of 15.5 per cent. over the closing middle market price of a
CODA Share of 164.5 pence on 20 February 1998 (the latest dealing day prior to
the announcement of the Offer).
REGISTERED OFFICE:
THE CODA GROUP PLC, CARDALE PARK, BECKWITH HEAD ROAD, HARROGATE HG3 1RY,
TELEPHONE: +44(0) 1429 609999 FAX +44(0) 1423 590524 WWW.CODA-FINANCIALS.COM
ATLANTA, BASINGSTROKE, BRUSSELS, BUDAPEST, CHICAGO, CINCINNATI, DALLAS,
FRANKFURT, HARROGATE, HENDON, HONG KONG, MANCHESTER NH, MEXICO D.F., MILAN.
MINNEAPOLIS, MUNICH, PARIS, PRAGUE, REYKJAVIK, SAN DIEGO, SAN FRANCISCO,
SEATTLE, SINGAPORE, STOCKHOLM, SYDNEY
VAT REG. NO. GB 613430285 REGISTERED IN ENGLAND NO. 2841776
<PAGE> 4
The Offer of 0.0695 new Baan Shares for each CODA Share values each CODA Share
at 190 pence and each Baan Share at NLG 92 (Pound Sterling 27.357 at the
exchange rate of NLG 3.363 = Pound Sterling 1 prevailing on 20 February 1998),
based on the per share closing price of Baan Shares on the Amsterdam Stock
Exchange on 20 February 1998.
The new Baan Shares to be issued pursuant to the Offer will be issued only in
bearer form and will rank pari passu with the existing common shares of Baan,
including the right to receive all dividends declared, made or paid after 23
February 1998.
BACKGROUND TO AND REASONS FOR RECOMMENDING THE OFFER
Your board believes that CODA and Baan make an excellent fit together. An
integrated CODA-Financials software product with the Baan ERP product will meet
the needs of those customers requiring extensive corporate accounting
capabilities and will significantly improve Baan's existing finance offering.
Under Baan's ownership, CODA will prosper more quickly and with more certainty,
given the financial strength, critical mass and synergies with Baan.
UNDERTAKINGS TO ACCEPT THE OFFER
Your Directors have undertaken to accept the Offer in respect of their own
holdings, in aggregate of 139,698 CODA Shares representing approximately 0.5 per
cent. of CODA's existing issued share capital.
Baan has received further undertakings to accept the Offer from General Atlantic
Partners in respect of its shareholding 5,253,570 CODA Shares, representing
approximately 18.9 per cent. of the issued share capital of CODA and from
founders of CODA and their associates in respect of a further 8,539,543 CODA
Shares, representing approximately 30.7 per cent.
In aggregate, therefore, Baan has received irrevocable undertakings to accept
the Offer, which will continue to be binding even in the event of a higher offer
being made for CODA, in respect of not less than 13,932,811 CODA Shares,
representing approximately 50.1 per cent. of CODA's issued share capital.
MANAGEMENT AND EMPLOYEES
Baan intends that the existing employment rights, including pension rights, of
the management and employees of CODA will be fully safeguarded.
CODA SHARE OPTION SCHEMES
The Offer will extend to any shares in CODA issued or unconditionally allotted
before the date on which the Offer closes (or by such earlier date as Baan may,
subject to the Code, determine) including those issued or allotted as a result
of the exercise of options granted under the CODA Share Option Schemes prior to
the date on which the Offer closes.
To the extent that such options are not exercised and taking due account of
applicable Dutch securities laws and regulations, and if the Offer becomes or is
declared unconditional in all respects, Baan will make appropriate proposals to
option holders under the CODA Share Option Schemes in due course.
ACTION TO BE TAKEN
<PAGE> 5
Your attention is drawn to pages 12 to 15 of this document and to the Form of
Acceptance, which sets out the procedure for acceptance of the Offer.
In order to accept the Offer, you should complete and return the enclosed Form
of Acceptance in accordance with the instructions printed thereon, so as to be
received as soon as possible, but in any event no later than 3.00pm on Friday, 3
April 1998. A reply-paid envelope is enclosed for your use.
<PAGE> 6
RECOMMENDATION
Mr William Grabe, who is a member of the Supervisory Board of Baan and a
managing member of General Atlantic Partners, a major CODA Shareholder and a
shareholder of Baan, as well as a director of CODA, has not participated in the
decision of the board of directors of CODA to recommend the Offer, nor in the
decision of the Supervisory Board of Baan to approve the making of the Offer.
The directors of CODA (apart from Mr William Grabe), who have been so advised by
Lazard Brothers, their financial advisers, consider the terms of the Offer to be
fair and reasonable. In providing advice to the directors of CODA, Lazard
Brothers has taken into account the directors' commercial assessments.
The CODA Independent Directors unanimously recommend shareholders to accept the
Offer as they have irrevocably undertaken to do in respect of their entire
beneficial holdings amounting to 139,698 CODA Shares, representing 0.5 per cent.
of the issued share capital of CODA.
Yours sincerely,
Colin Gaskell
Chairman
<PAGE> 7
Baan Company
Baan Company N.V.
Zonneoordiaan 17
P.O. Box 250
6710 BG Ede
The Netherlands
Telephone +31 (0)318 696666
Fax +31 (0)318 651544
Baron von Baggellstreet 89
P.O. Box 143
3770 AC Barnevelo
The Netherlands
Telephone +31 (0)342 428888
Fax +31 (0)342 428822
13 March 1998
To CODA Shareholders and, for information only, to participants in the CODA
Share Option Schemes
Dear CODA Shareholder,
RECOMMENDED OFFER FOR CODA
On 23 February 1998, Baan and CODA announced the terms of a recommended share
for share offer to be made on behalf of Baan for the whole of the issued share
capital of CODA, valuing CODA at approximately Pound Sterling 52.9 million.
The letter from Goldman Sachs International, set out on pages 7 to 16 of this
document, provides further details of our Offer.
We believe that the Offer is in the best interests of CODA Shareholders,
employees and customers for the following reasons:
o the Offer represents a premium of 15.5 per cent. to the CODA
share price prior to the announcement of our Offer and a 27 per
cent. premium to the average CODA share price (of 149 pence)
over the 12 months prior to the announcement of the Offer;
o the Offer gives CODA Shareholders the opportunity to continue to
participate in the exciting opportunities resulting from the
continuing evolution of the business management software
industry and to share in the benefits which we believe can be
achieved through the combination of CODA and Baan; and
o the Offer gives CODA's management and employees the opportunity
to continue to develop the CODA-Financials software product and
to integrate CODA-Financials with the Baan ERP product,
supported by the resources and critical mass of the Baan Group.
Baan is a leading provider of business management software, headquartered in the
Netherlands and in the United States, with a market capitalisation of over Pound
Sterling 5 billion.
We are delighted that the CODA Independent Directors have recommended our Offer.
We urge you to accept our Offer as soon as possible so that we can welcome
CODA's management and employees to the Baan Group and start working to deliver
the benefits of the combination.
To accept our Offer, return your Form of Acceptance so as to be received no
later than 3.00 p.m. on Friday, 3 April 1998. Details of how to accept the Offer
are set out on pages 12 to 15 of this document and in the Form of Acceptance.
<PAGE> 8
Yours sincerely,
Tom Tinsley
President and Chief Operating Officer of Baan
Handelsregister Arnhern 090 49 765
ABN-AMRO 48 43 68 109
ABN-AMRO Giro 2900
VAT no. NL 80.03.42.033.B04
<PAGE> 9
Goldman Sachs International, Peterborough Court, 133 Fleet Street,
- --------------------------------------------------------------------------------
London EC4A 2BB, England Tel: 0171-774 1000,
Telex: 94015777, Cable: GOLDSACHS LONDON
Regulated by The Securities and Futures Authority Limited
13 March 1998
To CODA Shareholders and, for information only, to participants in the CODA
Share Option Schemes
Dear CODA Shareholder,
RECOMMENDED OFFER ON BEHALF OF BAAN
1 INTRODUCTION
On 23 February 1998, it was announced that the boards of Baan and CODA
had reached agreement on the terms of a recommended share for share offer to be
made by Goldman Sachs International, on behalf of Baan, to acquire the whole of
the issued share capital of CODA. This letter contains the formal Offer. On the
basis set out below the Offer values each CODA Share at approximately 190 pence,
valuing the whole of the existing issued share capital of CODA at approximately
Pound Sterling 52.9 million.
Your attention is drawn to the letters from the Chairman of CODA and the
President and Chief Operating Officer of Baan, set out on pages 3 to 6 of this
document, which explain the background to, reasons for and benefits of the
Offer.
The CODA Directors have undertaken to accept the Offer in respect of
their own holdings, in aggregate of 139,698 CODA Shares, representing
approximately 0.5 per cent. of CODA's existing issued share capital.
Baan has received further undertakings to accept the Offer from a major
CODA Shareholder, General Atlantic Partners in respect of its shareholding of
5,253,570 CODA Shares, representing approximately 18.9 per cent. of the issued
share capital of CODA and from founders of CODA and their associates in respect
of a further 8,539,543 CODA Shares, representing approximately 30.7 per cent. of
the issued share capital of CODA.
In aggregate, therefore, Baan has received irrevocable undertakings to
accept the Offer, which will continue to be binding even in the event of a
higher offer being made for CODA's Shares, in respect of not less than
13,932,811 CODA Shares, representing approximately 50.1 per cent. of CODA's
issued share capital. Baan does not currently own any CODA Shares.
2 THE OFFER
On behalf of Baan, Goldman Sachs International hereby offers to acquire,
on the terms and subject to the conditions set out below and in Appendix I and
in the Form of Acceptance, all of the CODA Shares on the following basis:
<PAGE> 10
for each CODA Share 0.0695 new Baan Shares
and so in proportion for any other number of CODA Shares held, except that
fractions of Baan Shares will be rounded down to the nearest whole number of
Baan Shares and any fractional entitlement ignored. The Offer will extend to any
CODA Shares currently in issue or unconditionally allotted or issued prior to
the date on which the Offer closes (or such earlier date as Baan may, subject to
the Code, decide).
The Offer of 0.0695 new Baan Shares for each CODA Share values each CODA
Share at 190 pence and each Baan Share at NLG 92 (Pound Sterling 27.357 at the
exchange rate of NLG 3.363 = Pound Sterling 1 prevailing on 20 February 1998),
based on the per share closing price of Baan Shares on the Amsterdam Stock
Exchange on 20 February 1998.
On the basis set out above, the Offer represents a premium of 15.5 per
cent. over the closing middle market price of a CODA Share of 164.5 pence on 20
February 1998 (being the latest dealing day prior to the announcement of the
Offer), Acceptance in full of the Offer will result in the issue of
approximately 1.9 million new Baan Shares, representing approximately 1.0 per
cent. of the enlarged issued and outstanding share capital of Baan.
The new Baan Shares to be issued pursuant to the Offer will be issued
only in bearer form and will rank pari passu with the existing common shares of
Baan, including the right to receive all dividends declared, made or paid after
23 February 1998. Application will be made to list the new Baan Shares to be
issued pursuant to the Offer on the Amsterdam Stock Exchange. Baan Shares can be
held either in bearer form or in registered form at the request of the
shareholders but only Baan Shares in bearer form can be used to settle trades
effected through the Amsterdam Stock Exchange. Baan's New York registry shares
may be traded only on the Nasdaq National Market and only its bearer shares may
be traded on the Amsterdam Stock Exchange. Baan will instruct its New York
transfer agent to place "stop transfer" instructions, effective for a period of
one year after the close of the Offer, on any New York registry shares that are
requested to be issued to a former CODA Shareholder in exchange for bearer
shares issued pursuant to the Offer. Further information about Baan Shares is
set out in paragraph 12 of this letter and in paragraph 5 of Appendix IV.
The CODA Shares will be acquired by Baan fully paid and free from all
liens, equities, charges, encumbrances and other interests and together with all
rights now or hereafter attaching thereto, including the right to receive and
retain all dividends and other distributions (if any) declared, made or paid
after 23 February 1998.
The conditions and further terms of the Offer are set out in Appendix I
to this document. The Offer is subject to the applicable requirements of the
City Code.
The attention of overseas shareholders is drawn to paragraph 11(e) of
this letter, and to paragraph 6 of Part B and paragraph (iii) of Part C of
Appendix I.
3 ACCOUNTING TREATMENT
It is a condition of the Offer that Baan has not discovered that any
event has occurred (whether before or after the date of the Offer) or other
circumstances subsist at the date on which the Offer becomes or is declared
unconditional in all respects that could or might result in the acquisition of
CODA not being treated as a pooling of interests in accordance with generally
accepted accounting principles in the United States. Under this accounting
treatment, the accounts of Baan and the accounts of CODA will be combined after
the Offer becomes or is declared unconditional in all respects.
<PAGE> 11
In order that the acquisition of CODA will be treated as a pooling of
interests under the United States generally accepted accounting principles, the
directors of CODA and certain shareholders of CODA have agreed to certain sale
limitations on their CODA Shares and, when issued, the Baan Shares received
pursuant to the Offer and related proposals to optionholders. These restrictions
relate to approximately 41.6 per cent. of the Baan Shares which will be issued
to CODA Shareholders (assuming full acceptance of the Offer).
In addition, directors, certain officers and other affiliates of Baan
will also be subject to the same sale limitations.
The sale limitations remain in place until the financial results of the
combined operations of Baan and CODA covering a period of at least 30 days are
publicly released by Baan. These results are expected to form part of the
financial results of Baan for the quarter ending 30 June 1998. Baan intends to
release its results for such quarter in its customary timeframe for announcing
quarterly earnings, typically late in the first month for the subsequent
quarter, or July 1998.
4 FINANCIAL EFFECTS OF ACCEPTANCE
The following table sets out, for illustrative purposes only, and on the
bases and assumptions stated below, the financial effect on capital value and
gross income for a holder of 100 CODA Shares accepting the Offer if the Offer
becomes or is declared unconditional in all respects:
<TABLE>
<CAPTION>
POUND STERLING
--------------
<S> <C>
(a) Capital Value
Market Value of 6.95 new Baan Shares (i) 190.1
Market Value of 100 CODA Shares (ii) 164.5
Increase in capital value 25.6
This represents an increase of 15.5%
POUND STERLING
(b) Capital Gross Income
Gross income from 6.95 new Baan Shares (iii) --
Gross income from 100 CODA Shares (iv) --
Effect on gross income unchanged
</TABLE>
Notes:
(i) The market value attributable to one Baan Share is Pound Sterling
27.357, based on the per share closing price of NLG 92 (Pound Sterling
27.357 at the exchange rate of NLG 3.363= Pound Sterling 1 prevailing on
20 February 1998) per Baan Share on the Amsterdam Stock Exchange on 20
February 1998 (the last dealing day prior to the announcement of the
Offer). The market value attributable to one Baan Share is Pound
Sterling 26.408, based on the per share closing price of NLG 89.8 (Pound
Sterling 26.408 at the exchange rate of NLG 3.400 = Pound Sterling 1
prevailing on 11 March 1998) per Baan Share on the Amsterdam Stock
Exchange on 11 March 1998 (the latest practicable date prior to
publication of this document). On that basis the Offer values each CODA
Share at 184 pence.
(ii) The market value attributable to one CODA Share is 164.5 pence, based on
the closing middle market price as derived from the Official List on 20
February 1998.
(iii) Baan did not pay a dividend to its shareholders in respect of the year
ended 31 December 1996 and does not propose to pay a dividend in respect
of the year ended 31 December 1997.
(iv) No dividend has been paid on CODA Shares since that in respect of the
year ended 31 October 1994. CODA has
<PAGE> 12
stated that it does not intend to pay any dividend in respect of the
year ended 31 October 1997.
(v) No account has been taken of any liability to taxation or for the
treatment of fractional entitlements.
5 INFORMATION ON BAAN AND CURRENT TRADING
Business description
Baan is a leading provider of business management software. Baan
delivers its comprehensive business management software to companies in various
markets, including the transportation, process engineering, manufacturing,
distribution and other project-based markets. Baan's customers use its software
to control and automate business processes, ranging from accounting, order
management and inventory procurement to manufacturing of finished-goods
delivery. Baan has adopted a strategy of periodically reinventing its products,
thereby enabling the consistent delivery of state-of-the-art solutions meeting
the requirements of Baan's customers. More than 2,800 customer systems use Baan
in around 4,800 sites worldwide.
Founded in 1978, Baan is headquartered in The Netherlands and the United
States. Baan's common shares are listed on the Amsterdam Stock Exchange and
quoted on the Nasdaq National Market. Baan had a market capitalisation of NLG
17.8 billion ($8.6 billion at the exchange rate of NLG 2.056 = $1 prevailing on
20 February 1998) as of 20 February 1998, based on the per share closing price
of NLG 92 per Baan Share on the Amsterdam Stock Exchange on that date.
FINANCIAL INFORMATION
For the year ended 31 December 1997, Baan recorded pro forma net income
excluding restructuring and other charges of $85.4 million (1996: $36.6 million)
based on revenues of $684 million (1996: $415 million).
Since the preliminary statement of results on 29 January 1998, trading
has been in line with budget.
Further financial information on Baan is set out in Appendix I.
6 INFORMATION ON CODA AND CURRENT TRADING
CODA is a supplier of international financial accounting software
designed for open, client/server systems. CODA software serves a wide variety of
industries including finance, communications and media, and manufacturing.
CODA is based in the United Kingdom with headquarters in Harrogate,
North Yorkshire. CODA operates internationally from a network of offices across
Europe, the Americas and Asia Pacific. CODA has over 500 employees.
For the year ended 31 October 1997, CODA recorded a pre-tax loss of
Pound Sterling 1.8 million on turnover of Pound Sterling 41.2 million. At 31
October 1997, CODA's shareholders' funds amounted to Pound Sterling 3 million.
Since the announcement of the preliminary results on 8 January 1998,
trading has been in line with budget.
Further financial information on CODA is set out in Appendix III.
7 BACKGROUND TO AND REASONS FOR THE OFFER
Baan's management has for some time recognised the importance of
developing a presence in the area of standalone financial software and enhancing
the capabilities of Baan's current finance products for its ERP customers. The
acquisition of CODA will provide Baan with access to a leading financial
software product as well as CODA's considerable functional expertise to help
enhance its current finance products. The CODA-Financials software product is an
open, interactive financial and management information system, which provides
users with tools to manage and control the financial information of a business
using an integrated software application. CODA's strategy has focused on growing
the customer base for its products and in building its presence in international
markets, in particular the United States. Baan's intention with the acquisition
of CODA is threefold: to improve significantly Baan's ability to compete in the
standalone financials
<PAGE> 13
marketplace; to integrate the CODA-Financials software product with the Baan ERP
product to meet the needs of those customers requiring extensive corporate
accounting capabilities; and continually to enhance Baan's existing finance
offering for Baan's ERP customers. CODA's product, management and employees will
be central to Baan's implementation of this three element plan.
8 MANAGEMENT AND EMPLOYEES
Baan intends that the existing employment rights, including pension
rights, of the management and employees of CODA will be fully safeguarded.
9 CODA SHARE OPTION SCHEMES
The Offer will extend to any shares in CODA issued or unconditionally
allotted before the date on which the Offer closes (or by such earlier date as
Baan may, subject to the Code, determine) including those issued or allotted as
a result of the exercise of options granted under the CODA Share Option Schemes
prior to the date on which the Offer closes.
To the extent that such options are not exercised and taking due account
of applicable Dutch securities laws and regulations, and if the Offer becomes or
is declared unconditional in all respects, Baan will make appropriate proposals
to optionholders under CODA Share Option Schemes in due course.
10 TAXATION
United Kingdom Taxation
The following paragraphs, which are intended as a general guide only and
are based on current legislation and Inland Revenue practice (which may change),
summarise the United Kingdom taxation implications for CODA Shareholders who are
resident or ordinarily resident in the United Kingdom, are the beneficial owners
of their CODA Shares for tax purposes and hold their CODA Shares as investments
and not as trading stock. ANY CODA SHAREHOLDER OR HOLDER OF OPTIONS UNDER THE
CODA SHARE OPTION SCHEMES WHO IS IN ANY DOUBT AS TO HIS OWN TAX POSITION, OR IS
SUBJECT TO TAXATION IN A JURISDICTION OTHER THAN THE UNITED KINGDOM, IS STRONGLY
RECOMMENDED TO SEEK HIS OWN PERSONAL FINANCIAL ADVICE.
(a) TAXATION OF CAPITAL GAINS
Liability to United Kingdom taxation in respect of capital gains
will depend on the individual circumstances of a CODA Shareholder.
A CODA Shareholder who, alone or together with connected
persons, holds not more than five per cent. of the total nominal value
of all the CODA Shares will not be treated as disposing of his CODA
Shares for the purposes of United Kingdom tax on capital gains where, as
a result of his acceptance of the Offer, he exchanges those shares for
new Baan Shares. Instead, the CODA Shares and the new Baan Shares will
be treated as the same assets acquired at the time the CODA Shares were
acquired. Other CODA Shareholders should note that an application for
clearance has been made to the Board of the Inland Revenue under section
138 of the Taxation of Chargeable Gains Act 1992. If this clearance is
given, any such shareholder should also be treated in the manner
described above.
<PAGE> 14
A subsequent disposal of all or any of the new Baan Shares may,
depending on individual circumstances, give rise to a liability to
United Kingdom tax on capital gains. An individual shareholder who is
resident or ordinarily resident but not domiciled in the United Kingdom
and whose new Baan Shares are not situated in the United Kingdom will be
liable to United Kingdom capital gains tax only to the extent that
chargeable gains made on the disposal of such shares are remitted or
deemed to be remitted to the United Kingdom.
(b) TAXATION OF DIVIDENDS
Dividends received from Dutch companies are subject to a
withholding tax of 25 per cent. Some or all of this withholding tax may
be recoverable from the Dutch tax authorities pursuant to the provisions
of the double taxation treaty between the United Kingdom and the
Netherlands.
A shareholder who is resident in the United Kingdom for tax
purposes will generally be subject to United Kingdom income tax or
corporation tax, as the case may be, on the gross amount of any
dividends paid by Baan in respect of the new Baan Shares before
deduction of any Dutch tax withheld. Dutch withholding tax withheld from
the payment of a dividend (and not recoverable from the Dutch tax
authorities) will generally be available as a credit against income tax
or corporation tax payable by the shareholder in respect of the
dividend. An individual shareholder who is resident, but not domiciled,
in the United Kingdom, will be liable to United Kingdom income tax only
to the extent that dividends paid by Baan are remitted or deemed to be
remitted to the United Kingdom.
A collecting agent in the United Kingdom who either (1) acts as
a custodian of the new Baan Shares and receives dividends or directs
that dividends be paid to another person or consents to such a payment;
or (2) collects or secures payment of dividends on new Baan Shares for a
Baan Shareholder (except by means of clearing a cheque or arranging for
the clearing of a cheque) will generally be required to deduct from
dividends an amount representing United Kingdom tax at the lower rate
(currently 20 per cent) unless the person beneficially entitled to the
dividends and the related new Baan Shares is not resident in the United
Kingdom and has provided a valid declaration in the appropriate form to
the collecting agent as specified by regulations. Tax may be deducted by
such a Collecting Agent at a reduced rate to give credit for Dutch
withholding tax.
(c) INHERITANCE TAX
United Kingdom inheritance tax may be chargeable on the death
of, or in certain circumstances on a gift of new Baan Shares by, the
owner of the shares, where the owner is an individual who is domiciled
or deemed to be domiciled in the United Kingdom or the shares are
situated in the United Kingdom at the time of the death or gift. Shares
in bearer form may be situated in the United Kingdom and thus be brought
into the charge to United Kingdom inheritance tax.
(d) STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT")
(i) Stamp duty on the issue of new Baan Shares
No United Kingdom stamp duty or stamp duty reserve tax will be
payable by CODA Shareholders on the issue of the new Baan Shares in
exchange for CODA Shares.
(ii) Stamp duty on the transfer of new Baan Shares
<PAGE> 15
No United Kingdom stamp duty will be payable on a transfer of
any new Baan Shares in bearer form which takes place by delivery. United
Kingdom stamp duty will be payable on a transfer of any new Baan Shares
in respect of which any instrument of transfer is executed in the United
Kingdom. No United Kingdom stamp duty will be payable in connection with
a transfer of shares in registered form executed and retained outside
the United Kingdom.
(iii) Stamp duty reserve tax on the transfer of new Baan Shares
No United Kingdom stamp duty reserve tax will be payable in
respect of any agreement to transfer new Baan Shares unless they are
registered in a register kept in the United Kingdom on behalf of Baan.
DUTCH TAXATION
The following paragraphs, which are intended as a general guide
only and based on current Dutch tax law and the provisions of the
current double taxation treaty between the United Kingdom and the
Netherlands (the "Treaty"), summarise the Dutch tax implications of
holding and disposing of new Baan Shares for shareholders who:
(i) are resident in the United Kingdom;
(ii) are the beneficial owners of their new Baan Shares for tax
purposes;
(iii) own less than 10 per cent. of the class of share in respect of
which any dividends are paid; and
(iv) do not have a permanent establishment or perform independent
personal services from a fixed base in the Netherlands with
which their shareholding is connected.
It is assumed that the new Baan Shareholder will qualify for the
benefits of the Treaty and this will normally be the case.
Any new Baan Shareholder who is in any doubt as to his own tax
position, or is subject to taxation in a jurisdiction other than the
United Kingdom, is strongly urged to seek his own personal financial
advice.
(a) TAXATION OF DIVIDENDS
A 25 per cent. Dutch withholding tax is deducted at source from
dividends paid by a Dutch company. However, by virtue of Article 10 of
the Treaty, this withholding tax is reduced to 15 per cent. for
shareholders who do not beneficially own 25 per cent. or more of the
voting power in the company. Forms for the repayment of Dutch tax
withheld or the making of a direction that Dutch tax should be withheld
at a reduced rate can be obtained from either the Dutch tax authorities
or the United Kingdom tax authorities. Apart from the Dutch tax withheld
at source, a resident of the United Kingdom has no further Dutch tax
liability in respect of dividends paid by Baan.
(b) TAXATION OF CAPITAL GAINS
Non-resident companies are not generally liable to Dutch
corporate income tax on capital gains derived from the disposal of
shares in a Dutch company. A non-resident individual would be liable to
Dutch income tax on capital gains derived from a substantial holding (at
least 5 per cent. of the shares) in a Dutch Company, but this is
overridden by Article 13 of the Treaty which provides that no Dutch tax
is to be levied on gains derived from the disposal of shares in a Dutch
company by a resident of the United Kingdom. This Article does not apply
to individuals resident in the United Kingdom who dispose of their
shares and have been residents of the Netherlands at any time during the
five years immediately preceding the disposal.
<PAGE> 16
11 PROCEDURES FOR ACCEPTANCE OF THE OFFER
This section should be read in conjunction with the instructions and
notes on the Form of Acceptance.
(a) HOW TO ACCEPT THE OFFER AND COMPLETE THE FORM OF ACCEPTANCE
(i) To accept the Offer, the Form of Acceptance must be completed and
returned, whether or not your CODA Shares are in CREST.
(ii) You should note that if you hold CODA Shares in both certificated
and uncertificated form you should complete separate Forms of Acceptance for
each holding. In addition, you should complete separate Forms of Acceptance for
CODA Shares held in uncertificated form, but under different member account IDs,
and for CODA Shares held in certificated form but under different designations.
Additional Forms of Acceptance are available from Northern Registrars, Northern
House, Penistone Road, Fenay Bridge, Huddersfield, West Yorkshire HD8 0LA
(telephone number 01484 606664). The completed Form of Acceptance together, if
your CODA Shares are in certificated form (i.e. not in CREST), with your share
certificate(s) for your CODA Shares and/or other document(s) of title should be
returned by post or by hand to Northern Registrars, at the address set out
above, in each case as soon as possible but in any event so as to be received no
later than 3:00 p.m. on Friday, 3 April 1998. A reply paid envelope is enclosed
for your convenience. No acknowledgement of receipt of documents will be given.
The instructions printed on the Form of Acceptance shall be deemed to form part
of the terms of the Offer.
(iii) If your CODA Shares are in certificated form but your share
certificate(s) and/or other document(s) of title is/are not readily available or
is/are lost, you should nevertheless complete, sign and lodge the Form of
Acceptance as stated in sub-paragraph 11(a)(ii) above so as to be received by
Northern Registrars not later than 3:00 pm. on Friday, 3 April 1998, together
with any share certificate(s) and/or other document(s) of title which you may
have available, accompanied by a letter stating that the balance will follow or
that you have lost one or more of your share certificate(s) and/or other
document(s) of title. You should then arrange for the relevant share
certificate(s) and/or other document(s) of title to be forwarded as soon as
possible thereafter. No acknowledgment of the receipt of documents will be
given. If you have lost your share certificates and/or other documents of title,
you should write as soon as possible to Northern Registrars (at the address set
out in sub-paragraph 11(a)(ii) above) for a letter of indemnity for the lost
share certificate(s) and/or other document(s) of title which, when completed in
accordance with the instructions given, should be returned to Northern
Registrars.
(iv) To accept the Offer in respect of all your CODA Shares, you must
complete Boxes 1 and 3 and, if your CODA Shares are in CREST, Box 4 of the
enclosed Form of Acceptance. In all cases you must sign Box 2 of the Form of
Acceptance in the presence of a witness, who should also sign in accordance with
the instructions printed thereon.
(v) To accept the Offer in respect of less than all your CODA Shares,
you must insert in Box 1 on the Form of Acceptance such lesser number of CODA
Shares in respect of which you wish to accept the Offer in accordance with the
instructions printed thereon. You should then follow the procedure set out in
sub-paragraph 11(a)(iv) above in respect of such lesser number of CODA Shares.
If you do not insert a number in Box 1, your acceptance will be deemed to be in
respect of all of the CODA Shares held by you.
(vi) You must insert in Box 7 of the Form of Acceptance full details of
the securities account in which you wish to be credited with your new Baan
Shares. If you do not have any such securities account, leave Box 7 blank, in
which case ABN AMRO Bank N.V. will open a securities account in your name in
which to hold the new Baan Shares to which you may become entitled under the
Offer.
(b) ADDITIONAL PROCEDURES FOR CODA SHARES IN UNCERTIFICATED FORM (THAT IS,
IN CREST)
<PAGE> 17
If your CODA Shares are in uncertificated form, you should insert in Box
4 of the enclosed Form of Acceptance the participant ID and member account ID
under which such shares are held by you in CREST and otherwise complete and
return the Form of Acceptance as described above. In addition, you should take
(or procure to be taken) the action set out below to transfer the CODA Shares in
respect of which you wish to accept the Offer to an escrow balance (that is, a
TTE instruction) specifying Northern Registrars (in its capacity as a CREST
participant under its participant ID referred to below) as the Escrow Agent, as
soon as possible and IN ANY EVENT SO THAT THE TRANSFER TO ESCROW SETTLES NO
LATER THAN 3:00 P.M. ON FRIDAY, 3 APRIL 1998.
If you are a CREST sponsored member, you should refer to your CREST
sponsor before taking any action. Your CREST sponsor will be able to confirm
details of your participant ID and the member account ID under which your CODA
Shares are held. In addition, only your CREST sponsor will be able to send the
TTE instruction to CRESTCo in relation to your CODA Shares.
You should send (or, if you are a CREST sponsored member, procure that
your CREST sponsor sends) a TTE instruction to CRESTCo which must be properly
authenticated in accordance with CRESTCo's specifications and which must
contain, in addition to the other information that is required for a TTE
instruction to settle in CREST, the following details:
(i) the number of CODA Shares to be transferred to an escrow balance;
(ii) your member account ID. This must be the same member account ID as
the member account ID that is inserted in Box 4 of the Form of Acceptance;
(iii) your participant ID. This must be the same participant ID as the
participant ID that is inserted in Box 4 of the Form of Acceptance;
(iv) the participant ID of the Escrow Agent (namely, Northern
Registrars, in its capacity as a CREST Receiving Agent). This is 1RA15;
(v) the member account ID of the Escrow Agent. This is CODA;
(vi) the Form of Acceptance reference number. This is the reference
number that appears in box 4 of the Form of Acceptance. This reference number
should be inserted in the first eight characters of the shared note field on the
TTE instruction. Such insertion will enable Northern Registrars to match the
transfer to escrow to your Form of Acceptance. You should keep a separate record
of this reference number for future reference;
(vii) the intended settlement date. This should be as soon as possible
and in any event no later than 3:00 p.m. on Friday, 3 April 1998;
(viii) the Corporate Action Number. This is 1;
(ix) the Corporate Action ISIN which is GB0002077716; and
(x) input the standard TTE instruction with priority of 80.
After settlement of the TTE instruction, you will not be able to access
the CODA Shares concerned in CREST for any transaction or charging purposes. If
the Offer becomes or is declared unconditional in all respects, the Escrow Agent
will transfer the CODA Shares concerned to itself in accordance with paragraph
(xi) of Part C of Appendix I of this document.
You are recommended to refer to the CREST Manual published by CRESTCo
for further information on the CREST procedures outlined above. For ease of
processing, you are requested, wherever possible, to ensure that a
<PAGE> 18
Form of Acceptance relates to only one transfer to escrow.
If no Form of Acceptance reference number, or an incorrect Form of
Acceptance reference number, is included on the TTE instruction, Baan may treat
any amount of CODA Shares transferred to an escrow balance in favour of the
Escrow Agent specified above from the participant ID and member account ID
identified in the TTE instruction as relating to any Form(s) of Acceptance which
relate(s) to the same participant ID and member account ID (up to the amount of
CODA Shares inserted or deemed to be inserted on the Form(s) of Acceptance
concerned).
You should note that CRESTCo does not make available special procedures
in CREST for any particular corporate action. Normal system timings and
limitations will therefore apply in connection with a TTE instruction and its
settlement. You should therefore ensure that all necessary action is taken by
you (or by your CREST sponsor) to enable a TTE instruction relating to your CODA
Shares to settle prior to 3:00 p.m. on Friday, 3 April 1998. In this regard, you
are referred in particular to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings.
Baan will make an appropriate announcement if any of the details
contained in this paragraph 11(b) alter for any reason.
(c) DEPOSITS OF CODA SHARES INTO, AND WITHDRAWALS OF CODA SHARES FROM, CREST
Normal CREST procedures (including timings) apply in relation to any
CODA Shares that are, or are to be, converted from uncertificated to
certificated form, or from certificated to uncertificated form, during the
course of the Offer (whether any such conversion arises as a result of a
transfer of CODA Shares or otherwise). Holders of CODA Shares who are proposing
to convert any such CODA Shares are recommended to ensure that the conversion
procedures are implemented in sufficient time to enable the person holding or
acquiring the CODA Shares as a result of the conversion to take all necessary
steps in connection with an acceptance of the Offer (in particular, as regards
delivery of share certificate(s) or other documents of title or transfers to an
escrow balance as described above) prior to 3:00 p.m. on Friday, 3 April 1998.
(d) VALIDITY OF ACCEPTANCES
Baan reserves the right, subject to the provisions of the Code and
without prejudice to Part B of Appendix I of this document, to treat as valid in
whole or in part any acceptance of the Offer which is not entirely in order or
which is not accompanied by the relevant TTE instruction or (as applicable) the
relevant share certificate(s) and/or other document(s) of title. In that event,
no allotment of new Baan Shares under the Offer will be made until after the
relevant TTE instruction has settled or (as applicable) the relevant share
certificate(s) and/or other document(s) of title or indemnities satisfactory to
Baan have been received.
(e) OVERSEAS SHAREHOLDERS
The attention of CODA Shareholders who are citizens or residents of
jurisdictions outside the United Kingdom and any person (including, without
limitation, any nominee, custodian or trustee) who may have an obligation to
forward this document outside the United Kingdom, is drawn to paragraph 6 of
Part B and paragraph (iii) of Part C of Appendix I and to the relevant
provisions of the Form of Acceptance. The new Baan Shares have not been and will
not be registered under the United States Securities Act of 1933, as amended, or
under any of the relevant securities laws of any state or other jurisdiction of
the United States (and the relevant clearances have not been and will not be
obtained from the securities commission of any province or territory of Canada,
and no prospectus in relation to the new Baan Shares has been lodged with, or
registered by the Australian Securities Commission or any securities authority
in Japan). Accordingly, unless an exemption under such Act or other laws is
<PAGE> 19
available, the new Baan Shares may not be offered, sold or delivered,
directly or indirectly, in or into the United States, Canada, Australia
or Japan. Any acceptance of the Offer by acceptors who are unable to
give the warranty set out in paragraph (iii) of Part C of Appendix I is
liable to be disregarded.
If you are in any doubt as to the procedure for acceptance,
please contact Northern Registrars by telephone on 01484 606664 or at
the address in sub- paragraph 11(a)(ii) above. You are reminded that, if
you are a CREST sponsored member, you should contact your CREST sponsor
before taking any action.
12 SETTLEMENT
Subject to the Offer becoming or being declared unconditional in all
respects (except as provided in paragraph 6 of Part B of Appendix I in the case
of certain overseas CODA Shareholders) settlement of the consideration to which
any CODA Shareholder is entitled under the Offer will be effected (i) in the
case of acceptances received, complete in all respects, by the date on which the
Offer becomes or is declared unconditional in all respects, within 14 days of
such date, or (ii) in the case of acceptances of the Offer received, complete in
all respects, after the date on which the Offer becomes or is declared
unconditional in all respects but while it remains open for acceptance, within
14 days of such receipt, in the following manner.
New Baan Shares are being issued in bearer form. In respect of CODA
Shares to which CODA Shareholders who do not validly insert full details in Box
7 of the Form of Acceptance may become entitled under the Offer, ABNoAMRO Bank
N.V. will open a securities account at Baan's expense in the name of the
first-registered holder of such CODA Shares (as the same is set out in Box 3 of
the Form of Acceptance) and the Receiving Agent will, no later than the date
indicated above, notify the accepting CODA Shareholder that such account has
been opened (together with account details) and of the amount of new Baan Shares
credited to it. In respect of CODA Shares to which CODA Shareholders validly
completing Box 7 of the Form of Acceptance may become entitled under the Offer,
the Receiving Agent will, no later than the date indicated above, notify the
accepting CODA Shareholder that the securities account nominated by such CODA
Shareholder has been credited with the new Baan Shares to be held on behalf of
such accepting CODA Shareholder specifying the amount of such new Baan Shares.
Further information about Baan Shares is set out in paragraph 5 of
Appendix IV.
If the Offer does not become or is not declared unconditional in all
respects (i) completed Form(s) of Acceptance, the share certificate(s) and/or
other document(s) of title will be returned by post (or such other method as may
be approved by the Panel), within 14 days of the Offer lapsing, to the person or
agent whose name and address (outside the United States, Canada, Australia and
Japan) is set out in Box 6 of the Form of Acceptance or, if none is set out, to
the first named holder at his registered address (outside the United States,
Canada, Australia and Japan) and (ii) Northern Registrars will, immediately
after the lapsing of the Offer (or within such longer period, not exceeding 14
days after the Offer lapsing, as the Panel may approve), give TFE instructions
to CRESTCo to transfer all CODA Shares held in escrow balances and in relation
to which it is the escrow agent for the purposes of the Offer to the original
available balances of the CODA Shareholders concerned. All documents and
remittances sent by, to, or from CODA Shareholders or their appointed agents
will be sent at their own risk.
13 FURTHER INFORMATION
Your attention is drawn to the further information contained in the
Appendices which form part of this document and to the accompanying Form of
Acceptance.
14 ACTION TO BE TAKEN
YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED FORM OF
ACCEPTANCE AS SOON AS POSSIBLE, BUT IN ANY EVENT SO AS TO ARRIVE BY NO LATER
THAN 3:00 P.M. ON FRIDAY, 3 APRIL 1998.
Yours faithfully
for and on behalf of
<PAGE> 20
Goldman Sachs International
Richard A. Sapp
Managing Director
APPENDIX I
CONDITIONS AND FURTHER TERMS OF THE OFFER
The following conditions and further terms apply to the Offer. Reference
to the "Offer" in this Appendix I and in the Form of Acceptance shall, where the
context permits, include any revision or extension of the Offer pursuant to
which the Offer is to be effected. References in this document and in the Form
of Acceptance to the Offer becoming unconditional shall (unless the context
otherwise expressly requires) include references to the Offer becoming or being
declared unconditional. References in this Appendix I to the Offer being or
becoming unconditional shall (unless the context otherwise expressly requires)
be construed as references to the Offer being or becoming unconditional as to
acceptances, whether or not any other condition of the Offer remains to be
fulfilled.
PART A: CONDITIONS OF THE OFFER
The Offer is subject to the following conditions:
(a) valid acceptances being received (and not, where permitted, withdrawn)
by not later than 3:00 p.m. on the first closing date of the Offer (or
such later time(s) and/or date(s) as Baan may, subject to the rules of
the Code, decide) in respect of not less than 90 percent (or such
lower percentage as Baan may decide) in nominal value of the CODA Shares
to which the Offer relates, provided that this condition shall not be
satisfied unless Baan and its subsidiaries shall have acquired or agreed
to acquire (whether pursuant to the Offer or otherwise) shares in CODA
carrying more than 50 per cent. of the voting rights exercisable at a
general meeting of CODA. For the purposes of this condition:
(i) shares which have been unconditionally allotted shall be deemed
to carry the voting rights they will carry upon their being
entered in the register of members of CODA; and
(ii) the expression "CODA Shares to which the Offer relates" shall
mean (i) CODA Shares issued or allotted on or before the date
the Offer is made and (ii) CODA Shares issued or allotted after
that date but before the time at which the Offer closes, or such
earlier date as Baan may decide (not being earlier than the date
on which the Offer becomes unconditional as to acceptances or,
if later, the first closing date of the Offer) but excluding any
CODA Shares which, on the date the Offer is made, are held or
(otherwise than under such a contract as is described in Section
428(5) of the Companies Act 1985) contracted to be acquired by
Baan and/or its associates (within the meaning of Section 430E
of the Companies Act 1985);
<PAGE> 21
(b) to the extent necessary, the Office of Fair Trading indicating, in terms
satisfactory to Baan, that it is not the intention of the Secretary of
State for Trade and Industry to refer the proposed acquisition of CODA
by Baan, or any matters arising therefrom, to the Monopolies and Mergers
Commission;
(c) Baan not having discovered that any event has occurred (whether before
or after the date of the Offer) or other circumstances subsist at the
date on which the Offer becomes or is declared unconditional in all
respects that could or might result in the acquisition of CODA not being
treated as a pooling of interests in accordance with generally accepted
accounting principles in the United States;
(d) the Amsterdam Stock Exchange admitting the new Baan Shares to the
Official Market and such admission becoming effective in accordance with
the Listing Rules of the Amsterdam Stock Exchange;
(e) no bank, government or governmental, quasi-governmental, supranational,
statutory, regulatory or investigative body, court, trade agency,
professional association, environmental body or any other person or body
whatsoever in any jurisdiction (each a "Third Party") having decided to
take, institute, implement or threaten any action, proceeding, suit,
investigation, enquiry or reference or made, proposed or enacted any
statute, regulation or order or having done anything which would or
might:
(i) make the Offer or its implementation, or the acquisition or the
proposed acquisition by Baan or any of its subsidiaries or
subsidiary undertakings or associated companies (including any
joint venture, partnership, firm or company in which any member
of the Baan Group is interested) or any company in which any
such member has a substantial interest (the "wider Baan Group")
of any shares in, or control of, CODA, void, illegal or
unenforceable, or otherwise, directly or indirectly, restrain,
prohibit, restrict or delay the same or impose additional
conditions or obligations with respect thereto, or otherwise
challenge or interfere therewith;
(ii) require, prevent or delay a divestiture by any member of the
wider Baan Group of any shares in CODA;
(iii) require, prevent or delay the divestiture or alter the terms
envisaged for any proposed divestiture by any member of the
wider Baan Group or by CODA or any of CODA's subsidiaries or
subsidiary undertakings or associated companies (including any
joint venture, partnership, firm or company in which any member
of the CODA Group is interested) or any company in which any
such member has a substantial interest (the "wider CODA Group")
of all or any portion of their respective businesses, assets or
property or impose any limitation on the ability of any of them
to conduct their respective businesses (or any of them) or own
their respective assets or properties or any part thereof to an
extent which is material in the context of the wider CODA Group
taken as a whole or, in the case of a matter affecting the wider
Baan Group, that group taken as a whole;
(iv) impose any material limitation on the ability of any member of
the wider Baan Group to acquire, or to hold or to exercise
effectively, directly or indirectly, any rights of ownership of
shares (or the equivalent) in CODA or in any member of the wider
CODA Group or to exercise effectively rights of control over any
business carried out by a member of the wider CODA Group;
(v) require any member of the wider Baan Group or the wider CODA
Group to offer to acquire any shares (or the equivalent) in any
member of the wider CODA Group owned by any third party, such
acquisition being material in the context of the Offer;
(vi) impose any limitation on the ability of any member of the wider
CODA Group to co-ordinate its business, or any part of it, with
the businesses of any other members;
(vii) result in any member of the wider CODA Group ceasing to be able
to carry on business under any name under which it presently
does so; or
(viii) otherwise adversely affect any or all of the business, profits,
financial or trading position or prospects of any
<PAGE> 22
member of the wider Baan Group or any member of the wider CODA Group to
an extent which is material in the context of the wider Baan Group or
the wider CODA Group, as the case may be, in each case taken as a whole;
(f) all necessary notifications and filings having been made in connection
with the Offer and all necessary waiting periods (including any
extensions thereof) under any applicable legislation or regulation of
any jurisdiction (including, if applicable, under the United States
Hart-Scott-Rodino Anti Trust Improvements Act of 1976 and the
regulations made thereunder) having expired, lapsed or having been
terminated (as appropriate) and all statutory or regulatory obligations
in any jurisdiction having been complied with in connection with the
Offer or the acquisition by any member of the wider Baan Group of any
shares in, or control of, CODA and all authorisations, orders,
recognitions, grants, consents, clearances, confirmations, licences,
permissions and approvals reasonably deemed necessary or appropriate by
Baan or any member of the wider Baan Group for or in respect of the
Offer or the proposed acquisition of any shares in, or control of, CODA
by any member of the wider Baan Group or in relation to the affairs of
any member of the wider CODA Group having been obtained in terms and in
a form satisfactory to Baan from all appropriate Third Parties and all
such authorisations, orders, recognitions, grants, consents, clearances,
confirmations, licences, permissions and approvals remaining in full
force and effect and there being no intimation of an intention to revoke
or not to renew the same at the time at which the Offer becomes
otherwise unconditional and all necessary statutory or regulatory
obligations in any jurisdiction having been complied with;
(g) all applicable waiting periods and any other time periods during which
any Third Party could, in respect of the Offer or the acquisition or
proposed acquisition of any CODA Shares or control of CODA by any member
of the Baan Group, institute, implement or threaten any action,
proceedings, suit, investigation, enquiry or reference under the laws of
any jurisdiction, having expired, lapsed or been terminated;
(h) there being no provision of any arrangement, agreement, licence or other
instrument to which any member of the wider CODA Group is a party or by
or to which any such member or any of its respective assets may be bound
or be subject and which, in consequence of the proposed acquisition by
any member of the wider Baan Group of some or all of the share capital
of CODA or because of a change in the control or management of CODA or
otherwise, could or might result in:
(i) any monies borrowed by or any other indebtedness (actual or
contingent) of any member of the wider CODA Group becoming or
becoming capable of being declared repayable immediately or
prior to their or its stated maturity or the ability of any such
member to borrow monies or incur any indebtedness being
withdrawn or inhibited;
(ii) the creation or enforcement of any mortgage, charge or other
security interest wherever existing or having arisen over the
whole or any part of the business, property or assets of any
member of the wider CODA Group;
(iii) any such arrangement, agreement, licence or instrument being
terminated or materially and adversely modified or materially
and adversely affected or any action being taken or any
obligation or liability arising thereunder;
(iv) (other than in the ordinary course of business) any assets or
interests of any member of the wider CODA Group being or falling
to be disposed of or charged or any right arising under which
any such asset or interest could be required to be disposed of
or charged;
(v) any member of the wider CODA Group ceasing to be able to carry
on business under any name under which it presently does so;
(vi) the rights, liabilities, obligations or interests of any member
of the wider CODA Group under any such arrangement, agreement,
licence or instrument or in or with any firm or body or the
business of any member of the wider CODA Group with any person
(or any arrangement or arrangements relating to any such
interest or business) being terminated, materially and adversely
modified or materially and adversely affected; or
<PAGE> 23
(vii) the financial or trading position or prospects of any member of
the wider CODA Group being prejudiced or adversely affected in a
manner which would be material in the context of the wider CODA
Group taken as a whole;
(i) no member of the wider CODA Group having, since 31 October 1997, being
the date to which the last audited report and accounts of CODA were made
up, and save as disclosed in such accounts or except as otherwise
publicly announced by CODA prior to 22 February 1998:
(i) issued or agreed to or authorised or proposed the issue of
additional shares of any class, or securities convertible into,
or rights, warrants or options to subscribe for or acquire, any
such shares or convertible securities (save for issues to CODA
or wholly-owned subsidiaries of CODA or any exercise of options
under the CODA Share Option Schemes);
(ii) recommended, declared, paid or made or proposed to recommend,
declare, pay or make any bonus, dividend or other distribution
other than to another member of the CODA Group;
(iii) save for intra CODA Group transactions, made or authorised or
proposed or announced its intention to propose any change in its
loan capital;
(iv) save for intra CODA Group transactions, implemented, authorised,
proposed or announced its intention to propose any merger,
demerger, reconstruction, amalgamation, scheme, commitment or
acquisition or disposal of assets or shares in any undertaking,
other than in the ordinary course of business and which is
material in the context of the wider CODA Group taken as a whole
or entered into or changed the terms of any contract with any
director or senior executive;
(v) issued, authorised or proposed, or announced an intention to
authorise or propose the issue of any debentures or (save in the
ordinary course of business and save for intra CODA Group
transactions) incurred any indebtedness or contingent liability
which is material in the context of the wider CODA Group taken
as a whole;
(vi) purchased, redeemed or repaid, or announced any proposal to
purchase, redeem or repay, any of its own shares or reduced or
made any other changes to any part of its share capital;
(vii) save for intra CODA Group transactions, merged with any body
corporate or acquired or disposed of, transferred, mortgaged or
encumbered any assets or any right, title or interest in any
asset (including shares and trade investments) which is material
in the context of the wider CODA Group taken as a whole;
(viii) entered into or varied or authorised any contract, transaction
or commitment (whether in respect of capital expenditure or
otherwise) which is of a long term, onerous, or unusual nature
or magnitude, or which involves or could involve an obligation
of such a nature or magnitude and which is material in the
context of the wider CODA Group taken as a whole;
(ix) entered into or varied any contract, transaction or arrangement
otherwise than in the ordinary course of business and which is
material in the context of the wider CODA Group taken as a
whole;
(x) entered into any contract, transaction or arrangement which
would be materially (in the context of the wider CODA Group
taken as a whole or in the case of a contract, transaction or
arrangement affecting the wider Baan Group, that group taken as
a whole) restrictive on the business of any member of the wider
Baan Group or the wider CODA Group;
(xi) waived or compromised any claim which is material in the context
of the wider CODA Group taken as a whole;
(xii) being unable, or admitted in writing that it is unable, to pay
its debts or having stopped or suspended (or
<PAGE> 24
threatened to stop or suspend) payment of its debts generally or ceased
or threatened to cease carrying on all or a substantial part of any
business;
(xiii) taken any corporate action in respect of its winding-up,
dissolution or reorganisation or for the appointment of a
receiver, administrator, administrative receiver, trustee or
similar officer of all or any of its material assets or
revenues; or
(xiv) entered into an agreement or arrangement or passed any
resolution or made any proposal or announcement with respect to,
or to effect, any of the transactions, matters or events
referred to in this paragraph (i),
and, for the purpose of paragraphs (ii), (iii), (iv) and (v) of
this condition, the term "CODA Group" shall mean CODA and its
wholly-owned subsidiaries;
(j) since 31 October 1997 and save as disclosed by CODA in its audited
accounts to that date or except as otherwise publicly announced by CODA
prior to 22 February 1998:
(i) there having been no adverse change in the business, assets,
financial or trading position or profits or prospects of any
member of the wider CODA Group which is material in the context
of the wider CODA Group taken as a whole;
(ii) no litigation, arbitration proceedings, prosecution or other
legal proceedings to which any member of the wider CODA Group is
or may become a party (whether as plaintiff or defendant or
otherwise) and no investigation by any Third Party against or in
respect of any member of the wider CODA Group having been
threatened, announced or instituted or remaining outstanding by,
against or in respect of any member of the wider CODA Group
which in any such case might adversely affect any member of the
wider CODA Group to an extent which is material in the context
of the wider CODA Group taken as a whole;
(iii) no contingent or other liability having arisen or become
apparent to Baan which might materially adversely affect any
member of the wider CODA Group; and
(iv) there having been no receiver, administrative receiver or other
encumbrancer appointed over any assets of any member of the
wider CODA Group or any analogous proceedings or steps having
taken place under the laws of any jurisdiction and there having
been no petition presented for the administration of any member
of the wider CODA Group or any equivalent proceedings or steps
taken under the laws of any other jurisdiction;
(k) Baan not having discovered:
(i) that the financial, business or other information disclosed at
any time by or on behalf of any member of the wider CODA Group
is misleading, contains a misrepresentation of fact or omits to
state a fact necessary to make the information contained therein
not misleading in any case which is material in the context of
the wider CODA Group taken as a whole;
(ii) any information which affects the import of any information
disclosed at any time by or on behalf of the wider CODA Group;
or
(iii) that any partnership, company or other entity in which any
member of the wider CODA Group has a significant economic
interest and which is not a subsidiary undertaking (as defined
in the Companies Act 1985) of CODA is subject to any liability,
contingent or otherwise, which is not disclosed in the Annual
Report and Accounts of CODA for the financial year ended 31
October 1996 or in the interim statement of CODA for the six
months ended 30 April 1997 or in the preliminary results of CODA
publicly announced in respect of the year ended 31 October 1997
and which is material in the context of the wider CODA Group
taken as a whole;
(iv) that any past or present member of the wider CODA Group has not
complied with all applicable legislation
<PAGE> 25
or regulations of any jurisdiction with regard to the disposal,
discharge, spillage, leak or emission of any waste or hazardous
substance or any substance likely to impair the environment or
harm human health, which non-compliance or any other disposal,
discharge, spillage, leak or emission which has occurred would
be likely to give rise to any liability (whether actual or
contingent) on the part of any member of the wider CODA Group
and which is material in the context of the wider CODA Group
taken as a whole; or
(v) that there is, or is likely to be, any liability (whether actual
or contingent) to make good, repair, reinstate or clean up
property now or previously owned, occupied or made use of by any
past or present member of the wider CODA Group under any
environmental legislation, regulation, notice, circular or order
of any relevant authority and which is material in the context
of the wider CODA Group taken as whole.
Baan reserves the right to waive, in whole or in part, all or any of the
above conditions apart from conditions (a), (d) and (f).
The Offer will lapse unless all of the conditions have been fulfilled or
(if capable of waiver) waived by midnight on whichever is the later of (i) the
first closing date and (ii) 21 days after the date on which condition (a) is
fulfilled (or such later date as Baan may with the consent of the Panel decide).
Baan shall not be obliged to treat any condition as satisfied until the latest
date for the fulfilment of all conditions referred to in the previous sentence.
<PAGE> 26
PART B: FURTHER TERMS OF THE OFFER
The following further terms apply, unless the context otherwise
requires. Any reference in Parts B and C of this Appendix and in the Form of
Acceptance to:
(i) "Offer" shall include any revision, variation or renewal thereof
or extension thereto;
(ii) "Offer becoming "unconditional" shall be construed as a
reference to the Offer being declared or becoming unconditional
as to acceptances whether or not any other condition thereof
remains to be fulfilled;
(iii) "acceptance condition" means the condition as to acceptances set
out in paragraph (a) of Part A of this Appendix I and references
to the Offer becoming unconditional as to acceptances shall be
construed accordingly; and
(iv) "Offer Document" means this document and any other document
containing, or containing details of, the Offer.
1 ACCEPTANCE PERIOD
(i) The Offer will initially be open for acceptance until 3:00 p.m.
on 3 April 1998. Although no revision is envisaged, if the Offer
is revised, it will remain open for acceptance for a period of
at least 14 days (or such lesser period as may be permitted by
the Panel) following the date on which written notification of
the revision is posted to CODA Shareholders. Except with the
consent of the Panel, no revision of the Offer may be posted to
CODA Shareholders after 28 April 1998 or, if later, the date
falling 14 days before the last date on which the Offer can
become unconditional.
(ii) The Offer, whether revised or not, shall not (except with the
consent of the Panel) be capable of becoming unconditional after
midnight on 12 May 1998 (or any earlier time and/or date beyond
which Baan has stated that the Offer will not be extended and
has not withdrawn that statement), nor of being kept open for
acceptance after that time and/or date unless the Offer has
previously become unconditional, provided that Baan reserves the
right, with the permission of the Panel, to extend the Offer to
any later time(s) and/or date(s). For the purpose of determining
whether the acceptance condition has been satisfied, except with
the consent of the Panel, Baan may not take into account
acceptances received or purchases of shares made in respect of
which all relevant documents are received by the Receiving Agent
after 1:00 p.m. on 12 May 1998 (or any earlier time and/or date
beyond which Baan has stated that the Offer will not be extended
and has not withdrawn that statement) or, if the Offer is so
extended, such later time(s) and/or date(s) as Baan with the
permission of the Panel, may agree. If the latest time at which
the Offer may become unconditional is extended beyond midnight
on 12 May 1998, acceptances received and purchases made in
respect of which the relevant documents are received by the
Receiving Agent after 1:00 p.m. on the relevant date may (except
where the Code otherwise permits) only be taken into account
with the agreement of the Panel.
(iii) If the Offer becomes or is declared unconditional, the Offer
will remain open for acceptance for not less than 14 days from
the date on which the Offer would otherwise have expired or
until 10 April 1998, whichever is the later. If the Offer has
become unconditional and it is stated that the Offer will remain
open
<PAGE> 27
until further notice, then not less than 14 days' notice in
writing will be given, prior to the closing of the Offer.
(iv) If a competitive situation arises (as determined by the Panel)
after Baan has made a "no extension" and/or "no increase"
statement in relation to the Offer, Baan may, if it has
specifically reserved the right to do so at the time such
statement was made (or otherwise with the consent of the Panel),
withdraw such statement provided that it complies with the
requirements of the Code and in particular that:
(a) notice of such withdrawal is given as soon as possible
(and in any event within four business days after the
date of the announcement of the competing offer, or
other competitive situation) and CODA Shareholders are
informed in writing (or, in the case of CODA
Shareholders with registered addresses outside the
United Kingdom or whom Baan knows to be nominees holding
CODA Shares for such persons, by announcement in the
United Kingdom) at the earliest practicable opportunity;
and
(b) any CODA Shareholders who accepted the Offer after the
date of such statement are given a right of withdrawal
as described in paragraph 3(iii) below.
Baan may choose not to be bound by the terms of a "no extension"
or "no increase" statement if, having reserved the right to do
so at the time the statement is made, it posts an increased or
improved Offer which is recommended for acceptance by the board
of directors of CODA or in any other circumstances permitted by
the Panel.
(v) For the purpose of determining at any particular time whether
the acceptance condition has been satisfied, Baan shall be
entitled only (unless otherwise required by the Panel) to take
into account any CODA Shares which have been unconditionally
allotted or issued before such determination takes place, unless
the Receiving Agent on behalf of Baan has received written
notice of the relevant details of such allotment or issue
(including the price thereof) before that time. Telex or
facsimile transmission will not be sufficient for this purpose.
2 ANNOUNCEMENTS
(i) Without prejudice to paragraph 3(i) below, by 8:30 a.m. on the
business day (the "relevant day") next following the day on
which the Offer is due to expire or becomes or is declared
unconditional or is revised or extended (as the case may be) or
such later time and/or date as the Panel may agree, Baan will
make an appropriate announcement and simultaneously inform the
London Stock Exchange, the Amsterdam Stock Exchange and the
Dutch Merger Committee, of the position. Such announcement will
(unless otherwise permitted by the Panel) also state (as nearly
as practicable) the total number of CODA Shares and rights over
CODA Shares:
<PAGE> 28
(a) for which acceptances of the Offer have been received
(showing the extent to which such acceptances have been
received from persons acting or deemed to be acting in
concert with Baan);
(b) held by or on behalf of Baan or any person acting or
deemed to be acting in concert with Baan prior to the
Offer Period;
(c) acquired or agreed to be acquired by or on behalf of
Baan or any person acting or deemed to be acting in
concert with Baan during the Offer Period;
(d) for which acceptances have been received from any person
acting or deemed to be acting in concert with Baan;
and the announcement will specify the percentage of the
share capital of CODA represented by each of these
figures.
(ii) Any decision to extend the time and/or date by which the
acceptance condition has to be satisfied may be made by Baan at
any time up to, and will be announced not later than, 8:30 a.m.
on the relevant day (or such later time(s) and/or date(s) as the
Panel may agree) and the announcement will also state the next
expiry date (unless the Offer is unconditional in all respects
in which case a statement may be made that the Offer will remain
open until further notice). In computing the number of CODA
Shares represented by acceptances and/or purchases there may, at
the discretion of the Baan, be included or excluded for
announcement purposes, subject to paragraph 5 below, acceptances
and purchases which are not in all respects or not accompanied
by the relevant share certificate(s) and/or other document(s) of
title or not accompanied by the relevant TTE instruction or
which are subject to verification.
(iii) In this Appendix I, references to the making of an announcement
or the giving of notice by or on behalf of Baan include the
release of an announcement by public relations consultants or by
Goldman Sachs International to the press, and the delivery or
telephone, telex or facsimile or other electronic transmission
of an announcement to the London Stock Exchange. An announcement
made otherwise than to the London Stock Exchange, the Amsterdam
Stock Exchange or the Dutch Merger Committee, shall be notified
simultaneously to the London Stock Exchange, the Amsterdam Stock
Exchange and the Dutch Merger Committee.
3 RIGHTS OF WITHDRAWAL
(i) If Baan, having announced the Offer to be unconditional, fails
to comply by 3:30 p.m. on the relevant day (or such later
time(s) and/or date(s) as the Panel may agree) with any of the
other requirements specified in paragraph 2(i) above, an
accepting CODA Shareholder may (unless the Panel otherwise
agrees) immediately thereafter withdraw his acceptance by
written notice (signed by such shareholder or his agent duly
appointed in writing and evidence of whose appointment in a form
satisfactory to Baan is produced with the notice) given by post
or by hand to the Receiving Agent, Northern Registrars, Northern
House, Penistone Road, Fenay Bridge, Huddersfield, West
Yorkshire HD8 0LA on behalf of Baan. Subject to paragraph 1(ii)
above, this right of withdrawal may be terminated not less than
eight days after the relevant day by Baan confirming, if such is
the case, that the Offer is still unconditional and complying
with the other requirements specified in paragraph 2(i) above.
If any such confirmation is given, the first period of 14 days
referred to in paragraph 1(iii) above will run from the date of
such confirmation and compliance.
<PAGE> 29
(ii) If by 3:00 p.m. on 3 April 1998 (or such later time(s) and/or
date(s) as the Panel may agree) the Offer has not become
unconditional, an accepting CODA Shareholder may withdraw his
acceptance at any time thereafter at the address and in the
manner referred to in paragraph 3(i) above at any time before
the earlier of (i) the time that the Offer becomes unconditional
and (ii) the final time for lodgement of acceptances which can
be taken into account in accordance with paragraph 1(ii) above.
(iii) If a "no extension" and/or "no increase" statement has been
withdrawn in accordance with paragraph 1(iv) above, any CODA
Shareholder who accepts the Offer after the date of such
statement may withdraw his acceptance thereafter in the manner
referred to in paragraph 3(i) above for a period of eight days
following the date on which notice of such withdrawal is posted
to the relevant CODA Shareholder(s).
(iv) Except as provided by this paragraph 3, or paragraph 4 below
acceptances shall be irrevocable.
(v) In this paragraph 3, "written notice" (including any letter of
appointment, direction or authority) means notice in writing
bearing the original signature(s) of the relevant accepting CODA
Shareholder(s) (or his/their agent(s) duly authorised in writing
and evidence of which appointment in a form satisfactory to Baan
is produced with the notice). Telex or facsimile or other
electronic transmission or copies will not be sufficient to
constitute written notice. No notice which is postmarked in, or
otherwise appears to Baan or its agents to have been sent from,
the United States, Canada, Australia or Japan will be treated as
valid.
4 REVISIONS OF THE OFFER
(i) Although no such revision is envisaged, if the Offer (in its
original or any previously revised form(s)) is revised (either
in its terms or conditions or in the value or form of the
consideration offered or otherwise and whether or not the basic
terms of the Offer (in their original or any previously revised
form(s)) are revised), and such revised Offer represents on the
date on which such revision is announced (on such basis as
Goldman Sachs International may consider appropriate) an
improvement or no diminution in the value of the consideration
of the Offer as so revised compared with the value of the
consideration or terms previously offered, the benefit of the
revised Offer will, subject as provided in this paragraph 4 and
6 below, be made available to any CODA Shareholder who has
accepted the Offer (in its original or any previously revised
form(s) (a "Previous Acceptor"). The acceptance by or on behalf
of a Previous Acceptor of the Offer in its original or any
previously revised form(s) shall, subject as provided in
paragraphs 4(iv), 4(v) and 6 below, be deemed to be an
acceptance of the Offer as so revised and shall also constitute
the separate appointment of any and all of Baan and each of its
managing directors and Goldman Sachs International and each of
its directors as his attorney and/or agent with authority to
accept any such revised Offer on behalf of such Previous
Acceptor and, although no such revision is envisaged, if any
revised Offer provides for CODA Shareholders who accept it to
elect (or accept) alternative forms of consideration, to make on
his behalf elections for and/or accept such alternative forms of
consideration on his behalf as such attorney in his absolute
discretion thinks fit and to execute on behalf of and in the
name of such Previous Acceptor all such further documents (if
any) as may be required to give full effect to such acceptance
and/or election. In making any such election, such attorney or
agent shall take into account such facts or matters as he may
reasonably consider relevant provided always that such attorney
or agent shall be entitled to determine that Previous Acceptors
who have elected under the Offer (in any previously revised
form) for a form or forms of consideration which are not
available under the Offer as so revised shall receive
consideration in such form or forms as are available thereunder
as represents on the date of such revision an improvement or no
diminution in the value of the Offer (in its previously revised
form) as accepted by such Previous Acceptor.
<PAGE> 30
(ii) The powers of attorney and authorities conferred by this
paragraph 4 and any acceptance of a revised Offer and/or any
election pursuant thereto shall be irrevocable unless and until
the Previous Acceptor becomes entitled to withdraw his
acceptance under paragraph 3 above and duly and validly does so.
(iii) Baan and its agents reserve the right (subject to paragraph 3(i)
above) to treat an executed Form of Acceptance relating to the
Offer (in its original or any previously revised form(s)) which
is received after the announcement or the making of the Offer in
any revised form as a valid acceptance of the revised Offer and
where applicable, a valid election for or the acceptance of any
of the alternative form or forms of consideration (if any) and
such acceptance shall constitute an authority and request in the
terms of this paragraph 4 mutatis mutandis on behalf of the
relevant CODA Shareholder.
(iv) The deemed acceptances referred to in paragraphs 4(i) and 4(ii)
above shall not apply and the authorities conferred by such
paragraphs shall not be exercised by any attorney or agent
referred to in that paragraph if, as a result thereof, the
Previous Acceptor would (on such basis as such attorney or agent
may consider appropriate) thereby receive and/or retain (as
appropriate) under the Offer as revised or otherwise less in
aggregate in consideration than he would have received in
aggregate in consideration as a result of his acceptance of the
Offer in the form in which it was originally accepted by him.
(v) The deemed acceptances referred to in paragraph 4(i) and 4(ii)
above shall not apply and the authorities conferred by those
paragraphs shall be ineffective to the extent that a Previous
Acceptor shall lodge with the Receiving Agent, within 14 days of
the posting of the document pursuant to which the revision of
the Offer referred to in paragraphs 4(i) and 4(ii) is made
available to CODA Shareholders (or such later date as Baan may
determine), a Form of Acceptance (or other form validly issued
by or on behalf of Baan) in which he validly elects to receive
the consideration receivable by him under such revised Offer in
some other manner.
5 GENERAL
(i) Except with the consent of the Panel, the Offer will lapse
unless all the conditions to the Offer have been fulfilled by or
(if capable of waiver) waived by or, where appropriate, have
been determined by Baan to be or remain satisfied as at midnight
on 24 April 1998 or by midnight on the date which is 21 days
after the date on which the Offer becomes unconditional,
whichever is the later, or such later dates as Baan may, with
the consent of the Panel, determine. If the Offer lapses, the
Offer will cease to be capable of further acceptance and CODA
Shareholders and Baan and Goldman Sachs International will cease
to be bound by prior acceptances.
(ii) The expression "Offer Period" when used in this document means,
in relation to the Offer, the period commencing on 23 February
1998 (the date of the announcement of the Offer) and ending on
whichever of the following times shall be the latest: (i) 3:00
pm on 3 April 1998; (ii) the time at which the Offer lapses; and
(iii) the time at which the Offer becomes unconditional.
(iii) Except with the consent of the Panel, and subject to paragraph 6
below settlement of the consideration to which any CODA
Shareholder is entitled under the Offer will be implemented in
full in accordance with the terms of the Offer without regard to
any lien, right of set-off, counterclaim or other analogous
right to which Baan or Goldman Sachs International may otherwise
be, or claim to be, entitled as against such CODA Shareholder
and will be posted or settled promptly but not later than 14
days after the date on which the Offer becomes unconditional in
all respects or 14 days after receipt of a valid and complete
acceptance, whichever is the later. Such consideration will not
be sent to an address in the United States, Japan, Canada or
Australia, subject to certain exceptions.
<PAGE> 31
(iv) The Offer is made on 13 March 1998 and is capable of acceptance
thereafter. Copies of this document, the Form of Acceptance and
any related documents are available from the Receiving Agent at
the address set out in paragraph 3(i) above from that time. The
Offer is being made by means of this document and by means of an
advertisement to be inserted in The Financial Times (UK Edition)
on 14 March 1998.
(v) The instructions, terms, provisions and authorities contained in
or deemed to be incorporated in the Form of Acceptance
constitute part of the terms of the Offer. Words and expressions
defined in this document have the same meanings when used in the
Form of Acceptance unless the context otherwise requires. The
provisions of this Appendix I shall be deemed to be incorporated
in the Form of Acceptance.
(vi) The Offer, the Form of Acceptance, all acceptances thereof or
pursuant thereto and contracts made pursuant thereto and action
taken or made or deemed to be taken or made under any of the
provisions of Appendix I shall be governed by and construed in
accordance with English law. Execution by or on behalf of a CODA
Shareholder of a Form of Acceptance will constitute his
submission, in relation to all matters arising out of or in
connection with the Offer and the Form of Acceptance, to the
jurisdiction of the courts of England and his agreement that
nothing shall limit the right of Baan or Goldman Sachs
International to bring any action, suit or proceeding arising
out of or in connection with the Offer and the Form of
Acceptance in any other manner permitted by law or in any court
of competent jurisdiction.
(vii) Any reference in this document or the Form of Acceptance to 3
April 1998 shall, except in paragraphs 1(i) and 5(ii) above and
where the context otherwise requires, be deemed, if the expiry
date of the Offer is extended, to refer to the expiry date of
the Offer as so extended.
(viii) Any omission or failure to despatch this document or the Form of
Acceptance or any other document relating to the Offer and/or
any notice required to be despatched under the terms of the
Offer to, or any failure to receive the same by, any person to
whom the Offer is or should be made shall not invalidate the
Offer in any way. Subject to the provisions of paragraph 6
below, the Offer will extend to any such person and to any
persons to whom this document, the Form of Acceptance or any
related documents may not be despatched, and such persons may
collect copies of those documents from the Receiving Agent at
the address specified in paragraph 3(i) above.
(ix) Subject to paragraph 6 below, if the Offer does not become
unconditional in all respects: (i) the Form of Acceptance and
any share certificate(s) and/or other document(s) of title will
be returned by post (or by such other method as may be approved
by the Panel) within 14 days of the Offer lapsing, at the risk
of the CODA Shareholder concerned, to the person or agent whose
name and address outside the United States, Canada, Australia
and Japan is set out in Box 6 of the Form of Acceptance or, if
none is set out, to the first-named holder at his registered
address outside the United States, Canada, Australia and Japan
set out in Box 3 of the Form of Acceptance or, if no address is
set out, to the first-named holder at his/her registered address
outside the United States, Canada, Australia and Japan; and (ii)
the Receiving Agent will, immediately after the lapsing of the
Offer (or within such longer period as the Panel may permit, not
exceeding 14 days of the lapsing of the Offer), give
instructions to CRESTCo to transfer all CODA Shares held in
escrow balances and in relation to which it is the escrow agent
for the purposes of the Offer to the original available balances
of the CODA Shareholders concerned.
(x) All powers of attorney and authorities on the terms conferred by
or referred to in this Appendix I or in the Form of Acceptance
are given by way of security for the performance of the
obligations of the CODA Shareholder concerned and are
irrevocable in accordance with section 4 of the Powers of
Attorney Act 1971 except in the circumstances where the donor of
such power of attorney is entitled to withdraw his acceptance in
accordance with paragraph 3 above and duly does so.
<PAGE> 32
(xi) No acknowledgement of receipt of any Form of Acceptance,
transfer by means of CREST, share certificate(s) and/or other
document(s) of title will be given by or on behalf of Baan. All
communications, notices, certificates, documents of title and
remittances to be delivered by, or sent to or from, CODA
Shareholders (or their designated agents) will be delivered or
sent at their own risk.
(xii) Without prejudice to paragraph 6 below, Baan and Goldman Sachs
International reserve the right to treat acceptances of the
Offer as valid if not entirely in order or not accompanied by
the relevant share certificate(s) and/or other relevant
document(s) of title or if received by the Receiving Agent or
otherwise by or on behalf of Baan at any place or places
determined by either of them otherwise than as set out herein or
in the Form of Acceptance.
(xiii) Due completion of the Form of Acceptance will constitute an
instruction to Baan, if the Offer becomes unconditional in all
respects, that all mandates and other instructions or notices
recorded in the records of CODA immediately before the Offer
becomes so unconditional relating to holdings of CODA Shares
will, unless and until revoked, continue in force in relation to
new Baan shares allotted to the relevant CODA Shareholders
pursuant to the Offer.
(xiv) Baan and Goldman Sachs International reserve the right to notify
any matter, including the making of the Offer, to all or any
CODA Shareholders with a registered address outside the United
Kingdom or whom Baan or Goldman Sachs International knows to be
a custodian, trustee or nominee holding CODA Shares for such
persons by announcement or paid advertisement in a newspaper
published and circulated in the United Kingdom or in any part
thereof. In that event, such notice shall be deemed sufficiently
given notwithstanding any failure by any CODA Shareholder to
receive or see such notice. All references in this document to
notice in writing by or on behalf of Baan shall be construed
accordingly. No such document shall be sent to an address in the
United States, Canada, Australia or Japan.
(xv) If sufficient acceptances are received and/or sufficient CODA
Shares are otherwise acquired, Baan intends to apply the
provisions of sections 428-430F of the Companies Act 1985 to
acquire compulsorily any outstanding CODA Shares to which the
Offer relates and to apply for cancellation of CODA's listing on
the London Stock Exchange.
(xvi) All references in this Appendix to any statute or statutory
provisions shall include a statute or statutory provision which
amends, consolidates or replaces the same (whether before or
after the date hereof).
(xvii) If Baan is required by the Panel to make an offer for CODA
Shares under the provisions of Rule 9 of the Code, Baan may make
such alterations to any of the terms and conditions of the Offer
as are necessary to comply with the provisions of that Rule.
(xviii) In relation to any acceptance of the Offer in respect of a
holding of CODA Shares which are in CREST, Baan reserves the
right to make such alterations, additions or modifications to
the terms of the Offer as may be necessary or desirable to give
effect to any purported acceptance of the Offer, whether in
order to comply with the facilities or requirements of CREST or
otherwise, provided such alteration, addition or modification is
consistent with the requirements of the Code or is otherwise
made with the consent of the Panel.
(xix) Subject to paragraphs 5(xx) and 5(xxi), notwithstanding that no
share certificate(s) and/or other documents of title is/are
delivered in respect of it, a duly completed Form of Acceptance
otherwise satisfying the requirements of Note 4 to Rule 10 of
the Code may (if otherwise in, or deemed to be in, order) be
treated by Baan and by Goldman Sachs International as an
acceptance valid and complete in all respects on the date of its
actual receipt provided that, on its presentation to CODA's
registrars it is unconditionally accepted for registration.
<PAGE> 33
(xx) Notwithstanding the right reserved by Baan to treat Forms of
Acceptance as valid even though not entirely in order or not
accompanied by the relevant share certificate(s) and/or other
document(s) of title or not accompanied by the relevant TTE
instruction, except as otherwise agreed with the Panel, an
acceptance of the Offer will only be counted towards fulfilling
the acceptance condition if the requirements of Note 4 and, if
applicable, Note 6 on Rule 10 of the Code are satisfied in
respect of it.
(xxi) Except with the consent of the Panel, a purchase of CODA Shares
by Baan, its wholly-owned subsidiaries or its nominees (or, if
Baan is required by the Panel to make an offer for CODA Shares
under the provisions of Rule 9 of the Code, by a person acting
in concert with Baan (or its nominee)) shall be counted towards
fulfilling the acceptance condition only if the requirements of
Note 5 and, if applicable, Note 6 on Rule 10 of the Code are
satisfied in respect of it.
(xxii) Except with the consent of the Panel, the Offer shall not become
or be declared unconditional unless the Receiving Agents shall
have issued a certificate to Baan or Goldman Sachs International
which states the number of acceptances which have been received
which comply with paragraph 5(xx) above and the number of CODA
Shares otherwise acquired which comply with paragraph 5(xxi)
above. Copies of such certificate will be sent to the Panel and
to CODA's financial adviser as soon as possible after it is
issued.
(xxiii) To the extent that any CODA Shares are held by a person (other
than a person who falls within paragraph 6 of this Appendix I)
whose receipt of new Baan Shares pursuant to an acceptance of
the Offer would be in contravention of applicable law, such
person may request Baan to allot any new Baan Shares to which it
would otherwise become entitled to some other person. Baan shall
be under no obligation to comply with such a request.
6 OVERSEAS SHAREHOLDERS
(i) The making or acceptance of the Offer in, or to or by persons
who are or are the nominees, trustees or custodians of persons
who are resident in or nationals or citizens of, jurisdictions
outside the United Kingdom ("overseas shareholders") and the
availability of new Baan Shares may be affected by the laws of
the relevant jurisdictions. Such overseas shareholders should
inform themselves about and observe any applicable legal
requirements. It is the responsibility of any overseas
shareholder wishing to accept the Offer to satisfy himself as to
the full observance of the laws of the relevant jurisdiction in
connection therewith, including the obtaining of any
governmental, exchange control or other consents which may be
required, or the compliance with other necessary formalities
needing to be observed and the payment of any issue, transfer or
other taxes due in such jurisdiction. Any such overseas
shareholder will be responsible for payment of any issue,
transfer or other taxes or other requisite payments due in such
jurisdiction by whomsoever payable and Baan or Goldman Sachs
International and any person acting on their behalf shall be
entitled to be fully indemnified and held harmless by such
overseas shareholder for any such issue, transfer or other taxes
or other requisite payments as Baan or Goldman Sachs
International and any person acting on their behalf may be
required to pay.
In particular, the Offer is not being made, directly or
indirectly, in or into, or by use of the mails of, or by
<PAGE> 34
any means or instrumentality of interstate or foreign commerce
of, or any facility of a national securities exchange of, and
may not be accepted in or from the United States, Canada,
Australia or Japan except pursuant to certain exemptions from
the applicable requirements of such jurisdictions. This
includes, but is not limited to, facsimile transmission, telex
and telephone. Accordingly, copies of this document, the Form of
Acceptance and any related offering documents are not being, and
must not be, mailed or otherwise distributed or sent in, into or
from the United States, Canada, Australia or Japan including to
CODA Shareholders or participants in the CODA Share Option
Schemes with registered addresses in the United States, Canada,
Australia or Japan or to custodians, trustees or nominees
holding CODA Shares for such persons unless certain exemptions
from the requirements of the relevant jurisdictions are
applicable. Persons receiving such documents (including, without
limitation, custodians, trustees and nominees) must not
distribute, send or mail them in, into or from the United
States, Canada, Australia or Japan, use the United States,
Canadian, Australian or Japanese mails or any such means or
instrumentality for any purpose, directly or indirectly, in
connection with the Offer, and so doing will invalidate any
related purported acceptance of the Offer. Persons wishing to
accept the Offer must not use the United States, Canadian,
Australian or Japanese mails or any such means or
instrumentality for any purpose directly or indirectly related
to acceptance of the Offer. Envelopes containing Forms of
Acceptance should not be postmarked in the United States,
Canada, Australia or Japan or otherwise despatched from the
United States, Canada, Australia or Japan, and all acceptors
must provide addresses outside the United States, Canada,
Australia or Japan for the receipt of new Baan Shares, or for
the return of Forms of Acceptance, CODA Share certificates
and/or other documents of title unless Baan is satisfied that
certain exceptions from the requirements of the relevant
jurisdictions are applicable.
Unless Baan is satisfied that certain exceptions from the
requirements of the relevant jurisdictions are applicable, a
CODA Shareholder will be deemed not to have validly accepted the
Offer if: (i) he puts "NO" in Box 5 of the Form of Acceptance
and thereby does not give the representation and warranty set
out in paragraph (iii) of Part C of this Appendix I to the
effect that the Offer was not made to him (or persons for whom
he is acting on a non-discretionary basis) in or into the United
States, Canada, Australia or Japan, is being accepted outside
the United States, Canada, Australia or Japan and is not being
accepted for the account or benefit, on a non-discretionary
basis, of a person in the United States, Canada, Australia or
Japan or with a view to the offer, sale or delivery, directly or
indirectly, of the new Baan Shares to any person in any of such
jurisdictions; (ii) having had inserted in or having completed
Box 3 of the Form of Acceptance with a registered address in the
United States, Canada, Australia or Japan, he does not insert in
Box 6 of the Form of Acceptance the name and address of a person
or agent outside the United States, Canada, Australia or Japan
to whom he wishes the consideration to which he is entitled
under the Offer to be sent; (iii) he inserts in Box 6 of the
Form of Acceptance the name and address of a person or agent in
the United States, Canada, Australia or Japan to whom he wishes
the consideration to which he is entitled under the Offer to be
sent; or (iv) in any case, the Form of Acceptance received from
him is received in an envelope postmarked in, or which otherwise
appears to Baan or its agents to have been sent from, the United
States, Canada, Australia or Japan. Baan reserves the right, in
its sole discretion, to investigate, in relation to any
acceptance, whether the representation and warranty set out in
paragraph (iii) of Part C of this Appendix I could have been
truthfully given by the relevant CODA Shareholder and, if such
investigation is made and, as a result, Baan cannot satisfy
itself that such representation and warranty was true and
correct, such acceptance shall not be valid.
If, in connection with the making of the Offer, notwithstanding
the restrictions described above, any person (including, without
limitation, custodians, nominees and trustees) whether pursuant
to a contractual or legal obligation or otherwise, forwards,
sends or otherwise distributes this document the Form of
Acceptance or any related offering documents in, into or from
the United States, Canada, Australia or Japan or uses the mails
of, or any means or instrumentality (including, without
limitation, facsimile transmission, telex and telephone) of
interstate or foreign commerce of, or any facility of a national
securities exchange of, the United States, Canada, Australia or
Japan in connection with such forwarding, such person should:
(i) inform the recipient of such fact; (ii) explain to the
recipient that such action will invalidate any purported
acceptance by the recipient; and (iii) draw the attention of the
recipient to this paragraph 6(i).
(ii) The new Baan Shares to be issued pursuant to the Offer are
bearer shares tradeable on the Amsterdam Stock
<PAGE> 35
Exchange and have not been, and will not be, registered under
the United States Securities Act of 1933, as amended, or under
any of the relevant securities laws of any state or other
jurisdiction of the United States, and the relevant clearances
have not been and will not be obtained from the Securities
Commission of any province or territory of Canada, and no
prospectus in relation to the new Baan Shares has been lodged
with, or registered by, the Australian Securities Commission or
any securities authority in Japan. Accordingly, such securities
may not be offered, sold or delivered, directly or indirectly,
in or into the United States, Canada, Australia or Japan except
pursuant to certain exemptions from the applicable requirements
of such jurisdictions.
As used in this document and in the Form of Acceptance: (i)
"Canada" means Canada, its possessions and territories and all
areas subject to its jurisdiction or any political subdivision
thereof; (ii) "Australia" means Australia, its possessions and
territories and all areas subject to its jurisdictions or any
political subdivision thereof; and (iii) "Japan" means Japan,
its possessions and territories and all areas subject to its
jurisdictions or any political subdivision thereof.
(iii) These provisions and any other terms of the Offer relating to
overseas shareholders may be waived, varied or modified as
regards specific CODA Shareholders or on a general basis by Baan
in its sole discretion. In particular, without limitation, Baan
reserves the right to (i) permit the Offer to be accepted by,
and allot new Baan Shares to, an overseas shareholder (otherwise
unable to accept the Offer in accordance with the above) in
circumstances in which Baan is satisfied that acceptance by such
shareholder and the allotment of new Baan Shares to such
shareholder will not constitute a breach of any securities or
other relevant legislation or impose obligations on Baan not
contemplated by the Offer (and, in any such case, Baan may
impose additional requirements and restrictions on such
acceptances and the shares allotted) or (ii) arrange for the new
Baan Shares to which such overseas shareholder may otherwise be
entitled pursuant to the Offer or Part XIIIA of the Companies
Act 1985 to be credited to a separate securities account with
ABN.AMRO Bank N.V. in The Netherlands, which account Baan shall
cause to be opened, at Baan's expense, in the first-registered
name of such overseas shareholder and which new Baan Shares
shall be made available to the overseas shareholder upon
satisfaction of such conditions (including tender of the
certificates representing the CODA Shares to which such new Baan
Shares relate) as Baan shall determine. Baan will have no
obligations whatsoever in relation to the timing of such sales
or allotments or the price obtained and such sales or allotments
may be made individually or together with other shares to which
such provisions apply. In the circumstances of sub-paragraph
(ii) any signed Form of Acceptance received pursuant to the
Offer shall constitute the irrevocable appointment of all or any
of Baan and its managing directors and Goldman Sachs
International and its directors as the relevant CODA
Shareholder's agent to effect such sale as his agent with full
power (including powers of delegation) to do all such things as
may be necessary for or ancillary to such purpose. Subject
thereto the provisions of this paragraph 6 supersede any terms
of the Offer inconsistent therewith. References in this
paragraph 6 to a CODA Shareholder include references to the
person or persons executing a Form of Acceptance and any person
or persons on whose behalf such person or persons executing the
Form of Acceptance is/are acting and, in the event of more than
one person executing the Form of Acceptance, the provisions of
this paragraph 6 shall apply to them jointly and severally.
PART C: FORM OF ACCEPTANCE
Each CODA Shareholder by whom, or on whose behalf, the Form of
Acceptance is executed and lodged with the Receiving Agent irrevocably
undertakes, represents, warrants and agrees to and with Baan, Goldman Sachs
International ABN, AMRO Bank N.V. and the Receiving Agent and to their
respective agents (so as to bind him, his heirs, successors and assigns) to the
following effect:
(i) that the execution of the Form of Acceptance shall constitute an
acceptance of the Offer in respect of the number of CODA Shares
inserted or deemed to be inserted in Box 1 of the Form of
Acceptance and an undertaking to execute any further documents
or give any further assurance which may be required in
connection with the foregoing, in each case on and subject to
the terms and conditions set out or referred to
<PAGE> 36
in this document and the Form of Acceptance and that, subject to
the rights of withdrawal set out in this Appendix I, each such
acceptance shall be irrevocable provided that if (i) no Boxes
are completed or (ii) the total number of CODA Shares inserted
in Box 1 is greater than the number of CODA Shares comprised in
the acceptance or (iii) the acceptance is otherwise completed
incorrectly, but the Form of Acceptance is signed, it will be
deemed to be an acceptance of the Offer in respect of all of the
CODA Shares comprised in the acceptance.
For the purposes of this Appendix I and the Form of Acceptance,
the phrase "CODA Shares comprised in the acceptance" shall mean
the number of CODA Shares inserted in Box 1 of the Form of
Acceptance or, if no number is inserted, the greater of:
(a) the relevant CODA Shareholder's entire holding of CODA
Shares as disclosed by details of the register of
members made available to the Receiving Agent prior to
the time the relevant Form of Acceptance is processed by
them;
(b) the relevant CODA Shareholder's entire holding of CODA
Shares as disclosed by details of the register of
members made available to the Escrow Agent prior to the
latest time for receipt of Form(s) of Acceptance which
can be taken into account for determining whether the
Offer is unconditional; or
(c) the number of CODA Shares in respect of which
certificates or an indemnity in lieu thereof is received
and/or, in respect of any CODA Shares in CREST, the
number of such shares which are transferred by the
relevant CODA Shareholder to his escrow account by means
of a TTE instruction;
(ii) that he is irrevocably and unconditionally entitled to transfer
the CODA Shares in respect of which the Form of Acceptance is
completed and that the entire beneficial interest in such CODA
Shares in respect of which the Offer is accepted or deemed to be
accepted are sold free from all liens, equities, charges,
encumbrances and other interests and together with all rights
attaching thereto on or after 23 February 1998, including the
right to receive all dividends and other distributions, if any,
declared, made or paid after that date;
(iii) that unless "NO" is inserted in Box 5 of the Form of Acceptance,
such CODA Shareholder has not received or sent copies of this
document, the Form of Acceptance or any related offering
documents in, into, or from the United States, Canada, Australia
or Japan; has not otherwise utilised in connection with the
Offer, directly or indirectly, the mails of, or any means or
instrumentality (including, without limitation, facsimile
transmission, telex and telephone) of interstate or foreign
commerce of, or any facility of a national securities exchange
of, the United States, Canada, Australia or Japan; was outside
the United States when the Form of Acceptance was delivered and
at the time of accepting the Offer; and, in respect of the CODA
Shares to which the Form of Acceptance relates, is not an agent
or fiduciary acting on a non-discretionary basis for a principal
who has given any instructions with respect to the Offer from
within the United States, Canada, Australia or Japan and is not
acquiring the new Baan Shares for purposes of resale directly or
indirectly to a person within the United States; and the Form of
Acceptance has not been mailed or otherwise sent in, into or
from the United States, Canada, Australia or Japan or signed in
the United States, Canada, Australia or Japan and such
shareholder is accepting the Offer from outside the United
States, Canada, Australia and Japan;
(iv) that the execution of the Form of Acceptance and its delivery to
the Receiving Agent will, subject to the Offer becoming
unconditional in all respects and the person accepting the Offer
not having validly withdrawn his acceptance, constitute the
irrevocable appointment of all and any of Baan and its managing
directors and Goldman Sachs International and its directors as
such shareholder's attorney and/or agent and an irrevocable
instruction to the attorney and/or agent to complete and execute
all or any form(s) of transfer and/or other document(s) at the
discretion of the attorney and/or agent in relation to the CODA
Shares referred to in paragraphs (i) and (ii) of this Part C in
favour of Baan or such other person or persons as Baan or its
agents may direct and to deliver such form(s) of transfer and/or
other document(s) in the attorney's
<PAGE> 37
discretion and/or the certificate(s) and/or other document(s) of
title relating to such CODA Shares for registration within six
months of the Offer becoming unconditional in all respects and
to do all such other acts and things as may in the opinion of
such attorney be necessary or expedient for the purpose of, or
in connection with, the acceptance of the Offer and to vest in
Baan or its nominees the CODA Shares;
(v) that the execution of the Form of Acceptance and its delivery to
the Receiving Agent constitutes the irrevocable appointment of
the Receiving Agent as such shareholder's attorney and/or agent
and an irrevocable instruction and authority to the attorney
and/or agent (i) subject to the Offer becoming unconditional in
all respects in accordance with its terms and to an accepting
CODA Shareholder not having validly withdrawn his acceptance, to
transfer to itself (or to such other person or persons as Baan
or its agents may direct) by means of CREST all or any of the
Relevant CODA Shares (but not exceeding the number of CODA
Shares in respect of which the Offer is accepted or deemed to be
accepted) and (ii), if the Offer does not become unconditional
in all respects, to give instructions to CRESTCo, immediately
after the lapsing of the Offer (or within such longer period as
the Panel may permit, not exceeding 14 days of the lapsing of
the Offer), to transfer all Relevant CODA Shares to the original
available balance of the accepting CODA Shareholder. "Relevant
CODA Shares" means CODA Shares in uncertificated form and in
respect of which a transfer or transfers to escrow has or have
been effected pursuant to the procedures described in paragraph
11 of the letter from Goldman Sachs International contained in
this document and where the transfer(s) to escrow was or were
made in respect of CODA Shares held under the same member
account ID and participant ID as the member account ID and
participant ID relating to the Form of Acceptance concerned (but
irrespective of whether or not any Form of Acceptance reference
number, or a Form of Acceptance reference number corresponding
to that appearing on the Form of Acceptance concerned, was
included in the TTE instruction concerned);
(vi) that the execution of the Form of Acceptance and its delivery to
the Receiving Agent will constitute, subject to the Offer
becoming unconditional in all respects and to an accepting CODA
Shareholder not having validly withdrawn his acceptance, an
irrevocable authority and request:
(a) to CODA or its agents to procure the registration of the
transfer of the CODA Shares in certificated form
pursuant to the Offer and the delivery of the share
certificate(s) and/or other document(s) of title in
respect thereof to Baan or as it may direct;
(b) subject to the provisions of paragraph 6 of Part B of
this Appendix I to Baan or its agents to procure the
despatch by post (or by such other methods as may be
approved by the Panel) of the relevant confirmation from
the Receiving Agent regarding the depository
arrangements in place for any new Baan Shares to which
an accepting CODA Shareholder may become entitled
pursuant to his acceptance of the Offer, at the risk of
such CODA Shareholder, to the person or agent whose name
and address outside the United States, Canada, Australia
or Japan is set out in Box 3 of the Form of Acceptance,
or, if appropriate, Box 6 of the Formal Acceptance or,
if none is set out, to the first-named holder at his
registered address outside the United States, Canada,
Australia or Japan;
(c) subject to the provisions of paragraph 6 of Part B of
this Appendix I, to Baan or its agents to procure that,
save where the accepting CODA Shareholder has entered a
valid securities account number and relative details in
Box 7 of the Form of Acceptance in accordance with the
instructions printed thereon, the securities account to
be opened by ABN, AMRO Bank N.V. pursuant to paragraph
(viii) of this Part C is duly credited in respect of any
new Baan Shares to which such CODA Shareholder(s) may
become entitled under the Offer, subject to the terms of
the Articles of Association of Baan;
(d) to Baan or its agents, to record and act upon any
instructions with regard to notices or dividend mandates
which have been recorded in the records of CODA in
respect of such CODA Shareholder's holding(s) of CODA
Shares as if such mandates had been given in respect of
its holding of new Baan Shares;
(vii) that the execution of a Form of Acceptance and its delivery to
the Receiving Agent constitutes an authority
<PAGE> 38
to any director of Baan or Goldman Sachs International and/or
their respective agents within the terms of paragraph 4 of Part
B and paragraph (iii) of Part C of this Appendix;
(viii) that the execution of a Form of Acceptance and its delivery to
the Receiving Agent constitutes an authority to ABN, AMRO Bank
N.V. to open a securities account in the name of the first-named
registered holder of the CODA Shares in respect of which the
Form of Acceptance has been so executed and delivered (as the
same is set out in Box 3 of the Form of Acceptance), save where
the accepting CODA Shareholder has entered a valid securities
account number and relative details in Box 7 of the Form of
Acceptance in accordance with the instructions printed thereon,
in which case the execution of a Form of Acceptance and its
delivery to the Receiving Agent constitutes an authority to Baan
to arrange for the new Baan Shares to be issued to such CODA
Shareholder to be duly credited to the securities account
nominated by such CODA Shareholder in respect of such CODA
Shares to which such CODA Shareholder may become entitled under
the Offer, subject to the terms of the Articles of Association
of Baan;
(ix) that, subject to the Offer becoming or being declared
unconditional in all respects (or if the Offer will become
unconditional in all respects or lapse immediately upon the
outcome of the resolution in question) and pending registration:
(a) Baan shall be entitled to direct the exercise of any
votes and any or all other rights and privileges
(including the right to requisition the convening of a
general meeting of CODA or of any class of its
shareholders) attaching to any CODA Shares in respect of
which the Offer has been accepted or is deemed to have
been accepted and not validly withdrawn such votes
(where relevant) to be cast so far as possible to
satisfy any outstanding condition of the Offer; and
(b) the execution of a Form of Acceptance by a CODA
Shareholder in respect of the CODA Shares comprised in
such acceptance and in respect of which such acceptance
has not been validly withdrawn:
(i) constitutes an authority to CODA from such CODA
Shareholder to send any notice, warrant,
document or other communication which may be
required to be sent to him/her as a member of
CODA (including any share certificate(s) or
other document(s) of title issued as a result of
a conversion of such CODA Shares into
certificated form) to Baan at its registered
office;
(ii) constitutes an irrevocable authority to Baan or
any person appointed by Baan to sign any consent
to short notice on his behalf and/or attend
and/or execute a form of proxy in respect of
such CODA Shares and/or where appropriate, any
appointment pursuant to section 375 of the
Companies Act 1985 appointing any person
nominated by Baan to attend general meetings and
separate class meetings of CODA or its members
(or any of them) (and any adjournments thereof)
and to exercise or to refrain from exercising
(but subject to the Code) the votes attaching to
such shares on his behalf, where relevant, such
votes to be cast so far as possible to satisfy
any outstanding condition of the Offer; and
(iii) will also constitute the agreement of such CODA
Shareholder not to exercise any of such rights
without the consent of Baan and the irrevocable
undertaking of such CODA Shareholder not to
appoint a proxy to attend any such general
meeting or separate class meeting;
<PAGE> 39
This authority will cease to be valid if the acceptance is
withdrawn in accordance with paragraph 4 of this Part B of
Appendix I.
(x) that he is irrevocably and unconditionally entitled to transfer
the CODA Shares in respect of which the Form of Acceptance is
completed and the entire beneficial interest in such CODA Shares
in respect of which the Offer is accepted or deemed to be
accepted will be acquired under the Offer free from all liens,
equities, charges, encumbrances and all other interests and
together with all rights attaching thereto, including the right
to receive and retain all dividends and other distributions (if
any) declared, made or paid after the date hereof;
(xi) that he will deliver or procure that there is delivered to the
Receiving Agent at the address referred to in paragraph 3 of
Part B of this Appendix I, his share certificate(s) or other
document(s) of title in respect of all CODA Shares (which are in
certificated form) in respect of which the Offer has been
accepted or is deemed to have been accepted and not validly
withdrawn held by him, or an indemnity acceptable to Baan in
lieu thereof, as soon as possible and in any event within six
months of the Offer becoming unconditional in all respects;
(xii) that he will take (or procure to be taken) the action set out in
paragraph 11(b) of the letter from Goldman Sachs International
contained in this document to transfer all CODA Shares in
respect of which the Offer has been accepted or is deemed to
have been accepted and not validly withdrawn held by him in
uncertificated form to an escrow balance as soon as possible and
in any event so that the transfer to escrow settles within six
months of the Offer becoming unconditional in all respects;
(xiii) that if, for any reason, any CODA Shares in respect of which a
transfer to an escrow balance has been effected in accordance
with paragraph 11(b) of the letter from Goldman Sachs
International contained in this document are converted to
certificated form, he will (without prejudice to paragraph (xi)
of this Part C) immediately deliver or procure the immediate
delivery of the share certificate(s) or other document(s) of
title in respect of all such CODA Shares as so converted to the
Receiving Agent at the address referred to in paragraph 3 of
Part B of this Appendix I or to Baan at its registered office or
as Baan or its agents may direct;
(xiv) that the execution of the relevant Form of Acceptance and such
receipt will constitute the irrevocable appointment of each of
Baan and Goldman Sachs International and their respective
directors and agents as such shareholder's attorney and/or agent
(the "attorney") within the terms of paragraph 4 of Part B of
this Appendix I and this Part C and with authority to execute
any further documents and give any further assurances which may
be required in connection with the matters referred to in Part B
of this Appendix I and this Part C and an irrevocable
undertaking to such attorney to execute any such further
documents and/or give any such further assurances as may be
required;
(xv) that the terms and conditions of the Offer contained in this
document shall be deemed to be incorporated in, and form part
of, the Form of Acceptance which shall be read and construed
accordingly;
(xvi) that, if he does not validly withdraw his acceptance, he will do
all such acts and things as shall in the opinion of Baan and/or
Goldman Sachs International be necessary or expedient to vest in
Baan or its nominee(s) or such other persons as it may decide
the CODA Shares aforesaid and all such acts and things as may be
necessary or expedient to enable the Receiving Agent to perform
its functions as escrow agent for the purposes of the Offer to
the fullest extent;
(xvii) that he agrees to ratify each and every act or thing which may
be done or effected by Baan or Goldman Sachs International or
ABN, AMRO Bank N.V. or the Receiving Agent or any director of
Baan or any director of Goldman Sachs International or any
director of the Receiving Agent or their respective agents or
CODA or its agents, as the case may be, in the exercise of any
of the appointments and/or powers and/or
<PAGE> 40
authorities hereunder;
(xviii) that the execution of the Form of Acceptance constitutes his
submission, in relation to all matters arising out of the Offer
and the Form of Acceptance, to the jurisdiction of the courts of
England;
(xix) that on execution the Form of Acceptance shall take effect as a
deed; and
(xx) that if any provision of Part B of this Appendix I or this Part
C shall be unenforceable or invalid or shall not operate so as
to afford Baan or Goldman Sachs International or Northern
Registrars or any director of any of them the benefit or
authority expressed to be given therein, he shall with all
practicable speed do all such acts and things and execute all
such documents that may be required to enable Baan and/or
Goldman Sachs International and/or Northern Registrars and/or
any director of either of them to secure the full benefits of
Part B and this Part C.
(xxi) References in this Part C to a CODA Shareholder shall include
references to the person or persons executing a Form of
Acceptance, and in the event of more than one person executing a
Form of Acceptance, the provisions of this Part C shall apply to
them jointly and to each of them.
<PAGE> 1
EXHIBIT 3.21
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of September 23, 1998 among Baan Company, N.V., a corporation
incorporated in The Netherlands ("Parent"), Orange Software Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and
CAPS Logistics Inc., a Georgia corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company and Merger Sub and the
Boards of Managing Directors and Supervisory Directors of Parent believe it is
in the best interests of each company and their respective shareholders that
Parent acquire the Company through the statutory merger of Merger Sub with and
into the Company (the "Merger") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger and subject to the terms and conditions of
this Agreement, Parent shall acquire from the shareholders of the Company all of
the issued and outstanding shares of common stock of the Company ("Company
Common Stock"), in exchange for shares of Common Shares of Parent ("Parent
Common Shares").
C. A portion of the Parent Common Shares issued by Parent in connection
with the Merger to the shareholders of the Company shall be placed in escrow by
Parent, the release of which shares shall be contingent upon certain events and
conditions, all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code") and which qualifies for accounting treatment as a
pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
<PAGE> 2
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law")
and the Georgia General Corporation Law ("Georgia Law") Merger Sub shall be
merged with and into the Company, the separate corporate existence of Merger Sub
shall cease and the Company shall continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California,
unless another place or time is agreed to by Parent and the Company. The date
upon which the Closing actually occurs is herein referred to as the "Closing
Date". On the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing the Certificate of Merger (or like instrument) with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of Georgia (the "Certificate of Merger"), in accordance with the relevant
provisions of applicable law (the time of acceptance by the Secretary of State
of Georgia of such filing being referred to herein as the "Effective Time"). The
parties currently intend that the Closing Date will occur on or prior to October
1, 1998.
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law and
Georgia Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of the Company shall
be the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation.
(b) The Bylaws of the Company, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
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1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, each to hold office in accordance with the Bylaws of
the Surviving Corporation.
1.6 Shares to Be Issued; Effect on Common Stock. The number of shares of
Parent Common Shares to be issued pursuant to the Merger in exchange for the
acquisition by Parent of all outstanding Company Common Stock shall be 2,500,000
shares (the "Aggregate Parent Shares"). Subject to the terms and conditions of
this Agreement, as of the Effective Time, by virtue of the Merger and without
any action on the part of Merger Sub, the Company or the holder of any shares of
the Company Common Stock, the following shall occur:
(a) Transfer of Company Common Stock. Pursuant to the Merger,
each share of Common Stock of the Company issued and outstanding immediately
prior to the Effective Time (other than any shares of Company Common Stock to be
transferred to Parent pursuant to Section 1.6(b) and other than any Dissenting
Shares (as defined and to the extent provided in Section 1.8(a)) will be
automatically assigned and transferred to Parent at the Effective Time, without
any further action required on the part of the Company, the individual
shareholder of the Company or Parent, and in exchange therefor the holders of
such share of Company Common Stock shall be entitled to receive a number of
shares of Parent Common Shares equal to the Exchange Ratio (as defined in
subparagraph (g) below), upon surrender of the certificate representing such
share of Company Common Stock in the manner provided in Section 1.9.
(b) Transfer of Company-Owned Stock. Each share of Company
Common Stock owned by Merger Sub, Parent, the Company or any direct or indirect
wholly-owned subsidiary of Parent or of the Company, if any, immediately prior
to the Effective Time shall be transferred to the Parent.
(c) Stock Options, Warrants, Etc. The Company has no outstanding
options, warrants, convertible securities or other rights of any kind or nature
whatsoever to purchase Company Common Stock.
(d) Capital Stock of Merger Sub. Pursuant to the Merger, each
share of Common Stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of Common Stock of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Shares or Company Common Stock), recapitalization or other like
change without receipt of consideration with respect to Parent Common Shares or
Company Common Stock occurring after the date hereof and prior to the Effective
Time. Any such change for
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which a record date is established shall be deemed for the purposes of this
Section 1.6(e) to have occurred on the record date.
(f) Fractional Shares. No fraction of a share of Parent Common
Shares will be issued, but in lieu thereof, each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of Parent
Common Shares (after aggregating all fractional shares of Parent Common Shares
to be received by such holder) shall be entitled to receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the average closing price of a share of Parent
Common Shares for the ten (10) consecutive trading days ending on the trading
day immediately prior to the Closing Date, as reported on the Nasdaq National
Market.
(g) Definitions.
(i) Aggregate Company Shares. The "Aggregate Company
Shares" shall mean the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time.
(ii) Aggregate Parent Shares. The "Aggregate Parent
Shares" shall be 2,500,000 shares of Parent Common Shares (as appropriately
adjusted to reflect the effect of any stock split, stock dividend,
recapitalization or the like with respect to the Parent Common Shares occurring
after the date hereof and prior to the Effective Time).
(iii) Escrow Amount. The "Escrow Amount" shall be a
number of shares of Parent Common Shares obtained by multiplying (x) the
Aggregate Parent Share by (y) 0.10, or 250,000 shares of Parent Common Shares.
(iv) Exchange Ratio. The "Exchange Ratio" shall mean the
quotient obtained by dividing (x) the Aggregate Parent Share by (y) the
Aggregate Company Shares.
1.7 Unvested Company Common Stock. To the extent that shares of
Company Common Stock prior to the Merger are subject to vesting arrangements
under which shares that are unvested as of a date of termination of employment
would be subject to repurchase by the Company, Parent shall issue shares of
Parent Common Shares, which upon issuance, will be subject to similar
contractual vesting and repurchase provisions on the same schedules and subject
to the same terms.
1.8 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Common Stock held by a holder who has demanded
and perfected appraisal or dissenters' rights for such shares in accordance with
Georgia Law and who, as of the Effective Time, has not effectively withdrawn or
lost such appraisal or dissenters' rights ("Dissenting Shares"), shall not be
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exchanged for Parent Common Shares pursuant to Section 1.6, but the holder
thereof shall only be entitled to such rights as are granted by Georgia Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Common Stock who demands appraisal of such shares
under Georgia Law shall effectively withdraw or lose (through failure to perfect
or otherwise) the right to appraisal, then, as of the later of the Effective
Time and the occurrence of such event, such holder's shares shall automatically
be, pursuant to the Merger, exchanged for Parent Common Shares and fractional
shares as provided in Section 1.6, without interest thereon, upon surrender of
the certificate representing such shares pursuant to Section 1.9.
(c) The Company shall give Parent (i) prompt notice of any
written demands for appraisal of any shares of Company Common Stock, withdrawals
of such demands, and any other instruments served pursuant to Georgia Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under Georgia
Law. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for appraisal of
capital stock of the Company or offer to settle or settle any such demands.
1.9 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall
designate a bank or trust company reasonably acceptable to the Company to act as
exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for the benefit of the
Company's shareholders the aggregate number of shares of Parent Common Shares
issuable pursuant to Section 1.6; provided that, on behalf of the holders of
Company Common Stock, Parent shall deposit the Escrow Amount into an escrow
account. The portion of the Escrow Amount contributed on behalf of each holder
of Company Common Stock shall be in proportion to the aggregate number of shares
of Parent Common Shares which such holder would otherwise be entitled to receive
under Section 1.6 by virtue of ownership of outstanding shares of Company Common
Stock. It is understood that the shares placed in the escrow account shall be
constituted solely out of the shares of Parent Common Shares issuable in respect
of Company Common Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock which,
pursuant to the Merger, were exchanged for Parent Common Shares pursuant to
Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
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(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Shares. Upon
surrender of a Certificate to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate representing the number of whole shares of Parent Common Shares
(less the number of shares of Parent Common Shares, if any, to be deposited in
the Escrow Fund on such holder's behalf pursuant to Article VII hereof), plus
cash in lieu of fractional shares in accordance with Section 1.6, to which such
holder is entitled pursuant to Section 1.6, and the Certificate so surrendered
shall forthwith be transferred to Parent. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of Article
VII hereof, Parent shall cause to be issued to the Escrow Agent (as defined in
Article VII) a certificate or certificates representing that number of shares of
Parent Common Shares equal to the Escrow Amount and registered in the name of
the Escrow Agent. Such shares shall be held by the Escrow Agent as nominee on
behalf of the holder on whose behalf the shares are deposited in the Escrow
Fund; such shares shall be beneficially owned (as defined under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) by the holders on whose
behalf such shares were deposited in the Escrow Fund; and such shares shall be
available to compensate Parent as provided in Article VII. Until so surrendered,
each outstanding Certificate that, prior to the Effective Time, represented
shares of Company Common Stock will be deemed from and after the Effective Time,
for all corporate purposes, to represent solely (i) ownership of the number of
full shares of Parent Common Shares into which such shares of Company Common
Stock shall have been so exchanged and (ii) the right to receive an amount in
cash in lieu of the issuance of any fractional shares in accordance with Section
1.6.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Shares with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Shares represented thereby until the holder of record of
such Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Shares
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Shares.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.9, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of Parent Common Shares or
Company Common Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.10 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Shares issued pursuant to the Merger in exchange for shares of
Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares
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of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be transferred to Parent.
1.11 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Company shall issue in exchange for such lost, stolen
or destroyed certificates, upon receiving notice from the holder thereof at
least five (5) days before the Effective Time and upon the making of an
affidavit of that fact by such holder, new shares of Company Common Stock;
provided, however, that Company, as a condition precedent to the issuance
thereof, shall require the owner of such lost, stolen or destroyed certificates
to deliver a bond in such sum as it may reasonably direct as indemnity against
any claim that may be made with respect to the certificates alleged to have been
lost, stolen or destroyed. Subsequent to the issuance of new shares of Company
Common Stock, such shares shall be surrendered to the Exchange Agent in
accordance with Section 1.9.
1.12 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the meaning
of Section 368 the Code and (ii) qualify for accounting treatment as a pooling
of interests.
1.13 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are clearly disclosed in the disclosure letter
supplied by the Company to Parent (the "Company Schedules") and dated as of the
date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have, or is reasonably likely to
have, a material adverse effect on (i) financial position, business, or results
of operations of the Company or (ii) the ability of the Company to perform its
obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement (hereinafter referred to as a
"Material Adverse Effect"). The Company
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has delivered a true and correct copy of its Articles of Incorporation and
Bylaws, each as amended to date, to Parent.
2.2 Company Capital Structure. The authorized stock of the Company
consists of 1,000,000 shares of Common Stock, no par value, of which 210,390
shares are issued and outstanding. A complete list of the Company's shareholders
and the number of shares of Company Common Stock held by each such shareholder
is attached hereto as Schedule 2.2. All outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, the Articles of Incorporation
or Bylaws of the Company or any agreement to which the Company is a party or by
which it is bound. None of the outstanding Company Common Stock or other
securities of the Company was issued in violation of the Securities Act or any
applicable state Blue Sky laws. There are no options, warrants, calls, rights,
commitments or agreements of any character to which the Company is a party or by
which it is bound, obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.
2.3 Subsidiaries. Except as set forth on Schedule 2.3, the Company does
not have any subsidiaries or affiliated companies and does not otherwise own any
shares of capital stock or any interest in, or control, directly or indirectly,
any other corporation, partnership, association, joint venture or other business
entity.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by the Company's shareholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company, subject
only to the approval of the Merger by the Company's shareholders. The Company's
Board of Directors has unanimously approved the Merger and this Agreement. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies. Except as set forth on Schedule 2.4, subject only to the
approval of the Merger and this Agreement by the Company's shareholders, the
execution and delivery of this Agreement by the Company does not, and, as of the
Effective Time, the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Articles
of Incorporation or Bylaws of the Company or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative
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agency or commission or other federal, state, county, local or foreign
governmental authority, instrumentality, agency or commission ("Governmental
Entity") or any third party (so as not to trigger any Conflict), is required by
or with respect to the Company in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of the Certificate of Merger with the Delaware
Secretary of State and the Georgia Secretary of State, (ii) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws,
(iii) such filings as are required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), and (iv) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's
unaudited balance sheet as of August 31, 1998 (the "Balance Sheet") and the
Company's unaudited statements of operations, shareholders' equity and cash
flows for the fiscal year ended June 30, 1998 and two-month period ended August
31, 1998 (collectively, the "Company Financials"). The Company's audited
financial statements for the year ended June 30, 1998, as may be delivered to
Parent pursuant to the closing conditions set forth in Section 6.2(j) shall be
referred to as the "Additional Financials." The Company Financials have been
prepared (and the Additional Financials will be prepared) in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
throughout the periods indicated and consistent with each other except that the
unaudited financial statements do not include footnotes. The Company Financials
present fairly (and the Additional Financials will present fairly) the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject, in the case of the unaudited financial
statements, to normal year-end adjustments, which will not be material in amount
or significance.
2.6 No Undisclosed Liabilities. Except for (i) Liabilities (as defined
below) as set forth or referred to in Schedule 2.6, (ii) performance obligations
under Contracts described in Schedules 2.12(a) and (b) or under other contracts
and agreements which would be included on Schedules 2.12(a) and (b) but for the
fact that such contracts and agreements may be excluded on Schedules 2.12(a) and
(b) pursuant to the terms of Section 2.12, and (iii) other Liabilities
specifically identified elsewhere in the Company Schedules as Liabilities of the
Company, the Company does not have any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles) (a "Liability"), not reflected in the Balance
Sheet, which (i) has arisen other than in the ordinary course of the Company's
business since August 31, 1998, consistent with past practices, or (ii)
involves, individually or in the aggregate, potential liabilities in excess of
$100,000.
2.7 No Changes. Except as set forth in Schedule 2.7, since August 31,
1998, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
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(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company of $50,000
in any individual case or $100,000 in the aggregate.
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors (except for standard yearly salary increases in the normal course of
business), or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
(j) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement
or license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by
the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others except for advances to employees
for travel and business expenses in the ordinary course of business, consistent
with past practices;
(m) waiver or release of any material right or claim of the
Company, including any provisions for uncollectible accounts receivable of the
Company;
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(n) commencement or notice or written threat of commencement of
any lawsuit or proceeding against or, to the knowledge of the Company,
investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
(q) change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to the Company;
(r) event or condition of any character that has had or
reasonably could be expected to have a Material Adverse Effect on the Company;
or
(s) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, "Taxes", means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports due to be filed on or before the
Effective Time ("Returns") relating to any and all Taxes concerning or
attributable to the Company or its operations and, to the Company's knowledge,
such Returns are complete and accurate in all material respects in accordance
with applicable law.
(ii) The Company as of the Effective Time: (A) will have
paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld.
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(iii) The Company has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for
unpaid federal, state, local and foreign Taxes which have not been accrued or
reserved against on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise.
(vi) The Company has provided to Parent copies of all
federal and state income and all state sales and use Tax Returns for all periods
ending in the past 3 years.
(vii) There are (and as of immediately following the
Closing there will be) no liens, pledges, charges, claims, security interests or
other encumbrances of any sort ("Liens") on the assets of the Company relating
to or attributable to Taxes, other than Liens for Taxes not yet due and payable.
(viii) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(ix) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
(x) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
(xi) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xii) The Company is not, and has not been at any time,
a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
2.9 Restrictions on Business Activities. Except as set forth on Schedule
2.9, there is no agreement (non-compete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has the effect of prohibiting or impairing any business
practice (including, without limitations, the licensing of any product) of the
Company, any acquisition of property (tangible or intangible) by the Company or
the conduct of
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business by the Company. Without limiting the foregoing, the Company has not
entered into any agreement under which the Company is restricted from selling,
licensing or otherwise distributing any of its products to any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property. Schedule 2.10(a) sets
forth (i) a list of all real property currently leased by the Company, the name
of the lessor and the date of the lease and each amendment thereto, and (ii) all
real property ever owned by the Company. All such current leases are in full
force and effect, are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default) by the Company or, to the knowledge of the Company, any
other party.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Company Financials or in Schedule 2.10(b) and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.11 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, registered and unregistered
trademarks, trade names, service marks, trade secrets, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material that are
required for the conduct of business of the Company as currently conducted by
the Company or as such rights relate to products currently under development
(the "Company Intellectual Property Rights").
(b) Schedule 2.11(a) sets forth a complete list of all patents,
registered and unregistered trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners. Schedule 2.11(b) sets forth a complete list of
all material licenses, sublicenses and other agreements to which the Company is
a party and pursuant to which the Company or any other person is authorized to
use any Company Intellectual Property Right (excluding object code end-user
licenses granted to end-users in the ordinary course of business that permit use
of software products without a right to modify, distribute or sublicense
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the same ("End-User Licenses")) or trade secret of the Company, and includes the
identity of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty or other fees and the term thereof. The
execution and delivery of this Agreement by the Company, and the consummation of
the transactions contemplated hereby, will neither cause the Company to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement. Except as set forth
in Schedules 2.11(a) or 2.11(b), the Company is the sole and exclusive owner or
licensee of, with all right, title and interest in and to (free and clear of any
liens or encumbrances but subject to the license rights of customers under
customer agreements, which customer agreements have been disclosed in the
Company Schedules to the extent required elsewhere herein), the Company
Intellectual Property Rights, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which the Company Intellectual Property
Rights are being used.
(c) No claims with respect to the Company Intellectual Property
Rights have been asserted or, to the Company's knowledge, threatened by any
person, nor, to the Company's knowledge, has any other person made an assertion
(i) to the effect that the manufacture, sale, licensing or use of any of the
products of the Company infringes on any copyright, patent, trademark, service
mark, trade secret or other proprietary right of a third party, (ii) against the
use by the Company of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in the Company's business as currently conducted
by the Company, or (iii) challenging the ownership by the Company, validity or
effectiveness of any of the Company Intellectual Property Rights. To the best of
the Company's knowledge, all registered trademarks, service marks and copyrights
held by the Company are valid and subsisting. To the best of the Company's
knowledge, the Company has not infringed, and the business of the Company as
currently conducted or as currently proposed to be conducted does not infringe,
any copyright, patent, trademark, service mark, trade secret or other
proprietary right of any third party. To the best of the Company's knowledge,
there is no material unauthorized use, infringement or misappropriation of any
of the Company Intellectual Property Rights by any third party, including any
employee or former employee of the Company. No Company Intellectual Property
Right or product of the Company or any of its subsidiaries is subject to any
outstanding decree, order, judgment, or stipulation restricting in any material
maAaa)#&aB Net forth on Schedule 2.20(i), no payment or benefit which will or
may be made by the Company or Parent or any of their respective affiliates with
respect to any Employee will be characterized as an "excess parachute payment,"
within the meaning of Section 280G(b)(1) of the Code.
(d) Employment Matters. To the best of the Company's knowledge,
the Company (i) is in compliance in all material respects with all applicable
foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries
and other payments to Employees; (iii) is not, beyond its regular business
practices of paying wages in arrears, liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and (iv)
is not liable for any payment to any trust or other fund or to any governmental
or administrative authority, with respect to
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<PAGE> 15
unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice).
(e) Labor. No work stoppage or labor strike against the Company
is pending or, to the best knowledge of the Company, threatened. Except as set
forth in Schedule 2.20(k), the Company is not involved in or, to the knowledge
of the Company, threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would result in a
Material Adverse Effect to the Company. To the best of the Company's knowledge,
neither the Company nor any of its subsidiaries has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act which would
directly or indirectly result in any liability to the Company. Except as set
forth in Schedule 2.20(k), the Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
2.12 Employees. To the best of the Company's knowledge, no employee of
the Company (i) is in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be employed by
the Company because of the nature of the business conducted or presently
proposed to be conducted by the Company or to the use of trade secrets or
proprietary information of others and (ii) has given notice to the Company, nor
is the Company otherwise aware, that any employee intends to terminate his or
her employment with the Company.
2.13 Governmental Authorization. The Company possesses all material
consents, licenses, permits, grants or other authorizations issued to the
Company by a governmental entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest
(herein collectively called "Company Authorizations"), which Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
2.14 Third Party Consents. Except as set forth on Schedule 2.23, no
consent or approval is needed from any person or entity in order for the Company
to consummate any of the transactions contemplated by this Agreement.
2.15 Accounting. To its knowledge, neither the Company nor any of its
officers, directors or shareholders has taken any action or is aware of any
event likely to occur which would interfere with Parent's ability to account for
the Merger as a pooling of interests.
2.16 Representations Complete. To the best of the Company's knowledge,
none of the representations or warranties made by the Company (as modified by
the Company Schedules), nor any
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<PAGE> 16
statement made in any Schedule or certificate furnished by the Company pursuant
to this Agreement, or furnished in or in connection with documents mailed or
delivered to the shareholders of the Company in connection with soliciting their
consent to this Agreement and the Merger, contains or will contain at the
Effective Time, any untrue statement of a material fact, or omits or will omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
As used in this Agreement, knowledge as used with respect to the Company
(including references to such person being aware of a particular matter) shall
mean the personal knowledge after due inquiry of Don Ratliff, President and CEO;
William Nulty, Vice President of U.S. Products; Jaymie Sexton, Vice President of
Marketing and Alliances; Mark Rainosek, Chief Financial Officer; Manuel Pachano,
Vice President of Consulting; and Greg Quinet, Vice President of Business
Development.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing, or its equivalent, under the
laws of The Netherlands. Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
Parent and Merger Sub has the corporate power to own its properties and to carry
on its business as now being conducted.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
3.3 Parent Capital Structure.
(a) The authorized stock of Parent consists of 700,000,000 Common
Shares, of which approximately 198,800,000 shares were issued and outstanding as
of June 30, 1998. Parent has reserved (i) 40,000,000 Common Shares for issuance
pursuant to Parent's 1993 Stock Plan, of which as of June 30, 1998 options for
approximately 23,240,000 shares were outstanding and 3,934,000 shares remained
available for future grant, (ii) 4,000,000 Common Shares for issuance pursuant
to Parent's
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<PAGE> 17
1993 Employee Stock Purchase Plan, (iii) 1,600,000 Common Shares for issuance
pursuant to the 1995 Director Option Plan, (iv) approximately 8,714,000 Common
Shares for issuance upon conversion of convertible subordinated notes, and (v)
2,500,000 Common Shares for issuance pursuant to this Agreement.
(b) The Parent Common Shares, when issued in accordance with the
terms and provisions of this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable.
3.4 SEC Documents; Parent Financial Statements. Parent has timely filed
all SEC documents required to be filed by Parent under the Securities and the
Exchange Act. Parent has furnished or made available to the Company true and
correct copies of its Annual Report on Form 20-F for the year ended December 31,
1997, and its Quarterly Reports on Form 6-K for the quarters ended March 31,
1998 and June 30, 1998, each as filed with the SEC under the Exchange Act (all
of the foregoing being collectively referred to as the "SEC Documents"). As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act and the Exchange Act, and
the applicable rules and regulations of the SEC thereunder, as the case may be,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC prior to the date hereof and delivered to the
Company. The financial statements of Parent, including the notes thereto,
included in the SEC Documents and any other financial statements filed with the
SEC after the date of this Agreement and until the Effective Date (the "Parent
Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, were prepared in accordance with generally
accepted accounting principles consistently applied (except as may be indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q or Form 6-K of the SEC) and present fairly the consolidated financial
position of Parent at the dates thereof and of its operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal,
recurring audit adjustments which will not be material in amount or
significance). There has been no change in Parent accounting policies except as
described in the notes to the Parent Financial Statements.
3.5 No Conflict. Neither the execution and delivery of this Agreement by
Parent, nor the consummation by Parent of the transactions contemplated hereby,
nor compliance by Parent with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of Parent's Articles of Association,
(ii) constitute or result in a default under, or require any consent pursuant
to, or result in the creation of any lien on any material asset of any Parent
under, any contract or permit of Parent, where such default or lien, or any
failure to obtain such consent, is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Parent and its subsidiaries, taken
as a whole or (iii) subject to receipt of the requisite consents referred to in
Section 3.6, constitute or result in a default under, or require any consent
pursuant to, any law or order applicable to Parent or any of its respective
material assets.
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<PAGE> 18
3.6 No Consents Required. Other than in connection or compliance with
the provisions of applicable U.S. federal and Dutch securities laws, applicable
state corporate and securities laws, and rules of the NASD and Amsterdam Stock
Exchange, and other than consents required from regulatory authorities, and
other than potential notices to and filing with the Dutch Merger Committee and
relevant Dutch trade unions, and other than notices to or filings with the
Internal Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, or under the Hart-Scott-Rodino Act, no
notice to, filing with, or consent of, any public body or authority is necessary
for the consummation by Parent of the Merger and the other transactions
contemplated in this Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any materially negative event related to the Company
or its business. Except as expressly contemplated by this Agreement or disclosed
in Schedule 4.1, the Company shall not, without the prior written consent of
Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products of the Company, other than any such
marketing, distribution and similar agreements in the ordinary course of
business which in any event (i) have a term not exceeding one year or are
terminable on notice from the Company of not more than 90 days (in each case
without penalty to the Company), and (ii) do not convey exclusive rights.
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
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<PAGE> 19
(e) Commence any litigation, except as is deemed necessary by the
Company to protect and defend the Company's Intellectual Property Rights (in
which case the Company shall give prompt notice to Parent of its intent to
commence such action and shall (subject to attorney-client privilege
requirements) keep Parent reasonably informed of all material activity in such
litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(g) Except for the issuance of shares of Company Common Stock
upon exercise or conversion of presently outstanding Company Options or the
grant of stock options to new employees pursuant to outstanding written offers
of employment, issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(m) Subject to the provisions of Section 4.3 below, adopt or
amend any employee benefit plan, or enter into any employment contract, extend
employment offers, pay or agree to pay any special bonus or special remuneration
to any director or employee, or increase the salaries or wage rates of its
employees;
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(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $50,000
in any one case or 100,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements
(or the notes thereto) or that arose in the ordinary course of business
subsequent to August 31, 1998;
(p) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(q) Take any action, including the acceleration of vesting of any
options, warrants, restricted stock or other rights to acquire shares of the
capital stock of the Company which would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests or any
other action that would jeopardize the tax-free reorganization hereunder;
(r) Enter into any strategic alliance, joint development or joint
marketing agreement; or
(s) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (r) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, initiate, entertain or encourage any proposals
or offers from, or conduct discussions with or engage in negotiations with, any
person, relating to, any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its Subsidiaries, (b)
provide information with respect to it to any person, other than Parent,
relating to, or otherwise cooperate with, facilitate or encourage any effort or
attempt by any such person with regard to, any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company or any of
its subsidiaries, (c) enter into an agreement with any person, other than
Parent, providing for the acquisition of the Company or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its or their capital stock or assets or any
equity interest in the Company or any of its subsidiaries, or (d) make or
authorize any statement, recommendation or
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solicitation in support of any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries, by any
person, other than by Parent. The Company shall immediately cease and cause to
be terminated any such contracts or negotiations with third parties relating to
any such transaction or proposed transaction. In addition to the foregoing, if
the Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company shall
immediately notify Parent thereof, including information as to the identity of
the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Parent may reasonably request. Except as contemplated by this
Agreement, disclosure by the Company of the terms hereof (other than the
prohibition of this section) shall be deemed to be a violation of this Section
4.2.
4.3 Conduct of Parent and Merger Sub. Except as expressly contemplated
by this Agreement, Parent shall not, without the prior written consent of the
Company, take or agree in writing to take any action that would prevent Parent
from performing or cause Parent not to perform its covenants hereunder in any
material respect.
4.4 Employee Hiring. As soon as practicable after the date of this
Agreement and in any event not later than ten (10) business days after such
date, the Chief Executive Officer of the Company and the Vice President Human
Resources of Parent will use best efforts to agree upon the guidelines within
which the Company will proceed with recruitment, compensation and equity
participation of new and existing employees.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Issuance of Parent Common Shares; Registration.
(a) The Parent Common Shares to be issued pursuant to the Merger
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon exemptions from registration provided by
Rule 506 and/or Section 4(2) under the Securities Act. The certificates for
shares of Parent Common Shares to be issued pursuant to the Merger shall bear
appropriate legends to identify such shares as being "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act and to comply with
applicable state securities laws. The Parent Common Shares being offered and
sold pursuant to this Agreement in reliance upon such exemptions from
registration is based in part upon the representations of each shareholder of
the Company contained in the Shareholder Agreement attached hereto as Exhibit A.
(b) On or before December 1, 1998, Parent shall file a
registration statement on Form F-3 to register the Parent Common Shares issued
pursuant to the Merger. Parent will, at its
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expense (excluding any broker fees and commissions), use its best efforts to
have such registration statement become and remain effective from the day before
the lapse of the restrictions on resale of Parent Common Shares imposed by
qualifying the Merger for pooling-of interests accounting treatment pursuant to
SEC Accounting Series Release Nos. 130 and 135 ("ASR 130 and 135") until the
first annual anniversary of the date of this Agreement. Such registration shall
be subject to the terms and conditions set forth in the Shareholder Agreement
attached hereto as Exhibit A.
5.2 Stockholder Approval. As promptly as practicable after the execution
of this Agreement, the Company shall submit this Agreement and the transactions
contemplated hereby to its shareholders for approval and adoption as provided by
Georgia Law and its Articles of Incorporation and Bylaws. The Company shall use
its best efforts to solicit and obtain the consent of its shareholders
sufficient to approve the Merger and this Agreement and to enable the Closing to
occur as promptly as practicable. The materials submitted to the Company's
shareholders shall be subject to review and approval by Parent and include
information regarding the Company, the terms of the Merger and this Agreement
and the recommendation of the Board of Directors of the Company in favor of the
Merger and this Agreement.
5.3 Access to Company Information. Subject to any applicable contractual
confidentiality obligations (which the Company shall use its best efforts to
cause to be waived), Company shall afford to Parent and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (a) all of its properties, books,
contracts, agreements and records, and (b) all other information concerning the
business, properties and personnel (subject to restrictions imposed by
applicable law) of Company as may reasonably request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.4 Confidentiality. Parent hereby agrees to maintain the
confidentiality of the information obtained in any investigation pursuant to
Section 5.3, or pursuant to the negotiation of this Agreement, in accordance
with the provisions of the Agreement dated June 23, 1998 between Parent and
Broadview Associates LLC (the "Non-disclosure Agreement").
5.5 Expenses. If the Merger is not consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties ("Third-Party Expenses") incurred by a party in connection with
the negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby, shall be the obligation of the
respective party incurring such fees and expenses. If the Merger is consummated,
Parent shall pay all of the reasonable Third Party Expenses incurred by the
Company.
5.6 Public Disclosure. No disclosure (whether or not in response to an
inquiry) of the existence or nature of this Agreement shall be made by any party
hereto unless approved by duly authorized officers of both Parent and the
Company prior to release, provided that such approval shall
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<PAGE> 23
not be unreasonably withheld and subject in any event to Parent's obligation to
comply with applicable securities law and stock exchange regulations.
5.7 Consents. The Company shall use its reasonable efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules) so as to preserve all rights of, and benefits to the
Company thereunder.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.10 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent or Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time except as
contemplated by their Agreement (including the Company Schedules) and (ii) any
failure of the Company or Parent, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.10 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.11 Pooling Accounting; Tax Free Reorganization. Parent and the Company
shall each use its reasonable efforts to cause the business combination to be
effected by the Merger to be accounted for as a pooling of interests and as a
tax-free organization within the meaning of Section 368 of the Code. Each of
Parent and the Company shall use its reasonable efforts to cause its respective
employees, directors, shareholders and affiliates not to take any action that
would adversely affect the ability of Parent to account for the business
combination to be effected by the Merger as a pooling of interests and as a
tax-free reorganization. Neither Parent nor the Company shall take any action,
including, for example, the acceleration of vesting of any options, warrants,
restricted stock or other rights to acquire
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shares of the capital stock of the Company or any disposition or transfer of
assets or business of the Company or of its outstanding stock following the
Merger which reasonably would be expected to (i) interfere with Parent's ability
to account for the Merger as a pooling of interests or (ii) jeopardize the
tax-free nature of the reorganization hereunder.
5.12 Affiliate Agreement. Schedule 5.12 sets forth those persons who, in
the Company's reasonable judgment, are "affiliates" of the Company within the
meaning of Rule 145 (each such person an "Affiliate") promulgated under the
Securities Act ("Rule 145") and who hold common stock of the Company. The
Company shall provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company has
delivered or shall cause to be delivered to Parent, concurrently with the
execution of this Agreement, from Company's Affiliates, an executed Affiliate
Agreement in the form attached hereto as Exhibit B. Parent shall be entitled to
place appropriate legends on the certificates evidencing any Parent Common
Shares to be received by Affiliates of the Company pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for Parent Common Shares, consistent with the terms of such Affiliate
Agreement.
5.13 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.14 Voting Agreements. Concurrently with the execution of this
Agreement, the persons and entities listed in the preamble to Exhibit C hereto
shall execute Voting Agreements in the form attached hereto as Exhibit C (the
"Voting Agreements"), agreeing, among other things, to vote in favor of the
Merger and against any competing proposals.
5.15 Blue Sky Laws. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Shares pursuant hereto. The
Company shall use its best efforts to assist Parent as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Shares pursuant
hereto.
5.16 Secretary's Certificate. Upon the signing of this Agreement, the
Secretary of the Company shall deliver a certificate in form and substance
acceptable to counsel to Parent certifying that resolutions of the Board of
Directors of the Company were duly adopted by written consent authorizing and
ratifying the transactions contemplated by this Agreement, and certifying the
verity and correctness of such resolutions as adopted by the Board of Directors
of the Company. Such certificates also certify that such resolutions have not
been amended or modified, and all such resolutions are in full force and effect.
5.17 Hart-Scott-Rodino Filings. Each of Parent and Company shall, if
required, promptly make its filings under the HSR Act and shall make any
required submissions under the HSR Act with
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respect to the Merger, and shall cooperate with respect to the foregoing. Parent
and Company shall give prior notice and consult prior to any meeting Company or
Parent has with the United States Federal Trade Commission or Department of
Justice with respect to the filings of Company and Parent under the HSR Act or
any review by either of the foregoing agencies. Each of Parent and Company
agrees to use its best efforts to cause the condition to closing referred to in
Section 6.1(d) to be met and agrees to take all reasonable steps necessary to
obtain early termination of the waiting period under the HSR Act.
5.18 Directors' and Officers' Indemnification.
(a) The Company shall, to the fullest extent permitted under
Georgia law and regardless of whether the Merger becomes effective, indemnify
and hold harmless, and, after the Effective Time, Parent and the Surviving
Corporation shall, to the fullest extent permitted under applicable law,
indemnify and hold harmless, each present and former director or officer of the
Company and each such person who served at the request of the Company as a
director, officer, trustee, partner, fiduciary, employee or agent of any other
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or enterprise (collectively, the "Indemnified Parties") against all
costs and expenses (including reasonable attorney fees), judgments, fines,
losses, claims, damages, liabilities and settlement amounts paid in connection
with any claim, action, suit, proceeding or investigation arising out of or
pertaining to any action or omission in their capacity as an officer or
director, in each case occurring before the Effective Time.
(b) Parent shall pay the expenses (including attorney's fees)
incurred by a director or officer of the Company entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 5.18 in advance of its final disposition; provided, however, that
payment of expenses incurred by a director or officer of the Company in advance
of the final disposition of such action, suit or proceeding shall be made only
upon receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 5.18 or otherwise.
(c) The provisions of this Section 5.18 are intended to be for
the benefit of and shall be enforceable by, each Indemnified Party and their
respective heirs and representatives.
5.19 Past Service Credit. Parent shall grant the Company's employees
past service credit for each employee's respective period of service with the
Company prior to the Effective Date for purposes of eligibility and vesting
under each of Parent's employee benefit plans.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
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(a) Shareholder Approval. This Agreement and the Merger shall
have been approved and adopted by the shareholders of the Company by the
requisite vote under applicable law and the Company's Articles of Incorporation.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(c) Tax Opinions. Parent and the Company shall each have received
substantially identical written opinions from their respective counsel, Wilson
Sonsini Goodrich & Rosati, Professional Corporation, and Alston & Bird LLP,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. The parties to this Agreement agree to make, and to
use reasonable efforts to cause their shareholders to make, reasonable
representations as requested by such counsel for the purpose of rendering such
opinions.
(d) Hart-Scott-Rodino Compliance. All applicable waiting periods
under the HSR Act shall have expired or early termination shall have been
granted by either the Federal Trade Commission or the United States Department
of Justice.
6.2 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing, except for changes
contemplated by this Agreement (including the Company Schedules) and except for
those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), with the
same force and effect as if made on and as of the Effective Time, except, in all
such cases, for such breaches, inaccuracies or omissions of such representations
and warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on the Company or Parent; provided, however, that a
Material Adverse Effect shall not be deemed to exist due solely to the impact of
any reduction in or termination of orders from new or old customers,
distributors or resellers, following the announcement of the Merger, that result
primarily from customer uncertainty regarding the potential impact of the
proposed Merger and Parent and Merger Sub shall have received a certificate to
such effect signed on behalf of the Company by the Chief Executive Officer of
the Company.
(b) Agreements and Covenants. Subject to Section 8.1(d), the
Company shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time, and Parent and
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Merger Sub shall have received a certificate to such effect signed by the Chief
Executive Officer of the Company.
(c) Third-Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the material consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. Parent shall have received a legal opinion
from Alston & Bird LLP, legal counsel to the Company, in substantially the form
attached hereto as Exhibit E.
(e) Opinion of Accountants. Parent shall have received a letter
from Pricewaterhouse Coopers reaffirming that firm's written concurrence as to
the appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if consummated in accordance with
this Agreement.
(f) Affiliate Agreements. Each of the parties identified by the
Company as being one of its Affiliates shall have delivered an executed
Affiliate Agreement which shall be in full force and effect.
(g) Material Adverse Change. Since August 31, 1998 no event shall
have occurred that would constitute a Material Adverse Effect to the Company;
provided, however, that a Material Adverse Effect shall not be deemed to exist
due solely to the impact of any reduction in or termination of orders from new
or old customers, distributors or resellers, following the announcement of the
Merger, that result primarily from customer uncertainty regarding the potential
impact of the proposed Merger.
(h) Dissenters' Rights. Holders of no more than 5% of the
outstanding shares of Company Common Stock shall have exercised or shall have
any continued right to exercise appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(i) Employment Agreements. Each of the persons listed on Schedule
6.2(i)(A) and Schedule 6.2(i)(B) shall have executed and delivered to Parent
employment and non-competition agreements in substantially the form of Exhibit F
or Exhibit G, respectively, attached hereto and all of such agreements shall be
in full force and effect.
(j) Financial Statements. The Company shall have completed the
audit of its financial statements for the year ended June 30, 1998 and shall
have provided such audited financial statements to Parent at least three (3)
days prior to Closing.
(k) 401(k) Plan. The Company shall have terminated its 401(k)
Plan.
6.3 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the
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satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject to
Parent's or Merger Sub's ability to cure as provided in Section 8.1(f) below) in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Effective
Time, and the Company shall have received a certificate to such effect signed by
a duly authorized officer of Parent.
(c) Legal Opinion. The Company shall have received a legal
opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel
to Parent, in substantially the form attached hereto as Exhibit D.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m. New York time, on June 30, 1999
(the "Expiration Date").
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time the Company's shareholders
will be deemed to have received and consented to the deposit with the Escrow
Agent (as defined below) of the Escrow Amount (plus any additional shares as may
be issued upon any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time) pursuant to the Escrow Agreement attached
hereto as Exhibit H, without any act required on the part of any shareholder. As
soon as practicable after the Effective Time, the Escrow Amount, without any act
required on the part of any shareholder, will be deposited with an escrow agent
acceptable to Parent and the Securityholder Agent (as defined in Section
7.2(h)(i) below) as Escrow Agent (the "Escrow Agent"), such deposit to
constitute an escrow
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fund (the "Escrow Fund") to be governed by the terms set forth herein and at
Parent's cost and expense. The portion of the Escrow Amount contributed on
behalf of each shareholder of the Company shall be in proportion to the
aggregate Parent Common Shares which such holder would otherwise be entitled
under Section 1.6(a). The Escrow Amount shall be contributed entirely out of the
shares of Parent Common Shares issuable upon the Merger in respect of Company
Common Stock. The Escrow Fund shall be available to compensate Parent and its
affiliates for any claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses, and expenses of
investigation and defense (hereinafter individually a "Loss" and collectively
"Losses") incurred by Parent, its officers, directors, or affiliates (including
the Surviving Corporation) directly or indirectly as a result of any inaccuracy
or breach of a representation or warranty of the Company contained in Article II
herein (as modified by the Company Schedules), or any failure by the Company to
perform or comply with any covenant contained herein; provided, however, that
the Escrow Fund shall not be available after the date of the first audit of
financial statements containing combined operations of Parent and the Company
for those contingencies that would be expected to be encountered in the audit
process. Parent and the Company each acknowledge that such Losses, if any, would
relate to unasserted contingent liabilities existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
aggregate Merger consideration. Subject to Section 8.5 below, nothing herein
shall limit the liability of the Company for any breach of any representation,
warranty or covenant if the Merger does not close. Parent may not receive any
shares from the Escrow Fund unless and until Officer's Certificates (as defined
in paragraph (d) below) identifying Losses, the aggregate amount of which exceed
$300,000, have been delivered to the Escrow Agent as provided in paragraph (e);
in such case, Parent may recover from the Escrow Fund its Losses in excess of
the first $300,000.
(b) Limitation on Amount of Loss. The amount of recovery
available to Parent and its affiliates for any Loss hereunder shall be reduced
by any insurance proceeds received as a result of any such Loss.
(c) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate on the
Expiration Date (the "Escrow Period"); provided that the Escrow Period shall not
terminate with respect to such amount (or some portion thereof), that together
with the aggregate amount remaining in the Escrow Fund is necessary to satisfy
any unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period and to the extent specified in any Officer's
Certificate delivered to the Escrow Agent prior to termination of such Escrow
Period. As soon as all such claims have been resolved, the Escrow Agent shall
transfer to the shareholders of the Company, pursuant to written instructions by
Parent, the remaining portion of the Escrow Fund not required to satisfy such
claims subject to the restriction that, if any of the shares in escrow are
subject to a repurchase right in favor of the Company, upon termination of
services to the Company, then such shares shall not be distributed to the
shareholder but in lieu thereof shall (to the extent not already repurchased in
the event of prior termination of services) be delivered to the appropriate
escrow agent who is authorized to hold such shares for the benefit of the
Company in the event of a future termination of services to the Company. Unless
and until the Escrow Agent shall have received from Parent written notice that
some or all of the Escrow Shares are subject to a repurchase
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right in favor of the Company, the Escrow Agent may assume without inquiry that
no repurchase rights exist. Deliveries of Escrow Amounts to the shareholders of
the Company pursuant to this Section 7.2(c) shall be made in proportion to their
respective original contributions to the Escrow Fund.
(d) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the
Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Shares or other
equity securities and any cash dividends issued or distributed by Parent
(including shares issued upon a stock split) ("New Shares") in respect of Parent
Common Shares in the Escrow Fund which have not been released from the Escrow
Fund as of the time of such issuance or distribution by Parent, such New Shares
shall be deemed distributed to and received by the shareholders but such
shareholders have consented that such New Shares and cash dividends shall be
added to the Escrow Fund and become a part thereof. New Shares and cash
dividends issued in respect of shares of Parent Common Shares which have been
released from the Escrow Fund as of the time of such issuance or distribution by
Parent shall not be added to the Escrow Fund but shall be distributed to the
recordholders thereof.
(iii) Each shareholder shall be entitled to control
the vote of the shares of Parent Common Shares contributed to the Escrow Fund by
such shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Shares), and the Escrow Agent in whose
name the shares are held shall vote such shares on all matters as instructed in
writing by the Securityholder Agent.
(e) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on
or before the last day of the Escrow Period of a certificate signed by any
officer of Parent (an "Officer's Certificate"): (A) stating that Parent has paid
or properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 7.2(f) hereof and
to any written notice it may have received from Parent setting forth
restrictions on transfer imposed by the Dutch Civil Code and Parent's Articles
of Association, on which written notice the Escrow Agent may rely without
inquiry and with which, to the extent reasonably practicable, the Escrow Agent
shall comply, cause the transfer agent of Parent Company Stock to transfer to
Parent out of the Escrow Fund, as promptly as practicable, shares of Parent
Common Shares held in the Escrow Fund in an amount equal to such Losses.
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(ii) For the purposes of determining the number of
shares of Parent Common Shares to be delivered to Parent out of the Escrow Fund
pursuant to Section 7.2(e)(i) hereof, the shares of Parent Common Shares shall
be valued at the average closing price of Parent's Common Stock for the ten (10)
consecutive trading days ending on the trading day immediately prior to the
Closing Date, as reported on the Nasdaq National Market. Parent and the
Securityholder Agent shall certify such fair market value in a certificate
signed by both Parent and the Securityholder Agent, and shall deliver such
certificate to the Escrow Agent, who may rely on it without inquiry.
(f) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Securityholder Agent and for a period of twenty (20)
days after receipt of an Officer's Certificate by the Escrow Agent, the Escrow
Agent shall make no transfer to Parent of any Escrow Amounts pursuant to Section
7.2(e) hereof unless the Escrow Agent shall have received written authorization
from the Securityholder Agent to make such transfer. After the expiration of
such twenty (20) day period, the Escrow Agent shall cause the transfer agent of
Parent Company Stock to transfer shares of Parent Common Shares from the Escrow
Fund in accordance with Section 7.2(e) hereof, provided that no such transfer
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such twenty (20) day
period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall object
in writing to any claim or claims made in any Officer's Certificate as provided
in Section 7.2(f) hereof, the Securityholder Agent and Parent shall attempt in
good faith to agree upon the rights of the respective parties with respect to
each of such claims. If the Securityholder Agent and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and distribute shares of Parent Common
Shares from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either Parent or the Securityholder Agent may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
three arbitrators. Parent and the Securityholder Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys fees and
costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority
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of the three arbitrators as to the validity and amount of any claim in such
Officer's Certificate shall be binding and conclusive upon the parties to this
Agreement, and notwithstanding anything in Section 7.2(f) hereof, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith. Such decision
shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Reston, Virginia under the rules then in effect of
the American Arbitration Association. For purposes of this Section 7.2(g), in
any arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Parent shall be deemed to be the Prevailing
Party in the event that the arbitrators award Parent an amount equal to at least
the sum of one-half (1/2) of the disputed amount plus any amounts not in
dispute; otherwise, the shareholders of the Company as represented by the
Securityholder Agent shall be deemed to be the Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative costs of the arbitration, and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
(h) Securityholder Agent of the Shareholders; Power of Attorney.
(i) In the event that the Merger is approved,
effective upon such vote, and without further act of any shareholder, H. Donald
Ratliff shall be appointed as agent and attorney-in-fact (the "Securityholder
Agent") for each shareholder of the Company (except such shareholders, if any,
as shall have perfected their appraisal or dissenters' rights under Georgia
Law), for and on behalf of shareholders of the Company, to give and receive
notices and communications, to authorize delivery to Parent of shares of Parent
Common Shares from the Escrow Fund in satisfaction of claims by Parent, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of Securityholder Agent for the
accomplishment of the foregoing. Such agency may be changed by the shareholders
of the Company from time to time upon not less than thirty (30) days prior
written notice to Parent; provided that the Securityholder Agent may not be
removed unless holders of a two-thirds interest of the Escrow Fund agree to such
removal and to the identity of the substituted agent. Any vacancy in the
position of Securityholder Agent may be filled by approval of the holders of a
majority in interest of the Escrow Fund. No bond shall be required of the
Securityholder Agent, and the Securityholder Agent shall not receive
compensation for his or her services. Notices or communications to or from the
Securityholder Agent shall constitute notice to or from each of the shareholders
of the Company.
(ii) The Securityholder Agent shall not be liable
for any act done or omitted hereunder as Securityholder Agent while acting in a
manner he believes in good faith to be in the best interests of the corporation.
The shareholders of the Company on whose behalf the Escrow Amount was
contributed to the Escrow Fund shall severally indemnify the Securityholder
Agent and hold the Securityholder Agent harmless against any loss, liability or
expense incurred without gross negligence
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or bad faith on the part of the Securityholder Agent and arising out of or in
connection with the acceptance or administration of the Securityholder Agent's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Securityholder Agent.
(i) Actions of the Securityholder Agent. A decision, act, consent
or instruction of the Securityholder Agent shall constitute a decision of all
the shareholders for whom a portion of the Escrow Amount otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such shareholders, and the Escrow Agent and Parent may rely upon
any such decision, act, consent or instruction of the Securityholder Agent as
being the decision, act, consent or instruction of each every such shareholder
of the Company. The Escrow Agent and Parent are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Securityholder Agent.
(j) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall promptly notify the Securityholder Agent of such claim
in accordance with Section 7.2(f), and the Securityholder Agent, as
representative for the shareholders of the Company, shall be entitled, at their
expense, to participate in any defense of such claim. Parent shall have the
right in its sole discretion to settle any such claim; provided, however, that
except with the consent of the Securityholder Agent, no settlement of any such
claim with third-party claimants shall permit any claim against the Escrow Fund.
In the event that the Securityholder Agent has consented to any such settlement
and acknowledged that the claim is a valid claim against the Escrow Fund, the
Securityholder Agent shall be deemed to have agreed to the claim by Parent
against the Escrow Fund in an amount equal to such settlement. In the event, the
claimed amount is less than the then available escrow, the Securityholder Agent,
as representative for the shareholders of the Company, at his election, can
control the litigation; provided, however, if such claim relates to the business
operations of the Company then Parent shall control the litigation of such
claim.
(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for
the performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly
authorized to disregard any and all warnings given by any of the parties hereto
or by any other person, excepting only orders or process of courts of law, and
is hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other
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person by reason of such compliance, notwithstanding any such order, judgment or
decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement,
the Escrow Agent shall not be liable to any party for damages, losses, or
expenses, except for gross negligence or willful misconduct on the part of the
Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any
act or failure to act made or omitted in good faith, or (B) any action taken or
omitted in reliance upon any instrument, including any written statement of
affidavit provided for in this Agreement that the Escrow Agent shall in good
faith believe to be genuine, nor will the Escrow Agent be liable or responsible
for forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Agreement and
shall be fully protected in any act taken, suffered, or permitted by him/her in
good faith in accordance with the advice of counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties
to this Agreement, or with any other party, concerning the subject matter of
this Agreement, its terms or conditions, the Escrow Agent will not be required
to determine the controversy or to take any action regarding it. The Escrow
Agent may hold all documents and shares of Parent Common Shares and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of Parent Common Shares held in
escrow, except all cost, expenses, charges and reasonable attorney fees incurred
by the Escrow Agent due to the interpleader action and which the parties jointly
and severally agree to pay. Upon initiating such action, the Escrow Agent shall
be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
(vii) The parties and their respective successors
and assigns agree jointly and severally to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages,
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<PAGE> 35
liabilities, and expenses, including reasonable costs of investigation, counsel
fees, and disbursements that may be imposed on Escrow Agent or incurred by
Escrow Agent in connection with the performance of his/her/its duties under this
Agreement, including but not limited to any litigation arising from this
Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days' written notice to the parties; provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent which shall be accomplished as follows: the parties
shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the States of California or Massachusetts. The successor escrow agent shall
execute and deliver an instrument accepting such appointment and it shall,
without further acts, be vested with all the estates, properties, rights,
powers, and duties of the predecessor escrow agent as if originally named as
escrow agent. The Escrow Agent shall be discharged from any further duties and
liability under this Agreement.
(l) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated by Parent for such extraordinary services and
reimbursed for all costs, attorney's fees, and expenses occasioned by such
default, delay, controversy or litigation.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by October 31, 1998 (provided that the right to terminate this
Agreement under this clause 8.1(b)(i) shall not be available to any party whose
failure to fulfill any obligation hereunder has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date); (ii)
there shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger; or (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed
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<PAGE> 36
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate, as
a result of the Merger, any material portion of the business or assets of the
Company or Parent;;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set forth in Section
6.2(a) or 6.2(b), as the case may be, would not then be satisfied; provided,
however, that if such breach is curable by the Company within twenty (20) days
after receipt of written notice from Parent of such breach through the exercise
of its reasonable best efforts, then for so long as the Company continues to
exercise such reasonable best efforts Parent may not terminate this Agreement
under this Section 8.1(d) unless such breach is not cured within twenty (20)
days (but no cure period shall be required for a breach which by its nature
cannot be cured);
(e) by Parent if the required approvals of the shareholders of
Company contemplated by this Agreement shall not have been obtained by reason of
the failure to obtain the required vote upon a vote taken at a meeting of
shareholders duly convened therefor or at any adjournment thereof; or
(f) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub and as a result of such breach the conditions
set forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Parent or Merger
Sub within twenty (20) days after receipt of written notice from the Company of
such breach through the exercise of its reasonable best efforts, then for so
long as Parent or Merger Sub continues to exercise such reasonable best efforts
the Company may not terminate this Agreement under this Section 8.1(f) unless
such breach is not cured within twenty (20) days (but no cure period shall be
required for a breach which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and,
except as set forth in Section 8.5, there shall be no liability or obligation on
the part of Parent, Merger Sub or the Company, or their respective officers,
directors or shareholders, provided that each party shall remain liable for any
uncured, willful breaches of this Agreement prior to its termination; and
provided further that, the provisions of Sections
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<PAGE> 37
5.3 and 5.4 and Article VIII of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after
the shareholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
8.5 Termination Payment.
(a) If (i) Parent terminates this Agreement pursuant to Sections
8.1(d), (ii) the Company terminates this Agreement pursuant to Section 8.1(f),
or (iii) Parent terminates this Agreement pursuant to Section 8.1(b)(i),
following failure by the shareholders of the Company to approve the Merger, then
the other party shall promptly pay the terminating party, for the anticipated
transaction expenses and opportunity cost of the terminating party, the sum of
$100,000; or
(b) If (i) Parent terminates this Agreement pursuant to Sections
8.1(d) following breach by the Company under Section 4.2, or any willful breach
by the Company of any of its material representations, warranties, covenants or
agreements contained in this Agreement,
and (ii) the Company enters into an agreement with respect to a Control
Transaction (other than with Parent or its affiliates) at any time prior to
March 31, 1999, then the Company shall in addition pay to Parent an amount equal
to 50% of the excess, if any, of the Effective Purchase Price in such Control
Transaction over $80 million.
For the purposes hereof, (a) a "Control Transaction" shall mean
any acquisition of effective control of the Company, whether by way of merger,
purchase of all or substantially all of the assets of the Company, purchase of a
majority of the outstanding equity of the Company, or otherwise, and (b)
"Effective Purchase Price" shall mean the sum of (i) the cash, market value of
marketable equity securities or interests, fair value of unmarketable equity
securities or interests, face amount of straight and convertible debt
instruments or obligations issued or issuable to the Company or its shareholders
in connection with an acquisition, (ii) in a sale of assets the amount of net
indebtedness (i.e., total borrowed debt minus the cash and cash equivalents) of
the Company assumed by the acquiring person, and (iii) the fair market value of
future payment obligations arising in connection with the transaction.
Consideration shall be determined at the time an acquisition is consummated;
provided, however, that if the acquisition shall be a result of the acquisition
of less than all of the securities, assets or businesses
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<PAGE> 38
of the Company or shall occur as the result of a combination or series of
transactions, then the total consideration shall be determined as of the closing
date of the transaction wherein control of the Company has been acquired and
shall be determined as if the Company were being acquired in the entirety as of
such time in an amount equal to the product of (x) the sum of any and all
consideration previously paid in respect of the assets or equity of the Company
and the consideration then payable, times (y) a fraction, the numerator of which
100% and the denominator of which is the percentage of the Company the Company's
equity or assets purchased through such date.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing, shall be effective when received, and shall in any event be deemed to
have been received (i) when delivered, if delivered personally or by commercial
delivery service, (ii) five (5) business days after deposit with U.S. Mail, if
mailed by registered or certified mail (return receipt requested), (iii) one (1)
business day after the business day of deposit with Federal Express or similar
overnight courier for next day delivery (or, two (2) business days after such
deposit if deposited for second business day delivery), if delivered by such
means, or (iv) one (1) business day after delivery by facsimile transmission
with copy by U.S. Mail, if sent via facsimile plus mail copy (with
acknowledgment of complete transmission), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Merger Sub, to:
Baan Company N.V.
11911 Freedom Drive, Suite 300
Reston, Virginia 20190-5602
Attention: General Counsel and Secretary of the Board
Telephone No.: (703) 471-8785
Facsimile No.: (703) 471-8786
with a copy to:
Susanne Hereford
Baan U.S.A. Inc.
2350 Mission College Boulevard, #1300
Santa Clara, California 95054
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<PAGE> 39
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Mark A. Bertelsen, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to:
CAPS Logistics Inc.
2700 Cumberland Parkway
Atlanta, Georgia 30339-3369
Attention: H. Donald Ratliff, President & CEO
Telephone No.: (770) 432-9955
Facsimile No.: (770) 438-9630
with a copy to:
Alston & Bird LLP
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: George M. Maxwell, Jr., Esq.
Telephone No.: (404) 881-7570
Facsimile No.: (404) 881-7777
(c) if to the Securityholder Agent:
H. Donald Ratliff
780 Riley Place NW
Atlanta, GA 30327
(d) if to the Escrow Agent:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, MA 02110
Attention: Corporate Trust Department
(1998 Baan Company, N.V./CAPS Logistics Inc. Escrow)
Telephone No.: (617) 664-5646
Facsimile No.: (617) 664-5374
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<PAGE> 40
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is made herein to
"the business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement. This Agreement, the schedules and Exhibits hereto,
and the documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; and (b) are not intended to confer upon any other person
any rights or remedies hereunder. Notwithstanding the preceding sentence, the
Non-disclosure Agreement shall survive the execution of this Agreement, the
schedules and Exhibits hereto, and the documents and instruments and other
agreements among the parties hereto referenced herein.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
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<PAGE> 41
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof;
provided that issues involving the corporate governance or relating to the issue
and/or transfer of shares of any of the parties hereto shall be governed by
their respective jurisdictions of incorporation. Each of the parties hereto
agrees that process may be served upon them in any manner authorized by the laws
of the State of Delaware for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction and
such process.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the of the other party. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
9.11 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner of any party hereto or any other person or entity
unless specifically provided otherwise herein.
9.12 Waiver of Jury Trial. Each of Parent, Company and Merger Sub hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of Parent, Company or Merger Sub in
the negotiation, administration, performance and enforcement hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized respective officers, all as of the date first
written above.
BAAN COMPANY N.V.
By:
-----------------------------------
Amal Johnson
Managing Director
CAPS LOGISTICS INC.
By: /s/ H. DONALD RATLIFF
------------------------------------
H. Donald Ratliff
President and Chief Executive Officer
ORANGE SOFTWARE CORPORATION
By: /s/ AMAL JOHNSON
-----------------------------------
Amal Johnson
President
SECURITYHOLDER AGENT
/s/ H. DONALD RATLIFF
---------------------------------------
H. Donald Ratliff
***REORGANIZATION AGREEMENT***
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<PAGE> 43
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
BAAN COMPANY N.V.
ORANGE SOFTWARE CORPORATION
AND
CAPS LOGISTICS INC.
DATED AS OF SEPTEMBER 23, 1998
<PAGE> 44
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Exhibit A Form of Shareholder Agreement
Exhibit B Form of Company Affiliate Agreement
Exhibit C Form of Voting Agreement
Exhibit D Form of Legal Opinion of Counsel to Parent
Exhibit E Form of Legal Opinion of Counsel to the Company
Exhibit F Form of Employment Agreement (Shareholder)
Exhibit G Form of Employment Agreement (Non-Shareholder)
Exhibit H Form of Escrow Agreement
</TABLE>
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<PAGE> 45
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
2.2 Shareholder List
2.3 Subsidiaries
2.4 Governmental and Third-Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictions of Business Activities
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Intellectual Property Licenses
2.12(a) Agreements, Contracts and Commitments
2.12(b) Top Customer Agreements
2.12(c) Breaches
2.13 Interested Party Transactions
2.15 Litigation
2.19 Expenses of Transaction
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(i) Effect of Transaction; Excess Parachute Payments
2.20(k) Labor
2.23 Third-Party Consents
4.1 Conduct of the Business
5.12 Company Affiliate List
6.2(c) Third-Party Consents Required of the Company
6.2(i) Management Employees
</TABLE>
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<PAGE> 46
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER............................................................................2
1.1 The Merger........................................................................2
1.2 Effective Time....................................................................2
1.3 Effect of the Merger..............................................................2
1.4 Articles of Incorporation; Bylaws.................................................2
1.5 Directors and Officers............................................................2
1.6 Shares to Be Issued; Effect on Common Stock.......................................3
1.7 Unvested Company Common Stock.....................................................4
1.8 Dissenting Shares.................................................................4
1.9 Surrender of Certificates.........................................................5
1.10 No Further Ownership Rights in Company Common Stock...............................6
1.11 Lost, Stolen or Destroyed Certificates............................................6
1.12 Tax and Accounting Consequences...................................................7
1.13 Taking of Necessary Action; Further Action........................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY .......................................7
2.1 Organization of the Company.......................................................7
2.2 Company Capital Structure.........................................................7
2.3 Subsidiaries......................................................................8
2.4 Authority.........................................................................8
2.5 Company Financial Statements......................................................9
2.6 No Undisclosed Liabilities........................................................9
2.7 No Changes........................................................................9
2.8 Tax and Other Returns and Reports................................................11
2.9 Restrictions on Business Activities..............................................12
2.10 Title to Properties; Absence of Liens and Encumbrances...........................12
2.11 Intellectual Property............................................................13
2.12 Agreements, Contracts and Commitments............................................14
2.13 Interested Party Transactions....................................................16
2.14 Compliance with Laws.............................................................16
2.15 Litigation.......................................................................16
2.16 Insurance........................................................................16
2.17 Minute Books.....................................................................16
2.18 Environmental Matters............................................................17
2.19 Brokers' and Finders' Fees; Third-Party Expenses.................................17
2.20 Employee Matters and Benefit Plans...............................................18
2.21 Employees........................................................................21
</TABLE>
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<PAGE> 47
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.22 Governmental Authorization.......................................................21
2.23 Third Party Consents.............................................................21
2.24 Accounting.......................................................................21
2.25 Representations Complete.........................................................21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............................22
3.1 Organization, Standing and Power.................................................22
3.2 Authority........................................................................22
3.3 Parent Capital Structure.........................................................22
3.4 SEC Documents; Parent Financial Statements.......................................23
3.5 No Conflict......................................................................23
3.6 No Consents Required.............................................................23
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.................................................24
4.1 Conduct of Business of the Company...............................................24
4.2 No Solicitation..................................................................26
4.3 Conduct of Parent and Merger Sub.................................................27
4.4 Employee Hiring..................................................................27
ARTICLE V ADDITIONAL AGREEMENTS................................................................27
5.1 Issuance of Parent Common Shares; Registration...................................27
5.2 Stockholder Approval.............................................................28
5.3 Access to Company Information....................................................28
5.4 Confidentiality..................................................................28
5.5 Expenses.........................................................................28
5.6 Public Disclosure................................................................28
5.7 Consents.........................................................................28
5.8 FIRPTA Compliance................................................................29
5.9 Reasonable Efforts...............................................................29
5.10 Notification of Certain Matters..................................................29
5.11 Pooling Accounting; Tax Free Reorganization......................................29
5.12 Affiliate Agreement..............................................................29
5.13 Additional Documents and Further Assurances......................................30
5.14 Voting Agreements................................................................30
5.15 Blue Sky Laws....................................................................30
</TABLE>
-ii-
<PAGE> 48
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.16 Secretary's Certificate..........................................................30
5.17 Hart-Scott-Rodino Filings........................................................30
5.18 Directors' and Officers' Indemnification.........................................30
5.19 Past Service Credit..............................................................31
ARTICLE VI CONDITIONS TO THE MERGER............................................................31
6.1 Conditions to Obligations of Each Party to Effect the Merger.....................31
6.2 Additional Conditions to the Obligations of Parent and Merger Sub................32
6.3 Additional Conditions to Obligations of the Company..............................33
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.................................34
7.1 Survival of Representations and Warranties.......................................34
7.2 Escrow Arrangements..............................................................34
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................................40
8.1 Termination......................................................................40
8.2 Effect of Termination............................................................42
8.3 Amendment........................................................................42
8.4 Extension; Waiver................................................................42
8.5 Termination Payment..............................................................42
ARTICLE IX GENERAL PROVISIONS..................................................................43
9.1 Notices..........................................................................43
9.2 Interpretation...................................................................45
9.3 Counterparts.....................................................................45
9.4 Entire Agreement.................................................................45
9.5 Severability.....................................................................45
9.6 Other Remedies...................................................................45
9.7 Specific Performance.............................................................45
9.8 Governing Law....................................................................46
9.9 Rules of Construction............................................................46
9.10 Assignment.......................................................................46
9.11 Absence of Third Party Beneficiary Rights........................................46
9.12 Waiver of Jury Trial.............................................................46
</TABLE>
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<PAGE> 49
ESCROW AGREEMENT
This Escrow Agreement is made as of this 23rd day of September 1998
(the "Agreement"), by and among State Street Bank and Trust Company ("Escrow
Agent"), Baan Company, N.V., a corporation incorporated in The Netherlands
("Parent"), CAPS Logistics Inc., a Georgia corporation ("Company"), and H.
Donald Ratliff as agent of the Company shareholders ("Securityholder Agent").
Terms not otherwise defined herein shall have the meaning set forth in the
Reorganization Agreement (as defined below).
WITNESSETH
WHEREAS, Parent, Company and Orange Software Corporation, a Delaware
corporation and wholly owned subsidiary of Parent ("Merger Sub"), have entered
into an Agreement and Plan of Reorganization dated as of September 23, 1998 (the
"Reorganization Agreement"), providing for the merger of Merger Sub with and
into Company (the "Merger"); and
WHEREAS, pursuant to Article VII of the Reorganization Agreement, a
copy of which is attached hereto as Annex A ("Article VII"), an escrow fund (the
"Escrow Fund") will be established to compensate Parent for certain Losses (as
defined in Article VII) it may incur by reason of any inaccuracy or breach of
the representations and warranties contained in Article II of the Reorganization
Agreement or any failure by Company to perform or comply with any covenants
contained in the Reorganization Agreement; and
WHEREAS, the Securityholder Agent has been constituted as agent for and
on behalf of the Company shareholders (individually a "Shareholder" and
collectively the "Shareholders") to undertake certain obligations specified in
Article VII; and
WHEREAS, Article I, Section 1.6 of the Reorganization Agreement
provides for an Escrow Fund of 250,000 shares of the Parent Common Stock upon
the Merger, such escrow to be held by the Escrow Agent; and
WHEREAS, the parties hereto desire to set forth further terms and
condition in addition to those set forth in the Reorganization Agreement
relating to the operation of the Escrow Fund.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound, hereby agree as
follows:
1. Escrow and Escrow Shares. Pursuant to the Reorganization Agreement,
Parent shall deposit in escrow with the Escrow Agent, as escrow agent, a stock
certificate or certificates representing 250,000 shares of Parent Common Stock
(the "Escrow Shares") which shall be registered in the name of the Escrow Agent
as nominee for the beneficial owners of such shares. The Escrow Shares shall be
held and distributed by the Escrow Agent in accordance with the terms and
conditions of Article VII and this Agreement. The number of Escrow Shares
beneficially owned by each Shareholder and the percentage of each Shareholder in
the Escrow Fund are set forth in Annex B attached hereto.
<PAGE> 50
2. Rights and Obligations of the Parties. The Escrow Agent shall be
entitled to such rights and shall perform such duties of the escrow agent as set
forth herein and in Article VII (collectively, the "Duties"), in accordance with
the terms and conditions of this Agreement and Article VII. Parent, Company and
the Securityholder Agent shall be entitled to their respective rights and shall
perform their respective duties and obligations as set forth herein and in
Article VII, in accordance with the terms hereof and thereof. In the event that
the terms of this Agreement conflict in any way with the provisions of Article
VII, Article VII shall control.
3. Escrow Period. The period of time during which the Escrow Fund shall
be in existence (the "Escrow Period") shall commence immediately following the
Effective Time, which shall be set forth in a certificate of the Parent
delivered to the Escrow Agent, and shall terminate at 5:00 p.m., New York time,
June 30, 1999; provided, however, that a portion of the Escrow Shares, which is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to termination of
the Escrow Period with respect to facts and circumstances existing prior to
expiration of the Escrow Period shall remain in the Escrow Fund until such
claims have been resolved.
4. Duties of Escrow Agent. In addition to the Duties set forth in
Article VII, the Duties of the Escrow Agent shall include the following:
a. The Escrow Agent shall hold and safeguard the Escrow Shares
during the Escrow Period, shall treat the Escrow Fund as a trust fund in
accordance with the terms of this Agreement and Article VII and not as the
property of Parent or the Shareholders, and shall hold and dispose of the Escrow
Shares only in accordance with the terms hereof.
b. The Escrow Shares shall be voted by the Escrow Agent on behalf
of the Shareholders in accordance with the written instruction received by the
Escrow Agent from the Securityholder Agent. In the absence of such written
instructions, received by the Escrow Agent at least five business days prior to
the date on which such shares must be voted, the Escrow Agent need not vote such
shares. Nothing in this Agreement shall require the Escrow Agent to furnish to
the Shareholders copies of any proxy or other materials addressed by Parent to
its stockholders.
c. Promptly following termination of the Escrow Period as set
forth in Section 3 hereof, the Escrow Agent shall requisition from the stock
transfer agent of Parent, if necessary, and deliver to, or cause such stock
transfer agent to deliver to, the Shareholders the proper number of Escrow
Shares and other property in the Escrow Fund in excess of any amount of such
Escrow Shares or other property required to satisfy any unsatisfied claims
specified in any Officer's Certificate (as defined in Section 7.2(e) of the
Reorganization Agreement) theretofore delivered to the Escrow Agent prior to
termination of the Escrow Period with respect to facts and circumstances
existing prior to expiration of the Escrow Period, and to pay expenses as
provided in Section 11.b hereof. As soon as all such claims have been finally
resolved, the Escrow Agent shall deliver to, or cause such stock transfer agent
to deliver to, such Shareholders at their addresses set forth in Annex B all of
the Escrow Shares and other property remaining in the Escrow Fund and not
required to satisfy such claims and expenses. Each
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<PAGE> 51
Shareholder shall receive a pro rata portion of Escrow Shares (and cash in lieu
payments when appropriate) available for distribution in accordance with such
Shareholder's percentage interest in the Escrow Fund set forth in Annex B.
d. To the extent directed to do so in writing by the
Securityholder Agent, the Escrow Agent shall sell shares of Parent Common Stock
held in the Escrow Fund and shall apply the proceeds of such sale to pay
expenses incurred by the Securityholder Agent on behalf of the Shareholders as
provided in Section 11.b hereof.
e. In making any distribution of Parent Common Stock pursuant to
the terms of this Section 4 or Section 5, the Escrow Agent shall round down (if
necessary) to a whole number of shares and pay to each Shareholder, as
appropriate, from funds provided by Parent, cash (calculated in the manner
specified in Section 1.6(f) of the Reorganization Agreement for fractional
shares) in lieu of the fractional interests not distributed. Any shares for
which Parent has provided cash in lieu payments shall be distributed to Parent,
which shall be deemed to have purchased them.
f. The Escrow Agent need not invest any cash which may be on hand
from time to time in the Escrow Fund.
5. Distribution. Any cash dividends, dividends payable in securities or
other distributions of any kind (but excluding any shares of Parent capital
stock received upon a stock split) shall be promptly distributed by the Escrow
Agent to (and for tax reporting purposes shall be allocable to) the Shareholders
at their addresses and in accordance with their percentage interests in the
Escrow Fund set forth in Annex B. Any shares of Parent Common Stock received by
the Escrow Agent upon a stock split made in respect of any securities in the
Escrow Fund shall be added to the Escrow Fund and become a part thereof. Any
provision hereof or of Article VII shall be adjusted to appropriately reflect
any stock split or reverse stock split. Parent shall give written notice to the
Escrow Agent of any stock split or reverse stock split and shall provide a
revised version of Annex B reflecting such action. Unless and until the Escrow
Agent shall have received such notice and revised version of Annex B, on both of
which the Escrow Agent may rely without inquiry, the Escrow Agent shall not be
deemed to have knowledge of any stock split or reverse stock split and may
assume without inquiry that the most recent Annex B it has received remains in
effect.
6. Exculpatory Provisions; Indemnification.
a. The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein, as are set forth in Article
VII of the Reorganization Agreement and as are set forth in any additional
written escrow instructions, which instructions shall not expose Escrow Agent to
any liability additional to that assumed by Escrow Agent hereunder or under
Article VII of the Reorganization Agreement, which the Escrow Agent may receive
after the date of this Agreement which are signed by an officer of Parent and
the Securityholder Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall
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not be liable for any act done or omitted hereunder as Escrow Agent while acting
in good faith and in the exercise of reasonable judgment, and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of such
good faith.
b. The Escrow Agent is hereby expressly authorized to comply with
and obey orders, judgments or decrees of any court of law, notwithstanding any
notices, warnings or other communications from any party or any other person to
the contrary. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
c. The Escrow Agent shall not be liable in any respect on account
of the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
d. The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
e. In performing any duties under or in connection with this
Agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for gross negligence or willful misconduct on the
part of the Escrow Agent. The Escrow Agent shall not incur any such liability
for (A) any act or failure to act made or omitted in good faith, or (B) any
action taken or omitted in reliance upon any instrument, including any written
statement or affidavit provided for in this Agreement that the Escrow Agent
shall in good faith believe to be genuine, nor will the Escrow Agent be liable
or responsible for punitive, special or consequential damages or for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under or in connection with this Agreement and shall
be fully protected in any act taken, suffered, or permitted by him/her in good
faith in accordance with the advice of counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
f. If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, and at the expense of the Escrow Fund, file an action
of interpleader requiring the parties to answer and litigate any claims and
rights among
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themselves. The Escrow Agent is authorized to deposit with the clerk of the
court all documents and shares of Parent Common Stock held in escrow, except all
cost, expenses, charges and reasonable attorney fees incurred by the Escrow
Agent due to the interpleader action and which the parties jointly and severally
agree to pay. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by the
terms of this Agreement.
g. Parent and its respective successors and assigns agree jointly
and severally to indemnify and hold Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable costs
of investigation, counsel fees, and disbursements that may be imposed on Escrow
Agent or incurred by Escrow Agent in connection with the performance of its
duties under or in connection with this Agreement, including but not limited to
any litigation arising from or in connection with this Agreement or involving
its subject matter.
h. Parent agrees to assume any and all obligations imposed now or
hereafter by any applicable tax law with respect to the payment of Escrow Fund
under this Agreement, and to indemnify and hold the Escrow Agent harmless from
and against any taxes, additions for late payment, interest, penalties and other
expenses, that may be assessed against the Escrow Agent on any such payment or
other activities under this Agreement. Parent undertakes to instruct the Escrow
Agent in writing with respect to the Escrow Agent's responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting in connection with its acting as
Escrow Agent under this Agreement. Parent agrees to indemnify and hold the
Escrow Agent harmless from any liability on account of taxes, assessments or
other governmental charges, including without limitation the withholding or
deduction or the failure to withhold or deduct same, and any liability for
failure to obtain proper certifications or to properly report to governmental
authorities, to which the Escrow Agent may be or become subject in connection
with or which arises out of this Agreement, including costs and expenses
(including reasonable legal fees), interest and penalties. Parent and the
Securityholder Agent, on behalf of all of the Shareholders, jointly agree to
provide the Escrow Agent with certified tax identification numbers for each of
them by furnishing appropriate forms W-9 (or Forms W-8, in the case of non-U.S.
persons) and other forms and documents that the Escrow Agent may reasonably
request (collectively, "Tax Reporting Documentation") to the Escrow Agent within
30 days after the date hereof. The parties hereto understand that, if such Tax
Reporting Documentation is not so certified to the Escrow Agent, the Escrow
Agent may be required by the Internal Revenue Code, as it may be amended from
time to time, to withhold a portion of any interest or other income, if any,
earned on the investment of monies or other property held by the Escrow Agent
pursuant to this Agreement. The Escrow Agent need not make any distribution of
all or any portion of the Escrow Shares or any other property held by the Escrow
Agent to any person until such person has furnished to the Escrow Agent such Tax
Reporting Documentation as the Escrow Agent may reasonably require.
i. The Escrow Agent shall have no more or less responsibility or
liability on account of any action or omission of any book-entry depository or
subescrow agent employed by the Escrow Agent than any such book-entry depository
or subescrow agent has to the Escrow Agent, except to the extent that such
action or omission of any book-entry depository or subescrow agent was caused by
the Escrow Agent's own gross negligence or bad faith.
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<PAGE> 54
j. Any action or direction of the Securityholder Agent delivered
to the Escrow Agent pursuant to any provision of this Agreement shall be
executed by the Securityholder Agent.
7. Alteration of Duties. The Duties may be altered, amended, modified
or revoked only by a writing signed by all of the parties hereto.
8. Resignation and Removal of the Escrow Agent. The Escrow Agent may
resign at any time upon giving at least thirty (30) days' written notice to the
parties; provided, however, that no such resignation shall become effective
until the appointment of a successor escrow agent which shall be accomplished as
follows: the parties shall use their best efforts to mutually agree on a
successor escrow agent within thirty (30) days after receiving such notice. If
the parties fail to agree upon a successor escrow agent within such time, the
Escrow Agent shall have the right to appoint a successor escrow agent authorized
to do business in the States of California or Massachusetts. The successor
escrow agent shall execute and deliver an instrument accepting such appointment
and it shall, without further acts, be vested with all the estates, properties,
rights, powers, and duties of the predecessor escrow agent as if originally
named as escrow agent. The Escrow Agent shall be discharged from any further
duties and liability under this Agreement.
9. Further Instruments. If the Escrow Agent reasonably requires other
or further instruments in connection with performance of the Duties, the
necessary parties hereto shall join in furnishing such instruments.
10. Disputes. It is understood and agreed that should any dispute arise
with respect to the delivery, ownership, right of possession, and/or disposition
of the Escrow Shares, or should any claim be made upon such shares by a third
party, the Escrow Agent upon receipt of written notice of such dispute or claim
by the parties hereto or by a third party, is authorized and directed to retain
in its possession without liability to anyone, all or any of said shares until
such dispute shall have been settled in accordance with the procedures set forth
in Section 7.2(f) of the Reorganization Agreement. The Escrow Agent may, but
shall be under no duty whatsoever to, institute or defend any legal proceedings
which relate to the Escrow Shares.
11. Escrow Fees and Expenses.
a. Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
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<PAGE> 55
b. Any out-of-pocket fees and expenses described in a certificate
of the Securityholder Agent delivered to the Escrow Agent as having been
incurred by the Securityholder Agent shall be paid by the Escrow Agent out of
the proceeds of sales of Parent Common Stock otherwise distributable to the
Shareholders, but shall not reduce any payment or distribution to Parent.
Accordingly, the Escrow Agent need not make any distribution to the
Securityholder Agent until (i) it has first set aside or paid any amounts set
forth in an Officer's Certificate of Parent delivered to the Escrow Agent
pursuant to Section 7.2(d) of the Reorganization Agreement and (ii) it would
otherwise make a distribution to the Shareholders.
12. General.
a. Any notice permitted or required hereunder shall be in writing
and shall be deemed to have been given if delivered personally or if mail
certified or registered mail, postage prepaid, to the parties at their address
set forth below or to such other address as they may hereafter designate:
To Parent:
Baan Company, N.V.
1191 Freedom Drive, Suite 300
Reston, Virginia 20190-5602
Attention: General Counsel and Secretary of the Board.
Telephone No.: (703) 471-8785
Facsimile No.: (703) 471-8786
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Mark Bertelsen, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
To Securityholder Agent:
H. Donald Ratliff
780 Riley Place NW
Atlanta, GA 30327
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<PAGE> 56
With a copy to:
Alston & Bird LLP
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: George M. Maxwell, Jr., Esq.
Telephone No.: (404) 881-7570
Facsimile No.: (404) 881-7777
To the Escrow Agent:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, MA 02110
Attention: Corporate Trust Department
(1998 Baan Company, N.V./CAPS Logistics Inc. Escrow)
Telephone No.: (617) 664-5646
Facsimile No.: (617) 664-5374
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above. Notwithstanding the foregoing, notices
addressed to the Escrow Agent shall be effective only upon receipt.
b. Neither Parent nor the Securityholder Agent nor the Escrow
Agent shall be responsible for delays or failures in performance resulting from
acts beyond its control. Such acts shall include but not be limited to acts of
God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations
superimposed after the fact, fire, communication line failures, computer
viruses, power failures, earthquakes or other disasters.
c. The Officer's Certificate as defined in Article VII shall be
signed by the President, Vice President, Chief Financial Officer, Managing
Director or the General Counsel of Parent.
d. The captions in this Escrow Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Escrow Agreement.
e. This Escrow Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
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<PAGE> 57
f. No party may, without the prior express written consent of
each other party, assign this Escrow Agreement in whole or in part, except that
no consent shall be required for assignment by Company to Parent following the
Effective Time (as defined in the Reorganization Agreement). This Escrow
Agreement shall be binding upon the respective parties hereto and their heirs,
executors, successors and assigns.
g. This Escrow Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts as applied to
contracts made and to be performed entirely within The Commonwealth of
Massachusetts. The parties to this Escrow Agreement hereby submit to the
personal jurisdiction of The Commonwealth of Massachusetts.
h. This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications which may hereafter
be executed, and (b) certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
optical disk, micro-card, miniature photographic or other similar process. The
parties agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
i. This Agreement may not be altered or modified except by
writing executed by each of the parties hereto, nor shall the conduct of the
parties constitute a waiver of any of the terms and conditions of this Escrow
Agreement, unless such waiver is specified in writing, and then only to the
extent so specified. A waiver of any of the terms and conditions of this Escrow
Agreement on one occasion shall not constitute a waiver of the other terms of
this Escrow Agreement, or of such terms and conditions on any other occasion.
j. From time to time, the Securityholder Agreement may amend the
address of the Shareholders set forth in Annex B by delivering a written change
of address notice to the Escrow Agent. Unless and until the Escrow Agent shall
have received such notice, it may assume without inquiry that the last address
of a Shareholder of which it has notice remains in effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 58
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
STATE STREET BANK AND TRUST COMPANY
AS ESCROW AGENT
By /s/ E. DECKER ADAMS
--------------------------------------------
Name: E. Decker Adams
Title: Vice President
BAAN COMPANY, N.V.
By /s/ AMAL JOHNSON
--------------------------------------------
Name: Amal Johnson
Title: Managing Director
CAPS LOGISTICS INC.
By /s/ H. DONALD RATLIFF
--------------------------------------------
Name: H. Donald Ratliff
Title: President and Chief Executive Officer
SECURITYHOLDER AGENT
/s/ H. DONALD RATLIFF
------------------------------------------------
Name: H. Donald Ratliff
[SIGNATURE PAGE TO ESCROW AGREEMENT]
<PAGE> 59
ANNEX A
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m. New York time, on June 30, 1999
(the "Expiration Date").
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time the Company's shareholders
will be deemed to have received and consented to the deposit with the Escrow
Agent (as defined below) of the Escrow Amount (plus any additional shares as may
be issued upon any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time) pursuant to the Escrow Agreement attached
hereto as Exhibit H, without any act required on the part of any shareholder. As
soon as practicable after the Effective Time, the Escrow Amount, without any act
required on the part of any shareholder, will be deposited with an escrow agent
acceptable to Parent and the Securityholder Agent (as defined in Section
7.2(h)(i) below) as Escrow Agent (the "Escrow Agent"), such deposit to
constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
forth herein and at Parent's cost and expense. The portion of the Escrow Amount
contributed on behalf of each shareholder of the Company shall be in proportion
to the aggregate Parent Common Shares which such holder would otherwise be
entitled under Section 1.6(a). The Escrow Amount shall be contributed entirely
out of the shares of Parent Common Shares issuable upon the Merger in respect of
Company Common Stock. The Escrow Fund shall be available to compensate Parent
and its affiliates for any claims, losses, liabilities, damages, deficiencies,
costs and expenses, including reasonable attorneys' fees and expenses, and
expenses of investigation and defense (hereinafter individually a "Loss" and
collectively "Losses") incurred by Parent, its officers, directors, or
affiliates (including the Surviving Corporation) directly or indirectly as a
result of any inaccuracy or breach of a representation or warranty of the
Company contained in Article II herein (as modified by the Company Schedules),
or any failure by the Company to perform or comply with any covenant contained
herein; provided, however, that the Escrow Fund shall not be available after the
date of the first audit of financial statements containing combined operations
of Parent and the Company for those contingencies that would be expected to be
encountered in the audit process. Parent and the Company each acknowledge that
such Losses, if any, would relate to unasserted contingent liabilities existing
at the Effective Time, which if resolved at the Effective Time would have led to
a reduction in the aggregate Merger consideration. Subject to Section 8.5 below,
nothing herein shall limit the liability of the Company for any breach of any
representation, warranty or covenant if the Merger does not close. Parent may
not receive any shares from the Escrow Fund unless and until Officer's
Certificates (as defined in paragraph (d) below) identifying Losses, the
aggregate amount of which exceed $300,000, have been delivered to the Escrow
Agent as provided in paragraph (e); in such case, Parent may recover from the
Escrow Fund its Losses in excess of the first $300,000.
<PAGE> 60
(b) Limitation on Amount of Loss. The amount of recovery
available to Parent and its affiliates for any Loss hereunder shall be reduced
by any insurance proceeds received as a result of any such Loss.
(c) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate on the
Expiration Date (the "Escrow Period"); provided that the Escrow Period shall not
terminate with respect to such amount (or some portion thereof), that together
with the aggregate amount remaining in the Escrow Fund is necessary to satisfy
any unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period and to the extent specified in any Officer's
Certificate delivered to the Escrow Agent prior to termination of such Escrow
Period. As soon as all such claims have been resolved, the Escrow Agent shall
transfer to the shareholders of the Company, pursuant to written instructions by
Parent, the remaining portion of the Escrow Fund not required to satisfy such
claims subject to the restriction that, if any of the shares in escrow are
subject to a repurchase right in favor of the Company, upon termination of
services to the Company, then such shares shall not be distributed to the
shareholder but in lieu thereof shall (to the extent not already repurchased in
the event of prior termination of services) be delivered to the appropriate
escrow agent who is authorized to hold such shares for the benefit of the
Company in the event of a future termination of services to the Company. Unless
and until the Escrow Agent shall have received from Parent written notice that
some or all of the Escrow Shares are subject to a repurchase right in favor of
the Company, the Escrow Agent may assume without inquiry that no repurchase
rights exist. Deliveries of Escrow Amounts to the shareholders of the Company
pursuant to this Section 7.2(c) shall be made in proportion to their respective
original contributions to the Escrow Fund.
(d) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Shares or other equity
securities and any cash dividends issued or distributed by Parent (including
shares issued upon a stock split) ("New Shares") in respect of Parent Common
Shares in the Escrow Fund which have not been released from the Escrow Fund as
of the time of such issuance or distribution by Parent, such New Shares shall be
deemed distributed to and received by the shareholders but such shareholders
have consented that such New Shares and cash dividends shall be added to the
Escrow Fund and become a part thereof. New Shares and cash dividends issued in
respect of shares of Parent Common Shares which have been released from the
Escrow Fund as of the time of such issuance or distribution by Parent shall not
be added to the Escrow Fund but shall be distributed to the recordholders
thereof.
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(iii) Each shareholder shall be entitled to control the
vote of the shares of Parent Common Shares contributed to the Escrow Fund by
such shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Shares), and the Escrow Agent in whose
name the shares are held shall vote such shares on all matters as instructed in
writing by the Securityholder Agent.
(e) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of Parent (an "Officer's Certificate"): (A) stating that Parent has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 7.2(f) hereof and
to any written notice it may have received from Parent setting forth
restrictions on transfer imposed by the Dutch Civil Code and Parent's Articles
of Association, on which written notice the Escrow Agent may rely without
inquiry and with which, to the extent reasonably practicable, the Escrow Agent
shall comply, cause the transfer agent of Parent Company Stock to transfer to
Parent out of the Escrow Fund, as promptly as practicable, shares of Parent
Common Shares held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares
of Parent Common Shares to be delivered to Parent out of the Escrow Fund
pursuant to Section 7.2(e)(i) hereof, the shares of Parent Common Shares shall
be valued at the average closing price of Parent's Common Stock for the ten (10)
consecutive trading days ending on the trading day immediately prior to the
Closing Date, as reported on the Nasdaq National Market. Parent and the
Securityholder Agent shall certify such fair market value in a certificate
signed by both Parent and the Securityholder Agent, and shall deliver such
certificate to the Escrow Agent, who may rely on it without inquiry.
(f) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Securityholder Agent and for a period of twenty (20)
days after receipt of an Officer's Certificate by the Escrow Agent, the Escrow
Agent shall make no transfer to Parent of any Escrow Amounts pursuant to Section
7.2(e) hereof unless the Escrow Agent shall have received written authorization
from the Securityholder Agent to make such transfer. After the expiration of
such twenty (20) day period, the Escrow Agent shall cause the transfer agent of
Parent Company Stock to transfer shares of Parent Common Shares from the Escrow
Fund in accordance with Section 7.2(e) hereof, provided that no such transfer
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such twenty (20) day
period.
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<PAGE> 62
(g) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall object in
writing to any claim or claims made in any Officer's Certificate as provided in
Section 7.2(f) hereof, the Securityholder Agent and Parent shall attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such claims. If the Securityholder Agent and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and distribute shares of Parent Common
Shares from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by three
arbitrators. Parent and the Securityholder Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys fees and
costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(f) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Reston, Virginia under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.2(g), in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Parent shall be deemed to be the Prevailing Party in
the event that the arbitrators award Parent an amount equal to at least the sum
of one-half (1/2) of the disputed amount plus any amounts not in dispute;
otherwise, the shareholders of the Company as represented by the Securityholder
Agent shall be deemed to be the Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the arbitration, and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party to
the arbitration.
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<PAGE> 63
(h) Securityholder Agent of the Shareholders; Power of Attorney.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any shareholder, H. Donald Ratliff
shall be appointed as agent and attorney-in-fact (the "Securityholder Agent")
for each shareholder of the Company (except such shareholders, if any, as shall
have perfected their appraisal or dissenters' rights under Georgia Law), for and
on behalf of shareholders of the Company, to give and receive notices and
communications, to authorize delivery to Parent of shares of Parent Common
Shares from the Escrow Fund in satisfaction of claims by Parent, to object to
such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the shareholders of the Company
from time to time upon not less than thirty (30) days prior written notice to
Parent; provided that the Securityholder Agent may not be removed unless holders
of a two-thirds interest of the Escrow Fund agree to such removal and to the
identity of the substituted agent. Any vacancy in the position of Securityholder
Agent may be filled by approval of the holders of a majority in interest of the
Escrow Fund. No bond shall be required of the Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his or her services.
Notices or communications to or from the Securityholder Agent shall constitute
notice to or from each of the shareholders of the Company.
(ii) The Securityholder Agent shall not be liable for any
act done or omitted hereunder as Securityholder Agent while acting in a manner
he believes in good faith to be in the best interests of the corporation. The
shareholders of the Company on whose behalf the Escrow Amount was contributed to
the Escrow Fund shall severally indemnify the Securityholder Agent and hold the
Securityholder Agent harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Securityholder Agent
and arising out of or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agent.
(i) Actions of the Securityholder Agent. A decision, act, consent
or instruction of the Securityholder Agent shall constitute a decision of all
the shareholders for whom a portion of the Escrow Amount otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such shareholders, and the Escrow Agent and Parent may rely upon
any such decision, act, consent or instruction of the Securityholder Agent as
being the decision, act, consent or instruction of each every such shareholder
of the Company. The Escrow Agent and Parent are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Securityholder Agent.
(j) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall promptly notify the Securityholder Agent of such claim
in accordance with Section 7.2(f), and the Securityholder
A-5
<PAGE> 64
Agent, as representative for the shareholders of the Company, shall be entitled,
at their expense, to participate in any defense of such claim. Parent shall have
the right in its sole discretion to settle any such claim; provided, however,
that except with the consent of the Securityholder Agent, no settlement of any
such claim with third-party claimants shall permit any claim against the Escrow
Fund. In the event that the Securityholder Agent has consented to any such
settlement and acknowledged that the claim is a valid claim against the Escrow
Fund, the Securityholder Agent shall be deemed to have agreed to the claim by
Parent against the Escrow Fund in an amount equal to such settlement. In the
event, the claimed amount is less than the then available escrow, the
Securityholder Agent, as representative for the shareholders of the Company, at
his election, can control the litigation; provided, however, if such claim
relates to the business operations of the Company then Parent shall control the
litigation of such claim.
(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence
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<PAGE> 65
or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall
not incur any such liability for (A) any act or failure to act made or omitted
in good faith, or (B) any action taken or omitted in reliance upon any
instrument, including any written statement of affidavit provided for in this
Agreement that the Escrow Agent shall in good faith believe to be genuine, nor
will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Shares and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action
of interpleader requiring the parties to answer and litigate any claims and
rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of Parent Common Shares held in
escrow, except all cost, expenses, charges and reasonable attorney fees incurred
by the Escrow Agent due to the interpleader action and which the parties jointly
and severally agree to pay. Upon initiating such action, the Escrow Agent shall
be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of his/her/its duties under this Agreement, including but
not limited to any litigation arising from this Agreement or involving its
subject matter.
(viii) The Escrow Agent may resign at any time upon giving
at least thirty (30) days' written notice to the parties; provided, however,
that no such resignation shall become effective until the appointment of a
successor escrow agent which shall be accomplished as follows: the parties shall
use their best efforts to mutually agree on a successor escrow agent within
thirty (30) days after receiving such notice. If the parties fail to agree upon
a successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the States of
California or Massachusetts. The successor escrow agent shall execute and
deliver an instrument accepting such appointment and it shall, without further
acts, be vested with all the estates, properties, rights, powers, and duties of
the predecessor escrow agent
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<PAGE> 66
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(1) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated by Parent for such extraordinary services and
reimbursed for all costs, attorney's fees, and expenses occasioned by such
default, delay, controversy or litigation.
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<PAGE> 67
ANNEX B
<TABLE>
<CAPTION>
Shareholder's Name and Address Number of Shares in Escrow Percentage Interest in Escrow Fund
- ------------------------------ -------------------------- ----------------------------------
<S> <C> <C>
H. Donald Ratliff 129,500 51.80%
780 Riley Place NW
Atlanta, Georgia 30327
Frank Cullen 56,850 22.74%
442 Broadland Road NW
Atlanta, Georgia 30342
John Jarvis 56,850 22.74%
318 Crabapple Springs Way
Woodstock, Georgia 30188
William Nulty 6,800 2.72%
3760 Waterlilly Way
Marietta, Georgia 30062
TOTAL 250,000 100%
</TABLE>
<PAGE> 68
OFFICER'S CERTIFICATE
OF
BAAN COMPANY, N.V.
The undersigned, Amal Johnson, Managing Director of Baan Company, N.V.
("Baan"), a corporation incorporated in The Netherlands, pursuant to Section 3
of the Escrow Agreement dated as of September 29, 1998 (the "Escrow Agreement"),
among Baan, State Street Bank and Trust Company, CAPS Logistics Inc. ("CAPS
Logistics"), a Georgia corporation, and H. Donald Ratliff as agent of the CAPS
Logistics shareholders, does hereby certify as follows:
As used in the Escrow Agreement the term "Effective Time" means
September 29, 1998 at 3:15 pm New York time and the term "Closing Date" means
September 29, 1998.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
1st day of October 1998.
BAAN COMPANY, N.V.
By: ____________________________________
Amal Johnson
Managing Director
<PAGE> 69
FORM OF SHAREHOLDER AGREEMENT
THIS AGREEMENT is made and entered into as of September 23, 1998,
between Baan Company N.V., a corporation incorporated in The Netherlands
("Baan"), and the undersigned Shareholder (the "Shareholder") of CAPS Logistics
Inc. (the "Company"). All capitalized terms used and not otherwise defined
herein shall have the meanings given them in the Agreement and Plan of
Reorganization dated September 23, 1998 (the "Reorganization Agreement") entered
into by and among Baan, Merger Sub and the Company (the "Merger Agreement").
Each Shareholder of the Company (collectively, the "Shareholders") is entering
into this Agreement with the Company.
RECITALS:
Pursuant to the Merger Agreement, Baan will acquire from the
Shareholders all of the issued and outstanding Common Stock of the Company in
exchange for an aggregate of 2,500,000 Common Shares of Baan (the "Baan
Shares"). The Baan Shares to be so issued have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") in reliance upon the
exemptions from registration provided by Rule 506 and/or Section 4(2) of the
Securities Act, and accordingly such shares constitute "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act.
In consideration of the premises and the mutual representations,
warranties and covenants herein contained, the parties hereto have agreed and do
hereby agree as follows:
1. Restricted Shares; Legend.
1.1 Baan Shares. Shareholder will not make any sale, transfer or
other disposition of the Baan Shares, unless (i) there is in effect a
registration statement under the Securities Act covering the proposed transfer;
(ii) such proposed transfer is within the limitations of and in compliance with
the terms and provisions of Rule 144 under the Securities Act; or (ii) Baan
receives an unqualified written opinion of legal counsel addressed to Baan and
in form and substance reasonably satisfactory to Baan's counsel, to the effect
that the proposed transfer of Baan Shares may be effected without registration
under the Securities Act.
1.2 Each certificate for Baan Shares shall be stamped or
otherwise imprinted with a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SUCH SHARES MAY NOT BE SOLD, OFFERED
<PAGE> 70
-1-
FOR SALE, TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF,
DIRECTLY OR INDIRECTLY, EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (II) IN COMPLIANCE WITH
RULE 144 OR (III) PURSUANT TO AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE U.S.
SECURITIES ACT OF 1933."
1.3 In connection with the limitations on disposition with
respect to the Baan Shares contained in this Agreement, Baan will issue stop
transfer instructions to its transfer agent with respect to such shares.
1.4 Shareholder understands that Baan is under no obligation to
register the sale, transfer or other disposition of the Baan Shares, except as
specifically provided in this Agreement.
1.5 In connection with any sales by Shareholder of Baan Shares in
compliance with the limitations on disposition set forth in this Agreement, Baan
agrees to notify its transfer agent that the legend set forth in Section 1.2 may
be removed from such Baan Shares being sold by Shareholder at the time of such
sales.
2. Shareholder's Representations. Shareholder represents, warrants and
covenants to Baan that:
2.1 Shareholder understands that the Baan Shares to be issued
under the Merger Agreement have not been registered under the Securities Act on
the basis that the sale and issuance of securities thereunder is exempt from
such registration pursuant to the provisions of Rule 506 and/or Section 4(2)
under the Securities Act, and that Baan's reliance on such exemptions is based
on Shareholder's representations set forth herein.
2.2 The Baan Shares to be acquired by Shareholder will be
acquired for investment for Shareholder's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Shareholder further represents that Shareholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Baan Shares to be issued under the Merger Agreement.
2.3 Shareholder understands that the Baan Shares are "restricted
securities" within the meaning of Rule 144(a)(3) and that such shares may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering such shares or an available exemption
from registration under the Securities Act, such shares must be held
indefinitely.
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<PAGE> 71
2.4 Shareholder acknowledges that he is aware of Rule 144 under
the Securities Act, which permits limited public resales of "restricted
securities" subject to the satisfaction of certain conditions. Shareholder
understands that under Rule 144, except as otherwise provided by section (k) of
that Rule, the conditions include, among other things: the availability of
certain current public information about the issuer, the resale occurring not
less than one year after the party has purchased and paid for the securities to
be sold and limitations on the amount of securities to be sold and the manner of
sale. Shareholder acknowledges that in the event all of the requirements of Rule
144 are not met, registration under the Securities Act, or an exemption from
registration will be required for any disposition of the Baan Shares.
Shareholder understands that although Rule 144 is not exclusive, the Commission
has expressed its opinion that persons proposing to sell restricted securities
received other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
2.5 Shareholder has consulted his own legal and tax advisors
regarding the consequences of the transaction contemplated by the Merger
Agreement and acknowledges that he is not relying upon, nor has he received, any
legal or tax advice from Baan or its legal counsel or accountants.
2.6 Shareholder is aware of Baan's business and financial
condition and has sufficient information about Baan to reach an informed and
knowledgeable decision to acquire the Baan Shares in the transaction
contemplated by the Merger Agreement. Shareholder acknowledges he has previously
received copies of Baan's Annual Report on Form 20-F for the fiscal year ended
December 31, 1997, and its Quarterly Reports on Form 6-K for the three months
periods ending March 31, 1998 and June 30, 1998, and that he has had the
opportunity to receive additional information concerning Baan. Shareholder
further represents that he has had an opportunity to ask questions and receive
answers from Baan regarding the business and financial condition of Baan.
2.7 Shareholder agrees to complete and execute the Questionnaire
attached hereto as Exhibit A as promptly as possible after receipt from Baan of
the draft of the Form F-3 registration statement contemplated to be filed as set
forth in Section 4 of this Agreement, and in any case, prior to Baan's filing of
such Form F-3.
2.8 Shareholder represents and warrants that he does not, and
will not at closing of the transaction described herein, hold total assets worth
$10,000,000 or more as shown on his most recent regularly prepared balance sheet
prior to close (including unaudited statements) as defined by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the Rules promulgated thereunder, and therefore he is not a $10
million person under the HSR Act.
3. Transfers of Baan Shares. With respect to any disposition or
attempted disposition of any Baan Shares, Shareholder will comply with the
following procedure:
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<PAGE> 72
3.1 With respect to any sale of Baan Shares made pursuant to Rule
144, Shareholder will provide Baan with copies of appropriate documentation
evidencing compliance with Rule 144.
3.2 With respect to a proposed disposition of Baan Shares not
registered under the Securities Act and other than pursuant to Rule 144,
Shareholder will give prior written notice to Baan describing the manner and
circumstances of the proposed disposition in sufficient detail to enable Baan to
evaluate whether the proposed disposition of such shares satisfies the
requirements of the Securities Act and this Agreement. Upon receipt of such
written notice, Baan shall promptly notify Shareholder either (i) that the Baan
Shares may be disposed of in the manner and under the circumstances described,
or (ii) that on the basis of the information provided the Baan Shares may not be
disposed of prior to the receipt by Baan of an opinion of counsel reasonably
satisfactory to Baan and its counsel to the effect that the proposed disposition
of Baan Shares may be effected without registration under the Securities Act.
3.3 With respect to a disposition of Baan Shares registered under
the Securities Act, Shareholder will dispose of such Common Shares as provided
in the Form F-3 registration statement.
4. Registration Rights.
4.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(a) The term "Commission" means the Securities and
Exchange Commission;
(b) The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended;
(c) The term "Form F-3" means such form under the
Securities Act as in effect on the date hereof or any registration form under
the Securities Act subsequently adopted by the Commission which similarly
permits inclusion or incorporation of substantial information by reference to
other documents filed by Baan with the Commission;
(d) The terms "register", "registered" and
"registration" refer to preparing and filing a registration statement covering
the resale of the Baan Shares in compliance with the Securities Act and the
declaration or ordering of the effectiveness of such registration statement;
(e) The term "Registrable Securities" means the Baan
Shares issued to Shareholder pursuant to the Merger Agreement, and any other
Baan Common Shares issued in respect thereof by way of a stock dividend, stock
split, recapitalization or similar distribution; provided, however, that such
Common Shares shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery
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<PAGE> 73
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale;
(f) The term "Restricted Securities" means the Baan
Shares required to bear the legend set forth in Section 1.2 hereof; and
(g) The term "Securities Act" means the Securities Act
of 1933, as amended.
4.2 Registration on Form F-3. Baan hereby agrees that, subject to
Section 4.6 below, on or before December 1, 1998, Baan will file a registration
statement to register all of the Baan Shares issued to Shareholder (including
the Escrow Shares) pursuant to the Merger Agreement, use its best efforts to
have such registration statement become and remain effective from the day before
the lapse of the restrictions on resale of Parent Common Shares imposed by
qualifying the Merger for pooling-of-interests accounting treatment pursuant to
SEC Accounting Series Release Nos. 130 and 135 ("ASR 130 and 135") until the
first annual anniversary of the date of the Reorganization Agreement or until
Shareholder has informed Baan in writing that the distribution of such
securities has been completed; provided, however, that, Shareholder agrees, by
acquisition of the Baan Shares, that:
(a) Upon receipt of any notice from Baan of (i) the
happening of any event which makes any statements made in the registration
statement or related prospectus filed pursuant to this Section 4, or any
documents incorporated or deemed to be incorporated therein by reference, untrue
in any material respect or which requires the making of any changes in such
registration statement or prospectus so that, in the case of such registration
statement it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the prospectus, it
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (ii) that, in
the judgment of Baan's Board of Directors, it is advisable to suspend use of the
prospectus for a discrete period of time due to pending corporate developments,
public filings with the Commission or that there exists material nonpublic
information about Baan that the Board of Directors, acting in good faith,
determines not to disclose in a registration statement, then Shareholder will
forthwith discontinue, for a period not to exceed sixty (60) days (and one
hundred twenty (120) days in the aggregate), disposition of such Baan Shares
covered by such registration statement or prospectus until it is advised in
writing by Baan that use of the applicable prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such prospectus. Baan shall use its
reasonable efforts to insure that the use of the prospectus may be resumed as
soon as practicable.
(b) Shareholder shall provide all such information and
materials to Baan and take all such action as may be required in order to permit
Baan to comply with all applicable requirements of the Commission and to obtain
any desired acceleration of the effective date of such registration statement.
Such provision of information and materials is a condition precedent to the
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<PAGE> 74
obligations of Baan pursuant to this Agreement. The offerings made pursuant to
such registration shall not be underwritten.
(c) Shareholder shall abide by Baan's internal insider
trading policy as in effect from time to time, if and to the extent Shareholder
is an employee or consultant of Baan or the Company and subject to such policy
at the time of any securities transaction by Shareholder, including (if
applicable) the restrictions under such policy against a transaction in Baan
Shares during the "blackout" periods commencing on the first day of the last
month of each fiscal quarter and continuing until 48 hours after Baan has
publicly announced its results of operations for such fiscal quarter.
4.3 Registration and Selling Expenses. For purposes of this
Section 4, "Registration Expenses" means all expenses incurred in connection
with the registration or qualification of the Baan Shares pursuant to this
Section 4, including, without limitation, all registration, filing and
qualification fees, printing expenses, transfer agent and registration fees, and
fees and disbursements of counsel for Baan. "Selling Expenses" means all
underwriting discounts and commissions or broker fees and commissions applicable
to the sale of Registrable Securities, and any fees and disbursements of counsel
to Shareholder in connection with the registration and sale of such securities.
All Registration Expenses incurred in connection with the registration of the
Baan Shares pursuant to Section 4.2 will be borne by Baan, and all Selling
Expenses will be borne by Shareholder.
4.4 Information by Shareholder. Shareholder will furnish to Baan
such information regarding Shareholder and the distribution of the Baan Shares
as Baan may reasonably request in connection with the registration referred to
in this Section 4.
4.5 Transfer of Registration Rights. The registration rights
granted to Shareholder under this Section 4 are solely for the benefit of
Shareholder and are not transferable to any other person or entity, except a
transfer by operation of law to his heirs and successors.
4.6 Termination of Registration Rights. The rights granted to
Shareholders pursuant to Section 4.2 hereof shall terminate as to each
Shareholder on the date that all Registrable Securities held by such Shareholder
may be sold under Rule 144 during any 90-day period.
5. Obligations of Baan.
5.1 Subject to the limitations of Sections 2, 3 and 4 above, Baan
shall (i) prepare and file with the Commission the Form F-3 registration
statement in accordance with Section 4.2 hereof with respect to the shares of
Registrable Securities; (ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary, and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities proposed to be registered in each such registration statement
from the day before the lapse of the restrictions on resale of Parent Common
Shares imposed by qualifying the Merger for pooling-of-interests accounting
treatment pursuant to SEC Accounting Series Release Nos. 130 and 135 ("ASR 130
and 135") until the first annual anniversary of the date of the
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<PAGE> 75
Reorganization Agreement (unless extended by that number of days equal to the
number of days that use of the registration statement is discontinued as set
forth herein); (iii) furnish to Shareholder such number of copies of any
prospectus (including any preliminary prospectus and any amended or supplemented
prospectus) in conformity with the requirements of the Securities Act, and such
other documents as Shareholder may reasonably request in order to effect the
offering and sale of the Registrable Securities to be offered and sold, but only
while Baan shall be required under the provisions hereof to cause the
registration statement to remain current; and (iv) use its commercially
reasonable efforts to register or qualify the shares of the Registrable
Securities covered by such registration statement under the securities or blue
sky laws of such jurisdictions as Shareholder shall reasonably request (provided
that Baan shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction where it has not been qualified).
5.2 Baan shall notify Shareholder, (A) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to the registration statement or any post-effective amendment, when the
same has become effective; (B) of any request by the Commission or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus or for additional information relating to the
registration statement, (C) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose, (D) of the receipt by Baan of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; or (E) of the happening of any
event which makes any statement made in the registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the registration statement or prospectus so that, in the case of the
registration statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Baan may, upon the happening of any event (i) of the
kind described in clauses B, C, D, or E hereof, or (ii) that, in the good faith
judgment of Baan's Board of Directors, renders it advisable to suspend use of
the prospectus for no more than sixty (60) days due to pending corporate
developments, public filings with the Commission or similar events, suspend use
of the prospectus on written notice to Shareholder, in which case Shareholder
shall discontinue disposition of Registrable Securities covered by the
registration statement or prospectus until copies of a supplemented or amended
prospectus are distributed to Shareholder or until Shareholder is advised in
writing by Baan that the use of the applicable prospectus may be resumed. Baan
shall use its reasonable efforts to ensure that the use of the prospectus may be
resumed as soon as practicable. Baan shall use every reasonable effort to obtain
the withdrawal of any order suspending the effectiveness of the registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the securities for sale in any jurisdiction, at
the earliest practicable time. Baan
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<PAGE> 76
shall, upon the occurrence of any event contemplated by clause E above, prepare
a supplement or post-effective amendment to the registration statement or a
supplement to the related prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities being sold thereunder, such
prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
5.3 In connection with any offering of shares of Registrable
Securities registered on Form F-3 pursuant to this Agreement, Baan shall
instruct the transfer agent and registrar of the Baan Common Shares to remove
the restricted legend and release any stop transfer orders with respect to the
shares of Registrable Securities being sold.
5.4 Baan shall apply for listing on the Nasdaq National Market
(or on such market as Baan Shares are currently trading) the shares of
Registrable Securities registered on Form F-3 pursuant to this Agreement.
5.5 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, Baan agrees to use its reasonable efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act;
(b) File with the Commission in a timely manner all
reports and other documents required of Baan under the Securities Act and the
Exchange Act; and
(c) So long as any of the Shareholders owns any
Restricted Securities to furnish to the Shareholders upon request a written
statement by Baan as to its compliance with the reporting requirements of said
Rule 144.
6. Availability of Form F-3. Baan represents that it is currently
eligible to utilize Form F-3 for registration of the Baan Shares.
7. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by overnight courier or mailed by registered or certified mail
(return receipt requested), postage prepaid, to the parties at the addresses set
forth below or to such other address as the party to whom notice is to be given
may have furnished to the other party hereto in writing in accordance herewith.
Any such notice or communication shall be deemed to have been received (A) in
the case of personal delivery or notice by telecopier, on the date actually
received, (B) in the case of overnight courier, on the next business day after
the date when sent and (C) in the case of mailing, on the third business day
following that on which the mail containing such communication is posted:
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<PAGE> 77
To Baan: Baan Company N.V.
11911 Freedom Drive, Suite 300
Reston, Virginia 20190-5602
Attention: General Counsel and Secretary of the Board
Telephone No.: (703) 471-8785
Facsimile No.: (703) 471-8786
To Shareholder: William Nulty
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
8. Miscellaneous.
8.1 This Agreement shall be binding upon and shall inure to the
benefit of Baan and Shareholder and their respective successors in interest.
8.2 This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflict laws thereof.
8.3 This Agreement may be executed in counterparts, and all of
such counterparts, taken together, shall constitute a single instrument.
8.4 This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subject hereof. This
Agreement or any term hereof may only be amended, waived or discharged by a
written instrument signed by Baan and Shareholder.
8.5 By their execution of this Agreement, each of the
Shareholders hereby accepts and approves of the designation of the
Securityholder Agent (as defined in the Reorganization Agreement) and to the
provisions set forth in Section 7.2 of the Reorganization Agreement regarding
indemnification and whereby the liability of the Securityholder Agent is limited
for any act done or omitted hereunder as Securityholder Agent while acting in a
manner he believes in good faith to be in the best interests of the corporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 78
IN WITNESS WHEREOF, Baan and Shareholder hereto have executed this
Agreement as of the day and year first above written.
BAAN COMPANY N.V.
By:
---------------------------------------
Name:
Title:
SHAREHOLDER
---------------------------------------------
Name: William Nulty
[SHAREHOLDER AGREEMENT SIGNATURE PAGE]
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<PAGE> 79
EXHIBIT A
BAAN COMPANY N.V.
F-3 REGISTRATION STATEMENT
SELLING SHAREHOLDER QUESTIONNAIRE
______________, 1998
PLEASE COMPLETE AND SIGN THE QUESTIONNAIRE AND RETURN IT TO DAVID
CAMPBELL AT WILSON SONSINI GOODRICH & ROSATI, 650 PAGE MILL ROAD, PALO ALTO, CA,
94304-1050. WHERE SUPPLEMENTARY INFORMATION IS REQUESTED, KINDLY ANNEX THE SAME
TO THIS QUESTIONNAIRE. IF ANY QUESTION IS INAPPLICABLE, SO INDICATE, BUT PLEASE
RESPOND TO ALL QUESTIONS. IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT DAVID
CAMPBELL AT (650) 493-9300.
A. General Information.
1. The numbers of shares shown in the Registration Statement represent
the total number of Baan Shares held by Shareholder. Are the numbers of Baan
Shares listed opposite your name in the Prospectus correctly stated?
Yes [ ]
No [ ], the correct number(s) should be:
2. Do you intend to include in the Registration Statement, for potential
sale, the total number of Baan Shares set forth after your name on page __ of
the Prospectus?
Yes [ ]
No, the number to be included should be _______
3. Are all Baan Shares to be included in the Registration Statement to
be offered for your account?
Yes [ ] No [ ]
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<PAGE> 80
4. If the answer to Question 3 was "No," please described below the
number of Baan Shares to be offered for the account of another person or
organization, the name and address of such person or organization, and the
reasons for such proposed action:
5. Describe any discounts or commissions, other than usual broker's
commissions, to be allowed or paid to dealers, including all cash, securities,
contracts or other consideration to be received by any dealer in connection with
any sales of Baan Shares pursuant to the Registration Statement:
6. Please indicate the proposed method(s) by which Baan Shares to be
sold pursuant to the Registration Statement will be sold (more than one may be
checked):
[ ] In the over-the-counter market at prices prevailing at the time
of sale
[ ] Directly through privately negotiated transactions
[ ] Privately negotiated transactions through brokers
[ ] Other, as described below
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<PAGE> 81
B. Representations and Covenants of Shareholder.
Shareholder hereby represents, warrants, covenants, and agrees with Baan
that:
(1) Shareholder has not taken and will not take, directly or indirectly,
any action designed to constitute or which has constituted or which might
reasonably be expected to cause or result in stabilization or manipulation of
the price of any security issued by Baan to facilitate the sale or resale of any
of Baan's securities in violation of Regulation M under the Securities Exchange
Act of 1934, a copy of which is attached hereto. Shareholder will effect
transactions in Baan's securities only within the confines of such rules and
such other federal or state securities laws as may be applicable. Shareholder
has not, and will not without the prior written consent of Baan, during the
period any securities are being offered for the account of Shareholder under the
Registration Statement filed by Baan including any amendments thereto, directly
or indirectly, purchase, bid for or induce (or attempt to induce) any other
person to purchase any of Baan's Common Shares or Baan's securities convertible
into such Common Shares unless such action by Shareholder is specifically
permitted under any of the exemptions set forth in Regulation M, and Shareholder
has not and will not pay or offer to pay any person any compensation for
soliciting purchases of Baan's Common Shares except for ordinary brokerage
commissions to be paid to any broker or dealer effecting the sale of securities
being offered for its account under the Registration Statement.
(2) Until all securities being offered for its account under the
Registration Statement are sold, Shareholder will not disseminate any
information concerning Baan other than through the most recent Prospectus
included in the most recent Registration Statement filed with the Securities and
Exchange Commission. Shareholder is aware of its duty to deliver a Prospectus in
connection with each sale by it of Baan Shares under the Registration Statement.
Shareholder will inform any broker or dealer requested by Shareholder to effect
the sale of any securities being offered for its account under the Registration
Statement, that such securities are part of a distribution of Baan's securities
which is covered by that Prospectus, and that such broker or dealer may be
subject to the provisions of Regulation M during the period Shareholder sells or
offers to sell such securities. In addition, Shareholder will furnish any such
broker or dealer with such number of copies of the Prospectus as such broker or
dealer may reasonably require.
(3) Shareholder will not make any sales other than within the conditions
set forth herein and will notify Baan upon the completion of any and all sales
of its securities covered by the Registration Statement.
(4) Shareholder has received a copy of the Registration Statement and
has reviewed the Registration Statement and will review any amendments thereto
promptly after receipt thereof and agrees to inform Baan of any material facts,
trends, or pending or existing conditions known to Shareholder that relate to
the Shareholder and his distribution of Baan Shares and not fully disclosed in
the Registration Statement or any such amendments which would adversely affect
the business of Baan.
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<PAGE> 82
The above information is supplied by Shareholder, and Shareholder
understands that such information has been furnished specifically for use in a
Registration Statement and may be submitted by Baan to the Securities and
Exchange Commission and the NASD. Shareholder will immediately notify Baan of
any changes in the above information from the date of signature until the
conclusion of the offering of securities to be made under the Registration
Statement.
Date: __________, 1998
SHAREHOLDER
-------------------------------
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<PAGE> 1
EXHIBIT 3.22
BAAN COMPANY N.V.
AND
VANENBURG VENTURES B.V.
-----------------
Acquisition of 15% of the
issued share capital of:
BAAN MIDMARKET SOLUTIONS B.V.
<PAGE> 2
DE BRAUW BLACKSTONE WESTBROEK
<TABLE>
<CAPTION>
CONTENTS PAGE
-----
LIST OF SCHEDULES
ARTICLE HEADING
- ------- -------
<S> <C> <C>
1 Definitions
2 Sale and Purchase
3 Consideration for the Shares
4 Closing
5 Representations and Warranties
6 Indemnifications
7 Restrictions
8 Announcements
9 Costs
10 Miscellaneous
11 Applicable Law and Jurisdiction
</TABLE>
2
<PAGE> 3
DE BRAUW BLACKSTONE WESTBROEK
LIST OF SCHEDULES
1 : Representations and Warranties
2 : Form of Deed of Transfer of Shares
THIS AGREEMENT is made on the date stated on the signature page between:
1. the public company with limited liability incorporated
under the laws of The Netherlands BAAN COMPANY N.V.,
having its registered office at Baron van Nagellstraat 89
at 3771 LK, Barneveld, The Netherlands, to be referred to
hereinafter as "Seller";
2. the private company with limited liability incorporated
under the laws of The Netherlands VANENBURG VENTURES
B.V., having its registered office at Vanenburgerallee 13
at 3882 RH, Putten, The Netherlands and its statutory
seat in Putten, the Netherlands, to be referred to
hereinafter as "Purchaser";
3. the private company with limited liability incorporated
under the laws of The Netherlands BAAN MIDMARKET
SOLUTIONS B.V., having its registered office at
Vanenburgerallee 15, 3882 RH, Putten, The Netherlands and
its statutory seat in Barneveld, The Netherlands, to be
referred to hereinafter as the "Company";
WHEREAS:
(A) the Seller is holder of 15% of the issued and outstanding shares in
the capital of the Company;
(B) the Purchaser is holder of 85% of the issued and outstanding shares
in the capital of the Company;
(C) the Company is engaged in the business of software and consultancy.
Its main activities consist of developing (or having developed),
distributing (or having distributed) and licensing (or having
licensed) software, as well as supplying (or having supplied)
so-called 'pre-sales, sales marketing and marketing and software
maintenance and support services' in the software and consultancy
sector;
(D) the authorised share capital of the Company amounts to NLG 200,000
(in words: two hundred thousand Netherlands guilders) consisting of
200 shares with a nominal value of NLG 1,000 each. The issued and
outstanding share capital of the Company amounts to NLG 40,000 (in
words: forty thousand Netherlands guilders). The shares numbered 35
through 40 constituting 15% of the issued and outstanding ordinary
shares in the Company which are held by the Seller are hereinafter
referred to as the "Shares" (each individually: a "Share");
(E) the Seller wants to sell to the Purchaser and the Purchaser wants to
purchase the Shares from the Seller on the terms of this Agreement,
provided that simultaneously therewith or at least at the same date
the Asset Purchase Agreement between Baan Company N.V. and Baan
Midmarket Solutions B.V. is or has been entered into by the parties
thereto;
3
<PAGE> 4
DE BRAUW BLACKSTONE WESTBROEK
(F) the Seller has made representations and warranties to the
Purchaser in the terms of the representations and warranties set
out in the FIRST SCHEDULE to the intent that the Purchaser should
rely on such representations and warranties in entering into this
Agreement;
(G) the parties have duly complied with all requirements under the
Merger Code of the Social and Economic Council
("SER-Fusiegedragsregels") and the Works Councils Act ("Wet op de
Ondernemingsraden");
(H) except for the requirements under United States Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
the parties hereto are not aware of any consent, approval or
authorization of, or declaration, filing or registration with, any
governmental or regulatory authority which could be required to be
made or obtained in connection with the execution, delivery and
performance of this Agreement, other than those mentioned in
recital G;
IT IS HEREBY AGREED AS FOLLOWS
1. DEFINITIONS
1. The following expressions used in this Agreement and the
Schedules hereto shall, unless the context indicates
otherwise, have the following meanings:
"Agreement" this agreement including the Schedules hereto;
"Company" Baan Midmarket Solutions B.V.;
"Closing" the closing of the transactions contemplated by
this Agreement in accordance with Article 4 below;
"Closing Date" the date on which Closing shall take place;
"Shares" the 15% of the issued and outstanding shares of the
Company which are held by the Seller,
consisting of six shares numbered 35 through
40 with a nominal value of NLG 1,000 each;
4
<PAGE> 5
DE BRAUW BLACKSTONE WESTBROEK
"Statutes" all statutes, laws, directives, orders or
regulations, which are in force per the date
hereof or have at any time prior to the date hereof
been in force;
"Warranties" the representations and warranties set out in the
FIRST SCHEDULE hereto;
2. Except to the extent the context requires otherwise, any
references in this Agreement to:
(i) a business day means any day which is not a Saturday or Sunday
nor a public holiday in The Netherlands;
(ii) the parties hereto include their respective successors in
title, assigns, estate and legal personal representatives;
(iii) persons shall include individuals, bodies corporate and
non-corporate, associations and partnerships, institutions,
governments and (subdivisions of) states; and
(iv) Statutes or statutory provisions and orders or regulations
made thereunder include that statute, provision, order or
regulation as amended, modified, re-enacted or replaced from
time to time, and to any previous statute, statutory
provision, order or regulation amended, modified, re-enacted
or replaced by such statute, provision, order or regulation.
3. Headings to articles and descriptive notes in brackets
5
<PAGE> 6
DE BRAUW BLACKSTONE WESTBROEK
are for information only and shall not be construed as forming
part of this Agreement or the Schedules hereto.
4. The recitals, Schedules and Exhibits form part of this
Agreement and shall have the same force and effect as if
expressly set out in the body of this Agreement and any
reference to this Agreement shall include the recitals,
Schedules and Exhibits.
5. Unless the context requires otherwise, terms defined in the
plural include the singular and vice versa.
2. SALE AND PURCHASE
Subject to the terms and conditions of this Agreement, the Seller
herewith sells to Purchaser, and Purchaser herewith purchases from the
Seller the Shares free from any and all liens, charges and encumbrances
and together with all accrued benefits and rights attaching thereto,
and all entitlements to profits as from January 20, 1998. For the
avoidance of doubt: the economic ownership of the Shares shall be for
Purchaser as from January 20, 1999.
3. CONSIDERATION FOR THE SHARES
As consideration for the sale and transfer of the Shares the Purchaser
shall terminate (and/or procure the termination of) the use of any
reference to the "Baan" name or logo throughout the group of entities
it has control over and/or is affiliated with at the latest on March
31, 1999, all as provided for in article 7 hereof.
6
<PAGE> 7
DE BRAUW BLACKSTONE WESTBROEK
4 CLOSING
4.1 Immediately upon the signing of this agreement the following actions
shall be taken at the offices of De Brauw Blackstone Westbroek in The
Netherlands at Burgerweeshuispad 301, Amsterdam:
(i) Purchaser and the Seller shall execute the Deed of Transfer of
Shares before Mr M. van Olffen, civil law notary, substantially
in the form as set out in the SECOND SCHEDULE;
(ii) the Company shall acknowledge the transfer of the Shares in the
form as provided in the Deed of Transfer of Shares and shall
record the said transfer in the register of shareholders of the
Company;
(iii) subject to compliance with paragraphs (i) and (ii) by the Seller
and the Company, respectively, the Purchaser shall - before
March 31, 1999 - terminate (and/or procure the termination of)
the use of any reference to the "Baan" name or logo throughout
the group of entities it has control over and/or is affiliated
with, all as provided for in article 7 hereof.
4.2 If for any reason the provisions (i) or (ii) of Article 4.1 are not
complied with in full at Closing, the parties shall in good faith
determine a new date for Closing.
5 REPRESENTATIONS AND WARRANTIES
5.1 The Seller guarantees to Purchaser that the Warranties are true and
correct at the date of this Agreement and at the Closing Date. The
Seller shall be liable towards Purchaser in case any of the Warranties
are not true and correct at the date of this Agreement and
7
<PAGE> 8
DE BRAUW BLACKSTONE WESTBROEK
the Closing Date.
5.2 The Seller and the Purchaser acknowledge that - taking into account
that the Purchaser is holder of 85% of the issued and outstanding share
capital of the Company and that the Purchaser is the sole Managing
Director of the Company - the Purchaser is not entering into this
agreement solely in reliance upon the accuracy of each of the
Warranties. Notwithstanding the foregoing, the Seller undertakes with
the Purchaser that:
(i) it will promptly give written notice, setting out the relevant
circumstances and facts, to the Purchaser if it becomes aware
that any of the Warranties guaranteed by it pursuant to this
Article 5, was not true and correct at the Closing Date.
(ii) it will not do, allow or procure any act or omission which
constitutes a breach of any of the Warranties or renders any of
the Warranties inaccurate or misleading.
5.3 Purchaser confirms to the Seller that on the date of this Agreement it
has no actual knowledge of information which constitutes a breach of
the Warranties.
ARTICLE 6 INDEMNIFICATIONS
6.1 The Seller hereby agrees - without restricting the obligations of
Purchaser to limit damages - to indemnify and hold the Purchaser
harmless against and in respect of any loss, cost, expense (including
expenses of investigation), claim, liability, deficiency, judgment or
damage, including reasonable
8
<PAGE> 9
DE BRAUW BLACKSTONE WESTBROEK
legal and accounting fees and expenses (hereinafter, individually, a
"Loss" and collectively, "Losses") incurred by the Purchaser, directly
or indirectly, as a result of an inaccuracy in or breach of a Warranty.
6.2 The Purchaser hereby agrees - without restricting the obligations of
Seller to limit damages - to indemnify and hold the Seller harmless
against and in respect of any Loss incurred by the Seller, directly or
indirectly, as a result of a breach of the covenant made by the
Purchaser in article 7.1 and/or article 7.2 hereof.
ARTICLE 7 RESTRICTIONS
7.1 The Purchaser shall procure that as soon as possible after the Closing
Date, but in no event later than March 31, 1999 the situation is
realised in which neither the Purchaser nor any of the entities
controlled by or affiliated to it shall use the "Baan" name or logo or
any name similar thereto (or possibly to be confused therewith) or the
initials "BBS", "BBA", "BBK", "BBI" and "BI", in any letterheads,
promotional material, business cards or otherwise.
9
<PAGE> 10
DE BRAUW BLACKSTONE WESTBROEK
7.2 In view of executing the foregoing, the Purchaser shall, immediately
after the Closing, take, or procure to taken, all necessary actions to
change the names of Baan Midmarket Solutions B.V.; all subsidiaries of
the Purchaser using the name "Baan"; all other entities controlled by
or affiliated to the Purchaser using the name "Baan" or the initials
"BBS", "BBA", "BBK", "BBI" and "BI", including without limitation, Baan
Business Systems, Baan Business Associates, Baan Business Knowledge,
Baan Business Innovation and Baan Institute. The Purchaser and all
entities controlled by or affiliated to the Purchaser shall cease
immediately using in any manner whatsoever the name "Baan" and the Baan
logo unless there is subsequently to this agreement a separate written
license agreement between Baan Company and such entity specifically
granting such entity the right to use the "Baan" name or logo.
7.3 In the event of the Purchaser not having realized the termination as
described in this article 7 prior to March 31, 1999, Seller shall be
entitled, in addition to any other right or remedy available at law or
equity, to the following: (i) an injunction or other equitable remedy
to prevent further infringements (and force compliance) without the
necessity of proving actual damages or irreparable harm for such
equitable relief, and, if Seller prevails in any such action, Purchaser
shall reimburse Seller for any reasonable attorney's fees and other
costs incurred in pursuing such action; and (ii) in connection with the
creation of any new advertising, marketing, or other materials
following execution of this Agreement in violation of this article 7,
Seller shall be entitled from Purchaser, without need of any prior
notice or court action being required, to an immediately payable
penalty amounting to NLG 300,000 (three hundred
10
<PAGE> 11
DE BRAUW BLACKSTONE WESTBROEK
thousand guilders) for each such infringement and an immediately
payable penalty of NLG 50,000 (fifty thousand guilders) for each day
such infringement continues after being notified thereof in writing by
Seller, without any damages or loss requiring to be proved and without
prejudice to the rights of Seller and/or any of its subsidiaries
pursuant to this agreement. Purchaser acknowledges that any breach of
article 7.1 would cause irreparable injury to Seller and that it would
be impossible or inadequate to measure and calculate Seller's monetary
damages from any such breach.
7.4 Purchaser acknowledges and agrees that Seller owns all right, title,
and interest in and to the "Baan" name and logo, and it will not
challenge in any court or other forum Seller's right to use such
name and logo and/or Seller's ownership of such. Purchaser further
agrees that it shall have no right (except as specifically set forth in
this Agreement) to use, license, or in any way exploit anywhere in the
world the "Baan" name and logo except pursuant to written agreement
with Seller.
ARTICLE 8 ANNOUNCEMENTS AND CONFIDENTIALITY
8.1 Except so far as may be required by applicable law or regulations
(including but not limited to those of any relevant stock exchange and
also including the the Dutch Competition Act, the HSR Act, the Dutch
Merger Code and the Dutch Works Councils Act), neither the terms of
this Agreement nor any transaction contemplated hereby shall be
disclosed by any party without the prior consent of the other party,
such consent not to be unreasonably withheld or delayed.
ARTICLE 9 COSTS
11
<PAGE> 12
DE BRAUW BLACKSTONE WESTBROEK
9.1 Each of the parties hereto shall bear its own legal and accountancy
costs, charges and other expenses connected with the negotiation,
preparation and implementation of this Agreement and any other
agreement incidental to or referred to in this Agreement or any other
activities in relation hereto, except for notarial costs relating to
the transfer of Shares, which shall be equally borne by Seller and
Purchaser. The Companies shall not be liable for any of the said costs,
charges and other expenses.
ARTICLE 10 MISCELLANEOUS
10.1 None of the parties shall be entitled to assign any rights or
obligations under this Agreement without the prior written consent of
the other parties.
10.2 The terms of this Agreement shall insofar as not performed at Closing
continue in force notwithstanding such Closing. A petition to annul, to
rescind or dissolve this Agreement cannot be instituted and nullity,
rescission and dissolution thereof cannot be invoked, in whole or in
part, after the Shares shall have been transferred to Purchaser, except
in case of fraudulent misrepresentation or fraudulent breach
("bedrog").
10.3 This Agreement (together with any documents referred to herein)
constitutes the entire agreement between the parties hereto in
connection with the sale and purchase hereby agreed and no variation to
this Agreement shall be effective unless made in writing and signed by
all the parties.
10.4 There shall be no waiver of any term, provision or condition of this
Agreement unless such waiver is evidenced in writing and signed by the
waiving party. The failure of any party at any time or times to
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DE BRAUW BLACKSTONE WESTBROEK
exercise any right under this Agreement, or to require performance of
any provision of this Agreement, shall not affect its right to exercise
such right or to enforce such provision at a later time.
10.5 In the event that one or more provisions of this Agreement would appear
to be non-binding, the other provisions of this Agreement will continue
to be effective, and the parties shall consult with each other to
replace the non-binding provisions with other provisions that are
binding, in such a way that the new provisions differ as little as
possible from the non-binding provisions, taking into account the
object and the purpose of this Agreement.
10.6 Any notice or demand to be served under this Agreement may be served
upon a party at the address indicated above or such other address as
they may have notified to the other parties as being their address for
service or to their last known place of residence or business and may
be served personally, by registered mail or by facsimile transmission.
A notice or demand served by post shall be deemed duly served
forty-eight hours after posting and a notice or demand sent by
facsimile transmission shall be deemed to have been served at the time
of transmission and in proving service of the same it will be
sufficient to prove, in the case of a letter, that such letter was
properly registered, addressed and placed in the post and in the case
of a facsimile transmission, that such facsimile was duly transmitted
to a current facsimile number of the addressee.
10.7 This Agreement may be executed in any number of counterparts and by the
several parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the
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<PAGE> 14
DE BRAUW BLACKSTONE WESTBROEK
counterparts shall together constitute one and the same instrument. In
order for this Agreement to be binding, it must have been signed by all
parties.
ARTICLE 11 APPLICABLE LAW AND JURISDICTION
11.1 This Agreement is construed under and shall be governed by Netherlands
law.
11.2 All disputes arising in connection with this Agreement or other
agreements entered into in connection herewith shall be brought before
the competent court of Amsterdam.
IN WITNESS WHEREOF the hands of the parties or their duly authorized
representative on January 21, 1999.
Baan Company N.V.
By: /s/ Tom C. Tinsley
--------------------------------
Tom C. Tinsley
Chief Executive Officer
Vanenburg Ventures B.V.
By: /s/ Jan Willem Krooshof
--------------------------------
Jan Willem Krooshof
Chief Operating Officer
Baan Midmarket Solutions B.V.
By: /s/ Esmeralda Vos
--------------------------------
Esmeralda Vos
14
<PAGE> 15
ASSET PURCHASE AGREEMENT
BETWEEN
BAAN COMPANY N.V.
AND
VANENBURG VENTURES B.V.
AND
BAAN MIDMARKET SOLUTIONS B.V.
JANUARY 21, 1999
<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 1 PURCHASE AND SALE OF ASSETS............................................................2
1.1 Purchase and Sale.................................................................2
1.2 Description of Purchased Assets...................................................2
1.3 Assumption of Liabilities.........................................................3
1.4 Excluded Assets...................................................................3
ARTICLE 2 PURCHASE PRICE; CLOSING................................................................4
2.1 Purchase Price....................................................................4
2.2 Closing...........................................................................5
2.3 Sales and VAT Taxes...............................................................6
2.4 Post-Closing Calculations.........................................................6
ARTICLE 3 COVENANTS AND AGREEMENTS RELATED TO EMPLOYEES AT BMS...................................7
3.1 Terminated Employees; Severance...................................................7
3.2 Continuing Employees; Offers of Employment........................................7
3.3 Employment Taxes and Social Premiums..............................................7
3.4 Employment Obligations............................................................7
3.5 No Solicitation of Former Employees...............................................8
3.6 Transition of Employees...........................................................8
3.7 No Rights Conferred Upon Employees................................................8
3.8 COBRA.............................................................................8
3.9 Transfer of Assets from the BMS 401(k) Plan.......................................8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BMS..................................................9
4.1 Organization of BMS...............................................................9
4.2 Due Authorization.................................................................9
4.3 Due Execution and Enforceability..................................................9
4.4 No Conflict.......................................................................9
4.5 Consents and Approvals of Governmental Authorities................................9
4.6 Proprietary Rights and Ownership..................................................9
4.7 Restrictions on Business Activities..............................................10
4.8 Capital Equipment and Tangible Assets............................................10
4.9 Title to Assets..................................................................10
4.10 Contracts........................................................................10
4.11 Governmental Authorization.......................................................10
4.12 Taxes............................................................................11
4.13 Brokers' or Finders' Fees.........................................................11
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BAAN COMPANY........................................11
5.1 Organization of Baan Company.....................................................11
</TABLE>
<PAGE> 17
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
5.2 Due Authorization................................................................11
5.3 Due Execution and Enforceability.................................................11
5.4 No Conflict......................................................................12
5.5 Consents and Approvals of Governmental Authorities...............................12
ARTICLE 6 ADDITIONAL AGREEMENTS.................................................................12
6.1 Good Faith; Further Assurances...................................................12
6.2 Provision of Audited Financials..................................................12
6.3 Access to Information............................................................13
6.4 Confidentiality..................................................................13
6.5 Taxes............................................................................13
6.6 BMS Accounts Receivable..........................................................13
6.7 Baan Name........................................................................13
6.8 Share Purchase Agreement.........................................................14
6.9 Joint Venture Agreement..........................................................14
ARTICLE 7 PAYMENT OF EXPENSES...................................................................14
ARTICLE 8 INDEMNIFICATION AND RELEASE...........................................................14
8.1 Agreement to Indemnify...........................................................14
8.2 Release..........................................................................14
ARTICLE 9 SURVIVAL AND AMENDMENT................................................................15
9.1 Survival of Representations and Warranties.......................................15
9.2 Amendment........................................................................15
ARTICLE 10 GENERAL..............................................................................15
10.1 Notices..........................................................................15
10.2 Headings.........................................................................16
10.3 Counterparts.....................................................................16
10.4 Binding Nature...................................................................16
10.5 Entire Agreement.................................................................16
10.6 Incorporation of Schedules.......................................................16
10.7 Applicable Law...................................................................16
</TABLE>
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<PAGE> 18
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.2(b) Customer and Marketing Databases
Schedule 3.1(a) List of Terminated Employees
Schedule 3.2 List of Continuing Employees
EXHIBITS
Exhibit A Bill of Sale and General Assignment of the Purchased Assets
Exhibit B Deed of Assumption of Dutch Assigned Contracts
Exhibit C Deed of Transfer of Dutch Intellectual Property Rights
Exhibit D Share Purchase Agreement
POST-CLOSING SCHEDULES
Schedule 1.2(c) Capital Equipment and Tangible Assets
Schedule 6.8 BMS Accounts Receivable
</TABLE>
<PAGE> 19
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered into
as of January 20, 1999 by and among Baan Company N.V., a public company with
limited liability organized under the laws of The Netherlands ("Baan Company"),
Vanenburg Ventures B.V., a private company with limited liability organized
under the laws of The Netherlands ("VV"), and Baan Midmarket Solutions B.V., a
private company with limited liability organized under the laws of The
Netherlands ("BMS").
R E C I T A L S:
A. In the fourth quarter of 1997, VV and Baan Company agreed to form a
joint venture company to be owned by VV and Baan Company, and pursuant thereto
VV and Baan Company entered into a Joint Venture Agreement dated as of March 31,
1998 (the "Joint Venture Agreement"). Although the deed of incorporation of BMS
was not executed until October 1998, from October 1997, Baan Company, VV and
"BMS" believed and acted as if BMS was formally organized. Additionally, BMS
hereby ratifies any and all actions taken on behalf of BMS during the period
prior to execution of its deed of incorporation. To the extent this Agreement
refers to BMS with respect to dates prior to October 21, 1998, such reference
shall be deemed to constitute a reference to BMS i.o. ("in oprichting") (being
BMS in the process of being formed).
B. In accordance with the Joint Venture Agreement, VV owns 85% of the
capital stock of BMS and Baan Company owns 15% of the capital stock of BMS. The
initial capital contributions to BMS were (i) a cash contribution of NLG 6000 by
Baan Company and (ii) a cash contribution of NLG 34,000 by VV. Additionally,
Baan Company transferred certain then existing agreements with resellers,
distributors and similar parties with the right to license, distribute and sell
Baan Company software to small and medium-sized enterprises together with the
know-how in managing and supporting such parties to BMS. In December 1997, BMS
paid Baan Company US$13 million for the value of certain potential future
license revenues foregone by Baan Company as a result of pricing differences
between customary terms in direct sales versus indirect channel, third party
contracts. Subsequent to the initial capital contributions, in order to further
the development and expansion of the BMS business, VV made cash advances to BMS.
C. BMS was established for the purpose of furthering and managing the
worldwide establishment of resellers, distributors and other third parties who
license the Baan Company software and related services to end-user customers,
and to provide a portfolio of value added services and Baan Company software
products to such third party resellers in principal markets throughout the world
(the "BMS Business"). BMS has expanded such third party resellers/distributors
from approximately 110 resellers at December 31, 1997 to approximately 220
resellers as of December 1, 1998 (the "Current Third Party Resellers"). The
Current Third Party Resellers and any other third party resellers/distributors
who subsequent to December 1, 1998 enter into the standard Baan Company reseller
agreement are collectively referred to as the "Third Party Resellers."
D. BMS is restructuring its operations. In November 1998, 106 employees,
of whom 71 were on the payroll of Baan Company and were outsourced to BMS and 35
were on the payroll of VV and outsourced to BMS, were terminated. After giving
effect to such terminations, 135 persons were either employed directly by BMS or
employed by Baan Company or VV and outsourced to BMS. It is the intention of the
parties that Baan Company will bear the severance costs for the 106 terminated
employees and will make offers of employment to the remaining employees employed
by and/or outsourced to BMS.
<PAGE> 20
E. The parties have determined that it is in the best interest of the
respective parties and their shareholders for Baan Company to (i) purchase
certain assets of BMS as provided herein upon the terms and conditions set forth
in this Agreement and (ii) to sell and transfer to VV its 15% equity interest in
BMS with the effect that VV will own all of the issued and outstanding capital
stock of BMS, upon the terms and conditions set forth in that certain Share
Purchase Agreement by and between Baan Company and VV of even date herewith (the
"Share Purchase Agreement").
F. The parties to this Agreement have complied with the requirements of
the Dutch Works Councils Act and the Dutch Merger Code.
G. By virtue of this Agreement and the Share Purchase Agreement, the
parties desire to terminate the Joint Venture Agreement and to resolve any and
all actual or potential disputes between them related to or in any way connected
with the Joint Venture Agreement.
In consideration of these premises and of the mutual agreements of the
parties set forth herein, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale. Subject to the terms and conditions contained in
this Agreement, BMS agrees to sell, assign, transfer and deliver to Baan
Company, as the case may be, and Baan Company agrees to purchase and accept, the
assets described in Section 1.2 below, free and clear of all liens, pledges,
charges, claims, security interests or other encumbrances of any sort
(collectively, "Liens").
1.2 Description of Purchased Assets. At the Closing (as defined in
Section 2.2 hereof), BMS shall sell and deliver (delivery to be made as provided
in Section 2.2(c) below) to Baan Company, and Baan Company shall purchase and
accept from BMS, all of BMS's right, title and interest in the following:
(a) Assigned Contracts. Any and all of BMS's rights and
obligations under the Third Party Resellers contracts (except for certain rights
to payment from MRA Systems, Inc. ("MRA") as described in Section 1.4 below),
the outsourcing contracts with TriArch and all other agreements, instruments, or
commitments, including BMS's contract rights and any accrued or contingent
claims of BMS for reimbursement or refund incident thereto (the "Assigned
Contracts");
(b) Customer and Marketing Databases. All customer and marketing
databases relating to the BMS Business listed on Schedule 1.2(b) attached
hereto;
(c) Capital Equipment and Tangible Assets. The capital equipment
and other tangible assets (such capital equipment and tangible assets shall be
mutually agreed to and set forth on Schedule 1.2(c) to be attached hereto as
soon as practicable following the Closing Date);
(d) Rights to Use of Baan Name and Logo; Trademarks, Trade Names
and Brand Names. All rights (by license or otherwise) to use the Baan name or
logo in any form in the BMS Business, and all other trademarks, service marks,
trade names, brand names, trade dress, product names and other
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<PAGE> 21
identifying marks or packaging used in the conduct of the BMS Business (thereby
terminating any right BMS may have to such names or marks, as provided in
Section 6.7 hereof);
(e) all copyrights, trade secrets, proprietary information,
technology rights and licenses, proprietary rights and processes, know-how, and
any and all other intellectual property including, without limitation, all
things authored, discovered, developed, acquired, produced, conceived or first
reduced to practice by BMS or any of its employees in the course of their
employment by BMS and that pertain to or are used in connection with the
activities of the BMS Business, or the Purchased Assets, whether tangible or
intangible, and all rights of any kind in or to any of the foregoing
(collectively, the "Intellectual Property"); and
(f) all of BMS's claims against any parties relating to any
right, property or asset included in the Purchased Assets, or against any party
to an Assigned Contract, including without limitation, unliquidated rights under
manufacturers' and vendors' warranties or guaranties.
The items, property and rights described in (a) through (f) above shall be
collectively referred to as the "Purchased Assets. "
1.3 Assumption of Liabilities. Baan Company shall not assume any
liabilities or obligations of BMS except for (i) BMS's obligations under the
Assigned Contracts, (ii) certain employee severance costs as provided in Article
3 hereof and (iii) BMS's guarantee of a minimum price of US$1,500 per license to
BISYS Networking Services ("BISYS") pursuant to that certain letter agreement
dated October 27, 1998 by and among BISYS, Baan U.S.A., Inc. and Baan Midmarket
Outsourcing (the "BISYS Agreement"), but no other liability or obligation of any
kind under the BISYS Agreement. Any other liabilities of BMS not specifically
assumed by Baan Company hereunder, whether accrued, absolute, contingent,
matured, unmatured, known or unknown, shall be and remain the obligation of BMS.
Without limiting the foregoing, it is expressly agreed that except as
specifically provided for in this Section 1.3, Baan Company shall not assume any
liabilities for employment, income, sales, property or other taxes incurred or
accrued by BMS, whether or not relating to the Purchased Assets. Each of VV and
BMS will indemnify and hold Baan Company harmless from and against any and all
losses, costs, expenses, claims, liabilities, deficiencies, judgments and
damages incurred or suffered by Baan Company or any of its affiliates related to
or arising out of any liabilities or obligations of BMS not expressly assumed by
Baan Company in this Section 1.3.
1.4 Excluded Assets. Baan Company will not purchase, and BMS will retain
all right and title in all other assets of BMS not included in the Purchased
Assets including, without limitation, the following: (i) the accounts receivable
of BMS; (ii) the "green beans" new employee training program and all associated
costs and obligations relating thereto; and (iii) any right to payment of the
purchase price as set forth in paragraphs 2 and 5 of that certain Agreement for
Purchase Credits dated January 19, 1999 by and between MRA (successor to the
interests of Integration Alliance Corporation) and BMS (successor to the
interests of Baan U.S.A., Inc.).
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<PAGE> 22
ARTICLE 2
PURCHASE PRICE; CLOSING
2.1 Purchase Price.
(a) Purchase Price. As consideration for the sale, assignment,
transfer, and delivery of the Purchased Assets by BMS to Baan Company, Baan
Company, on the terms and conditions set forth herein, shall (i) upon execution
of this Agreement, pay BMS (by wire transfer to an account designated by BMS)
the sum of US$1,955,000 and (ii) thereafter pay BMS a royalty equal to fifteen
percent (15%) of Baan Company's "Net Revenues from the Third Party Reseller
Channel" (as defined herein) ("Royalty Payment") on a quarterly basis over the
three year period commencing January 1, 1999 and ending December 31, 2001 (the
"Payment Period"). As used herein, "Net Revenues from the Third Party Reseller
Channel" shall mean the net revenues recognized by Baan Company from the sale or
license of software products, and related services and maintenance, by Baan
Company through the Third Party Resellers, as determined in accordance with
generally accepted accounting principles consistently applied.
(b) Minimum/Maximum Royalty Payment. The Royalty Payment
described in Section 2.1(a)(ii) shall be subject to the following conditions.
(i) Minimum Amount: BMS shall be entitled to receive
an aggregate of at least US$26 million plus the Operating Costs (as defined
herein) of the Purchased Assets. As used herein, "Operating Costs" shall be
defined as, collectively, (x) the day-to-day operating costs incurred by BMS for
the Purchased Assets from December 1, 1998 to the Closing Date as determined
pursuant to Section 2.4 below plus (y) the severance costs for terminated
employees to be paid by Baan Company as provided in Article 3 below minus (z)
any and all payments Baan Company has made related to such costs (the "Minimum
Amount").
(ii) Maximum Amount: In no event shall BMS be entitled
to receive Royalty Payments in excess of the Minimum Amount plus US$44 million
(the "Maximum Amount").
(c) Method of Payment.
(i) During the Payment Period, the Royalty Payments
established in accordance with Section 2.1(b) hereof shall be payable quarterly
within thirty (30) days from the end of each Baan Company fiscal quarter. Baan
Company will make payments to BMS for each fiscal quarter beginning with the
fiscal quarter ending March 31, 1999. Each payment made by Baan Company
hereunder shall be accompanied by a statement setting forth in reasonable detail
the calculation of the payment. If at the end of each year during the three-year
Payment Period the total Royalty Payments paid to BMS by Baan Company do not
equal one-third (1/3) of the Minimum Amount, then Baan Company shall pay BMS the
difference between one-third (1/3) of the Minimum Amount and the actual payments
paid for such year within thirty (30) days after the end of such year.
(ii) In no event shall Baan Company pay BMS nor shall
BMS have a right to receive aggregate Royalty Payments under this Agreement in
excess of the Maximum Amount as determined in Section 2.1(b)(ii) above.
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(iii) Baan Company shall maintain adequate books and
records relating to the Net Revenues from the Third Party Reseller Channel for a
period of two (2) years following the Payment Period. During the Payment Period,
BMS shall have the right to request an internationally recognized independent
accounting firm, reasonably acceptable to Baan Company, to conduct an audit to
determine Baan Company's compliance with Section 2.1 hereof. Baan Company shall
not be required to submit to such an audit more than once during any twelve (12)
month period and such audit shall be limited to the previous twelve (12) month
period. BMS shall be required to bear the reasonable fees and costs of such
audit unless the results of the audit indicate an underpayment by Baan Company
equal to or in excess of 10% of the payments due, in which case Baan Company
shall bear the reasonable fees and costs of the audit. Baan Company shall be
required to make any underpayments shown by the audit. BMS shall be required to
pay to Baan Company any overpayments shown by the audit. In the event of any
dispute, the determination of such firm shall be final and binding on all
parties.
(d) Acceleration. If at any time during the Payment Period the
Net Revenues from the Third Party Reseller Channel comprise less than ten
percent (10%) of the consolidated net revenues of Baan Company for two (2)
consecutive fiscal quarters, then BMS may demand that Baan Company pay to BMS
the Minimum Amount within thirty (30) days after such request. Upon making such
payment in full to BMS, Baan Company's obligations under Section 2.1 shall cease
and be deemed satisfied in full.
2.2 Closing.
(a) Date. The Closing under this Agreement (the "Closing") shall
be held on or about January 21, 1999 (the "Closing Date"). The Closing shall be
held at the registered offices of Baan Company, 11911 Freedom Drive, Suite 300,
Reston, Virginia, at 8:00 A.M. E.S.T. on such date and simultaneously at the
Amsterdam offices of Baan Company, Baron van Nagellstraat 89, P.O. Box 143, 3770
AC Barneveld, The Netherlands, or at such other time and place as Baan Company
and BMS may agree upon in writing.
(b) Closing Deliveries. At the Closing, BMS shall execute and
deliver to Baan Company such transfer documents and take all such other steps to
complete the transfer of the Purchased Assets to Baan Company as Baan Company
may reasonably request. Simultaneously with the consummation of the transfer,
BMS, through its officers, agents and employees, will put Baan Company into full
possession and enjoyment of all tangible Purchased Assets. BMS shall comply with
the delivery protocol established by Baan Company and BMS jointly prior to
Closing with respect to such Purchased Assets (the "Delivery Protocol").
(c) Delivery. At the Closing or as soon as practicable after
Closing:
(i) BMS and Baan Company shall deliver or cause to be
delivered to one another such other instruments and documents necessary or
appropriate to evidence the due execution, delivery and performance of this
Agreement;
(ii) BMS shall execute and deliver to Baan Company all
deeds, bills of sale, endorsements, assignments, consents to assignments and
other instruments and documents as necessary pursuant to applicable law or
applicable agreements, or as Baan Company may reasonably request to sell,
convey, assign, transfer and deliver to Baan Company good title to all the
Purchased Assets free and clear of any and all Liens, including without
limitation, a Bill of Sale and General Assignment of the Purchased Assets in
substantially the form attached hereto as Exhibit A;
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<PAGE> 24
(iii) BMS shall deliver ("bezit verschaffen") to Baan
Company all of the Purchased Assets which are capable of transfer by delivery
and title to such Purchased Assets shall pass to Baan Company upon delivery;
(iv) BMS shall deliver to Baan Company duly executed
documents of title and such assignments and Deeds of Transfer as Baan Company
may reasonably require to vest in it the full benefit of the Purchased Assets
(other than those passing upon delivery);
(v) BMS shall deliver to Baan Company duly executed
Deed of Assumption of Dutch Assigned Contracts in substantially the form
attached hereto as Exhibit B; and
(vi) BMS shall perform any other (legal) act and
execute any document necessary or appropriate to effectuate the transfer of the
Purchased Assets.
(d) Taking of Necessary Action; Further Action. If, at any time
after the Closing Date, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest Baan Company with full right,
title and possession to all the Purchased Assets, and all property, rights,
privileges, powers and franchises of BMS relating thereto, Baan Company is fully
authorized in the name BMS or otherwise to take, and will take, all such lawful
and necessary and/or desirable action. BMS hereby grants an irrevocable power of
attorney to Baan Company to take all such actions, to the extent necessary, on
behalf of BMS.
2.3 Sales and VAT Taxes. BMS shall be liable for and shall indemnify
Baan Company against any sales, use, excise, ad valorem, VAT or other similar
transfer taxes attributable to the transactions contemplated by this Agreement.
Baan Company shall cooperate with BMS as reasonably requested to reduce the
amount of such taxes.
2.4 Post-Closing Calculations.
(a) Calculations. Baan Company shall pay BMS's reasonable
documented Operating Costs for the Purchased Assets as defined in Section
2.1(b)(i) above. The amount so determined will be paid as part of the Minimum
Amount determined pursuant to Section 2.1(b)(i) above.
(b) Procedure. The determination of the reasonable documented
Operating Costs of BMS for the Purchased Assets, including the severance costs,
referred to in Section 2.1(b)(i) hereof shall be made in good faith by BMS in a
settlement statement (the "Settlement Statement") delivered to Baan Company not
later than fifteen (15) days after the Closing Date. The Settlement Statement
shall contain all information reasonably necessary to determine the Operating
Costs of the Purchased Assets. Baan Company shall review the Settlement
Statement and, if Baan Company disapproves of any determination contained
therein, shall give BMS written notice stating its objections not later than
fifteen (15) business days after receipt of the Settlement Statement. If Baan
Company makes any such objections and the parties do not resolve the dispute
within fifteen (15) business days after Baan Company's notice of objection, then
the disputed amount shall be determined by one partner acceptable to BMS and
Baan Company of an internationally recognized accounting firm, whose
determination shall be made within thirty (30) days after having been retained
for such purpose and which shall be final and conclusive. BMS and Baan Company
shall bear equally the expenses arising in connection with any such
determination. Additionally, Baan
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Company will deliver to BMS a statement that reflects Operating Costs payments
made by Baan Company prior to the Closing Date.
ARTICLE 3
COVENANTS AND AGREEMENTS RELATED TO EMPLOYEES AT BMS
3.1 Terminated Employees; Severance. Prior to the date hereof, 106
employees, as listed on Schedule 3.1(a) hereto, previously employed by either
Baan Company or VV and outsourced to BMS, were terminated (the "Terminated
Employees"). Of such Terminated Employees, 71 were on the payroll of Baan
Company and outsourced to BMS and 35 were on the payroll of VV and outsourced to
BMS. Baan Company will be responsible for the severance costs for the Terminated
Employees. The severance policy and terms for such Terminated Employees will be
consistent with and similar to those currently provided by applicable Baan
Company severance policies. Baan Company will not be responsible for any
liability with respect to any other claims related to the termination of
employment of the Terminated Employees previously employed by BMS or by VV and
outsourced to BMS, or any claims related to continuation of employment, that
arise or relate to periods prior to their termination of employment. VV will not
be responsible for any liability with respect to any other claims related to the
termination of employment of the Terminated Employees previously employed by
Baan Company and outsourced to BMS, or any claims related to continuation of
employment, that arise or relate to periods prior to their termination of
employment.
3.2 Continuing Employees; Offers of Employment. Baan Company shall make
written offers of continued employment to the Baan Company employees outsourced
to BMS listed on Schedule 3.2 and any other BMS employees or VV employees
outsourced to BMS currently involved in the commercial exploitation of the
Purchased Assets. BMS will not transfer any BMS or VV employee listed on
Schedule 3.2 to another division within BMS prior to the Closing. Those
employees who accept such continuing employment offers or other offers of
employment and report to work for Baan Company shall hereinafter collectively be
referred to as the "Continuing Employees." BMS hereby consents to the hiring of
such Continuing Employees by Baan Company and waives, with respect to the
employment by Baan Company of such Continuing Employees in connection with Baan
Company's operations, any claims or rights BMS may have against Baan Company or
any such Continuing Employee under any non-competition agreement that relates to
the Purchased Assets, any confidentiality agreement that relates to the
Purchased Assets or any employment agreement in effect at the Closing Date.
3.3 Employment Taxes and Social Premiums. BMS shall be responsible for
any withholding or employment taxes or social premiums with respect to (i) all
Terminated Employees previously employed by BMS or by VV and outsourced to BMS
attributable to periods of service prior to their effective date of termination
of employment, and (ii) any Continuing Employee previously employed by BMS or by
VV and outsourced to BMS attributable to periods of service ending on or before
the Closing Date. BMS shall be responsible for filing all appropriate employment
tax returns with respect to such Terminated Employees and Continuing Employees
attributable to periods of service ending on or before the Closing Date.
3.4 Employment Obligations. BMS shall be responsible for any liability
for any employment contract, BMS employee benefit plan or other obligations
(including responsibility for any bonuses) accrued or payable with respect to
any period ending on or before the Closing Date to Continuing Employees
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previously employed by BMS or by VV and outsourced to BMS entered into prior to
the Closing Date. BMS shall be responsible for any liability with respect to any
other claims relating to a Continuing Employee's employment that accrue or arise
on or before the Closing Date if such Continuing Employee was previously
employed by BMS or by VV and outsourced to BMS. Baan Company shall be
responsible for any liability for any employment contract or employment
contractual obligations to Continuing Employees entered into on or after the
Closing Date.
3.5 No Solicitation of Former Employees. Except as provided by law and
except for general solicitation, for a period of one year after the Closing
Date, BMS shall not solicit any Continuing Employee to terminate his or her
employment with Baan Company or to become an employee of BMS, without the prior
written consent of Baan Company.
3.6 Transition of Employees. Prior to Closing and during the first 30
days following Closing, the person(s) responsible for the hiring of Baan
Company's personnel and the person(s) responsible for the hiring of BMS's
personnel shall cooperate and use their best efforts to agree upon an
appropriate transition (where appropriate) of BMS's employees and to resolve all
issues related to such transition.
3.7 No Rights Conferred Upon Employees. Nothing in this Section 3 shall
confer any rights or remedies on any BMS employee and no BMS employee shall be a
third party beneficiary with respect to any covenant in this Agreement.
3.8 COBRA. BMS shall be solely responsible for providing continuing
health coverage, as required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), to employees of BMS and their
dependents who are qualified beneficiaries (as defined in Section 4980B(g)(1) of
the Internal Revenue Code of 1986, as amended) and BMS shall indemnify Baan
Company for any and all loss, cost, or expense relating to any and all
outstanding obligations, liabilities and claims arising under COBRA on or before
the Closing Date.
3.9 Transfer of Assets from the BMS 401(k) Plan. At the request of Baan
Company, BMS will amend the BMS 401(k) Plan to spin off and transfer an amount
equal to the account balances of the Continuing Employees in the BMS 401(k) Plan
valued as of the most recent valuation date preceding the date the transfer is
made to the Baan Company 401(k) Plan. The transfer will be accomplished in full
compliance with the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, the Internal Revenue Code of 1986, as amended,
and regulations and rulings promulgated under each. BMS and Baan Company agree
to cooperate fully and to file in a timely manner whatever reports, forms, and
notices are necessary under applicable law as a result of, and to effect, the
transfer. The transfer will be accomplished by way of a single transfer of plan
assets constituting cash and liabilities, except that any outstanding
participant loans from the BMS 401(k) Plan to Continuing Employees that are not
in default may be transferred in kind to the extent not repaid prior to transfer
and to the extent permitted under the Baan Company 401(k) Plan and its
administrative procedures. BMS agrees to provide to Baan Company in a timely
manner all information necessary to conduct a compliance review of the BMS Plan
prior to transfer and all information for each Continuing Employee, including
without limitation, accrued benefits under the BMS 401(k) Plan as of the date of
transfer, vesting service, and any other employee information required by Baan
Company to determine benefits payable from the Baan Company 401(k) Plan.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BMS
BMS represents and warrants to Baan Company, subject to such exceptions
as are specifically disclosed in the disclosure schedule supplied by BMS to Baan
Company (the "Disclosure Schedule"), as of the date hereof and as of the Closing
Date as follows:
4.1 Organization of BMS. BMS is a closed company with limited liability
duly organized, validly existing and in good standing, or its equivalent, under
the laws of The Netherlands and has full corporate power and authority to carry
on the BMS Business as it is now being conducted and to own the Purchased
Assets.
4.2 Due Authorization. BMS has all requisite corporate power and
authority to execute and deliver this Agreement, and each document, instrument
or agreement contemplated hereby, including but not limited to the documents
delivered at Closing, and to perform its obligations hereunder and thereunder.
The execution, delivery and performance of this Agreement and each document,
instrument or agreement executed pursuant to this Agreement by BMS and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action.
4.3 Due Execution and Enforceability. This Agreement, and each document,
instrument or agreement executed pursuant to this Agreement by BMS, including
but not limited to the documents delivered at Closing, have been duly executed
and delivered by BMS, and assuming due authorization, execution and delivery by
Baan Company, this Agreement and each document, instrument or agreement executed
pursuant to this Agreement by BMS, including but not limited to the documents
delivered at Closing, constitute the legal, valid and binding obligations of
BMS, enforceable against BMS in accordance with their terms.
4.4 No Conflict. The execution and delivery of this Agreement, and each
document, instrument or agreement executed pursuant to this Agreement, including
but not limited to the documents delivered at Closing, and the performance of
the obligations of BMS hereunder and thereunder, (i) are not in violation or
breach of, and will not conflict with or constitute a default under, any of the
terms of the Articles of Association of BMS, or any material contract, agreement
or commitment binding upon BMS or any of the Purchased Assets; and (ii) will
not, to the best knowledge of BMS, conflict with or violate any applicable law,
rule, regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over BMS or any of the Purchased
Assets.
4.5 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by BMS
in connection with the execution, delivery and performance of this Agreement and
each document, instrument and agreement executed pursuant to this Agreement.
4.6 Proprietary Rights and Ownership(a) Ownership. BMS owns or possesses
licenses or other rights to use the Purchased Assets and the Intellectual
Property included therein and constituting part of the Purchased Assets
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(collectively referred to as "Proprietary Rights") and has the rights to sell,
assign, transfer, license and deliver, as applicable, such Proprietary Rights as
contemplated herein.
(b) No Infringement. To the best knowledge of BMS, the
Proprietary Rights do not conflict with or infringe, and no one has asserted to
BMS that such rights conflict with or infringe, any proprietary rights owned,
possessed or used by any third party. There are no claims, disputes, actions,
proceedings, suits or appeals pending against BMS with respect to any
Proprietary Rights and none has been threatened against BMS. There are no facts
or alleged facts which would reasonably serve as a basis for any claim that BMS
does not have the right to use, free of any rights or claims of others, all
Proprietary Rights in the design, development, manufacture, use, sale and other
disposition of any or all products in the BMS Business and services presently
being used, furnished or sold in the conduct of the business of the BMS Business
as it has been and is now being conducted.
(c) Effective Transfer of Necessary Rights. By means of this
Agreement, together with the documents, instruments and agreements contemplated
hereby, BMS will transfer to Baan Company good and marketable title to all
Purchased Assets and Proprietary Rights. The Purchased Assets and Proprietary
Rights sold to Baan Company pursuant to this Agreement, and the documents,
instruments and agreements contemplated hereby and thereby, will transfer all
necessary assets and intellectual property rights required by Baan Company to
conduct the BMS Business and utilize the Third Party Reseller Channel.
4.7 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon BMS, the
Purchased Assets or, to BMS's knowledge, any employee of BMS, which has or could
reasonably be expected to have the effect of prohibiting or impairing any use by
Baan Company of the Purchased Assets following the Closing.
4.8 Capital Equipment and Tangible Assets. All tangible assets and
equipment to be transferred pursuant to Section 1.2(c) hereof are in
substantially good condition and repair and are adequate for the uses to which
they are being put or would be put in the ordinary course of business consistent
with industry standards; all of the tangible assets will be transferred to Baan
Company without any liens or encumbrances.
4.9 Title to Assets. BMS has good and valid title to all of the
Purchased Assets, free and clear of any Liens.
4.10 Contracts. Each of the Assigned Contracts is a legal, binding and
enforceable obligation by or against BMS, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar federal or
state laws affecting the rights of creditors and the effect or availability of
rules of law governing specific performance, injunctive relief or other
equitable remedies (regardless of whether any such remedy is considered in a
proceeding at law or in equity). BMS has not breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under, any
of the terms or conditions of any agreement. Each Assigned Contract is in full
force and effect and is not subject to any default thereunder of which BMS has
knowledge by any party obligated to BMS pursuant thereto. BMS has obtained all
necessary consents, waivers and approvals of parties to any Assigned Contract as
are required to assign all rights and benefits thereunder to Baan Company as of
the Closing.
4.11 Governmental Authorization. There is no consent, license, permit,
grant or other authorization required by a Governmental Entity that is required
to permit BMS to operate or conduct the activities of the BMS Business or hold
any interest in the Purchased Assets. No Governmental Entity has at
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any time notified BMS of any challenge or question regarding the legal right of
BMS to manufacture, offer or sell any of the products of the BMS Business in the
present manner or style thereof.
4.12 Taxes. To the extent a failure to do so would adversely affect Baan
Company, the Purchased Assets or Baan Company's use of the Purchased Assets, (i)
BMS has timely filed within the time the period for filing or any extension
granted with respect thereto, all federal, state, local and foreign tax returns,
reports and estimates ("Returns") which it is required to file relating or
pertaining to any and all taxes attributable to or levied upon the Purchased
Assets, and (ii) paid any and all taxes it is required to pay in connection with
the taxable periods to which such Returns relate. There are (and immediately
following the Closing there will be) no Liens or similar encumbrances on the
Purchased Assets relating or pertaining to taxes, except with respect to taxes
not yet due and payable. BMS has no knowledge of any basis for the assertion of
any claims which, if adversely determined, would result in a Lien or other
encumbrance on the Purchased Assets or otherwise adversely affect Baan Company
or the Purchased Assets.
4.13 Brokers' or Finders' Fees. Except as disclosed in writing to Baan
Company, BMS is not a party to, or in any way obligated under any contract or
outstanding claim for the payment of any broker's or finder's fee in connection
with the execution or performance of this Agreement, the nonpayment of which
could result in the placement of a lien or other encumbrance on the Purchased
Assets, or a claim against Baan Company or its affiliates.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BAAN COMPANY
Baan Company represents and warrants to BMS as of the date hereof and as
of the Closing Date as follows:
5.1 Organization of Baan Company. Baan Company is a public company with
limited liability duly incorporated, validly existing and in good standing, or
its equivalent, under the laws of The Netherlands and has full corporate power
and authority to carry on its business as it is now being conducted and to own
its properties and assets.
5.2 Due Authorization. Baan Company has the requisite corporate power
and authority to execute and deliver this Agreement and each document,
instrument or agreement contemplated hereby, including but not limited to the
documents to be delivered by it at Closing, and to perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and each document, instrument or agreement executed pursuant to this
Agreement by Baan Company and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action.
5.3 Due Execution and Enforceability. This Agreement and each document,
instrument or agreement executed pursuant to this Agreement by Baan Company,
including but not limited to the documents to be delivered at Closing, have been
duly executed and delivered by Baan Company, and assuming due authorization,
execution and delivery by each of VV and BMS, this Agreement and each document,
instrument or agreement executed pursuant to this Agreement by Baan Company,
including but
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not limited to the documents to be delivered at Closing, constitute the legal,
valid and binding obligation of Baan Company enforceable against Baan Company in
accordance with their terms.
5.4 No Conflict. The execution and delivery of this Agreement and each
document, instrument or agreement executed pursuant to this Agreement, including
but not limited to the documents to be delivered at Closing, and the performance
of Baan Company's obligations hereunder and thereunder, (i) are not in violation
or breach of, and will not conflict with or constitute a default under, any of
the terms of the Articles of Association of Baan Company and (ii) will not, to
the knowledge of each of Baan Company, conflict with or violate any applicable
law, rule, regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over Baan Company or any of its
assets or properties.
5.5 Consents and Approvals of Governmental Authorities. Except for the
requirements under the HSR Act, the Dutch Competition Act, the Dutch Works
Council Act and the Dutch Merger Code and the securities, merger and antitrust
laws of any other countries, no consent, approvals or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required to be made or obtained by Baan Company in connection with
the execution, delivery and performance of this Agreement and each document,
instrument and agreement executed pursuant to this Agreement.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Good Faith; Further Assurances. Each party, upon the request of the
other party from time to time after Closing, shall execute and deliver, and use
their reasonable efforts to cause other persons to execute and deliver, to the
other party all such further documents and instruments, and will do or use their
reasonable efforts to cause to be done such other acts, as either party may
reasonably request, more completely to consummate and make effective the
transactions contemplated hereby. Additionally, VV and BMS warrant that neither
of VV nor BMS shall undertake or cooperate with any action to nullify or to have
any acquisition by BMS from Baan Company nullified.
6.2 Provision of Audited Financials. The parties acknowledge that
audited financials have never been prepared and are not currently available for
the BMS Business. In the event Baan Company shall be required under the rules
and regulations of the SEC and/or of Amsterdam Exchanges N.V. to file, or
include in any filing otherwise required to be filed by it under the Securities
Exchange Act or any filing required by the Dutch Civil Code, the Dutch
Securities Act 1995 ("Wet toezicht effectenverkeer 1995") or by Amsterdam
Exchanges N.V., historical audited financial statements (the "Financial
Statements") of BMS Business or the Purchased Assets, then Baan Company shall
notify BMS in writing of such requirement and provide a detailed statement of
all financial statements so required by Baan Company. BMS shall provide to Baan
Company the Financial Statements as soon as practicable following such notice,
but in any event within sixty (60) days after the Closing Date. Baan Company
shall pay one-half of all of the reasonable fees charged and disbursements
incurred by BMS's independent auditors in connection with the preparation of
such Financial Statements. Within thirty (30) days following the BMS's delivery
of the Financial Statements, BMS shall provide Baan Company with a copy of the
auditor's invoice (including such fees and disbursements) and an
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invoice for the amount of one-half of the auditor's invoice. Baan Company shall
pay such invoice within 30 days of receipt.
6.3 Access to Information. BMS agrees to maintain and retain any and all
information regarding the BMS Business operations on or prior to the Closing
Date for a period of four (4) years after the Closing Date. BMS agrees to
provide to Baan Company and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 6.3 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties hereunder.
6.4 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
6.3 or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law or this Agreement, (c)
became known to the public through no fault of such party, (d) is later lawfully
acquired by such party from other sources, (e) is required to be disclosed by
order of court or government agency with subpoena powers or (f) which is
disclosed in the course of any litigation between any of the parties hereto.
6.5 Taxes. BMS shall be responsible for and pay when due all taxes
attributable to or levied or imposed upon the Purchased Assets relating or
pertaining to the period (or that portion of any period) ending on or prior to
the Closing Date. BMS shall continue to timely file within the time period for
filing, or any extension granted with respect thereto, all tax returns required
to be filed in connection with the Purchased Assets. Within ten (10) business
days of the date of this Agreement, BMS shall file or cause to be filed in all
tax jurisdictions in which BMS operates properly completed applications or other
appropriate forms of request with the appropriate governmental agencies required
to obtain certificates of release or other appropriate forms of release or proof
of payment with respect to taxes, if any, for which Baan Company may be liable
under any state or local law as a "successor-in-interest" or otherwise (the "Tax
Certificates").
6.6 BMS Accounts Receivable. Baan Company hereby agrees that it will, at
its own cost and expense, as BMS's agent, use its reasonable commercial efforts
to collect from the customers, as and when the same become due, the amounts
owing to BMS on the list of accounts receivable that shall be mutually agreed to
and identified on Schedule 6.6 to be attached hereto as soon as practicable
following the Closing Date. Notwithstanding the foregoing, in the event of a
default under any accounts receivable, BMS shall retain all power and authority
to take such action with respect to any defaulted accounts receivable as BMS may
deem advisable. Baan Company and BMS hereby agree that: (i) BMS shall indemnify
Baan Company against any claim or liability with respect to Baan Company's acts
relative to the accounts receivable, and (ii) Baan Company shall have no
obligation to take any action or commence any proceedings to realize the
proceeds of any accounts receivable (including, without limitation, any
delinquent accounts receivable) or to enforce any rights or remedies with
respect thereto. Baan Company shall forward collections of accounts receivable
to BMS. BMS may at any time, by notice in writing, terminate Baan Company's
authority to act as its agent and on its behalf as set forth in this Section
6.6.
6.7 Baan Name. Immediately after the Closing, BMS shall take, or procure
to be taken, all necessary action to change the name of Baan Midmarket Solutions
B.V., and all subsidiaries of BMS and all
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other entities controlled by BMS using the name "Baan" or "Baan Midmarket
Solutions," or the initials "BMS." BMS and all entities controlled by BMS shall
cease immediately using in any manner whatsoever the name "Baan" and the Baan
Company logo unless there is subsequent to this Agreement a separate written
license agreement between Baan Company and such entity specifically granting
such entity the right to use the "Baan" name or logo. BMS and VV hereby further
acknowledge and agree that Baan Company owns all right, title, and interest in
and to the "Baan" name and any logo, trademark, product mark, service mark,
trade name, brand name, or other name of any kind that utilizes the "Baan" name,
including without limitation Baan Midmarket Solutions (and the acronym BMS) and
Baan on Board.
6.8 Share Purchase Agreement. Baan Company and VV shall enter into the
Share Purchase Agreement in the form attached hereto as Exhibit D.
6.9 Joint Venture Agreement. Upon the Closing, the Joint Venture
Agreement, and the respective rights and obligations of the parties thereunder,
shall terminate, and be of no further force or effect, and the parties shall
have no further obligations thereunder to each other. Without limiting the
generality of the foregoing, BMS agrees that, effective immediately, it no
longer has any rights whatsoever to license, sublicense, sell, or otherwise
exploit in any way any Baan Company software, other products, or other
proprietary materials or information.
ARTICLE 7
PAYMENT OF EXPENSES
Except as specifically set forth otherwise in this Agreement, each of
Baan Company and BMS shall each pay its own fees and expenses incurred incident
to the preparation and carrying out of the transactions herein contemplated
(including legal, accounting and travel).
ARTICLE 8
INDEMNIFICATION AND RELEASE
8.1 Agreement to Indemnify. BMS and VV hereby agree to indemnify and
hold Baan Company, and its directors, officers and affiliates (collectively, the
"Indemnitees"), harmless against and in respect of any loss, cost, expense
(including expenses of investigation), claim, liability, deficiency, judgment or
damage, including reasonable legal and accounting fees and expenses
(hereinafter, individually, a "Loss," and collectively, "Losses") in an amount
not to exceed the Minimum Amount incurred by Baan Company, its officers,
directors, or affiliates, directly or indirectly, as a result of any inaccuracy
in or breach of a representation or warranty of BMS contained in this Agreement
or any failure by BMS to perform or comply with any covenant or agreement
contained in this Agreement or any liability that is not assumed pursuant to
Section 1.3.
8.2 Release. The parties agree that any and all consideration paid in
connection with the Joint Venture Agreement, BMS's operation, and this Agreement
was/were fully negotiated among the parties with the opportunity for review by
counsel and external advisers. Each of VV, BMS and Baan Company hereby releases
the other, and their respective subsidiaries, affiliates, officers, directors,
shareholder, agents and
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representatives, from any and all liability and claims of any kind arising from
or related to the adequacy or fairness of any such consideration.
ARTICLE 9
SURVIVAL AND AMENDMENT
9.1 Survival of Representations and Warranties. The representations and
warranties of the BMS as set forth in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing and shall not
terminate until December 31, 2001.
9.2 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
ARTICLE 10
GENERAL
10.1 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy, or by
overnight courier service, as follows:
BMS: Baan Midmarket Solutions B.V.,
p/a Vanenburg Ventures B.V.
Vanenburgeralle 15
3882 RH Putten
The Netherlands
Attention: Michel Cornelissen
Fax: 31-342-477667
Baan Company: Baan Company N.V.
11911 Freedom Drive, Suite 300
Reston, Virginia 20190-5602
Attention: Robert Goudie
Fax: (703) 471-8786
or:
Baron van Nagellstraat 89
P.O. Box 143
3770 AC Barneveld
The Netherlands
Attention: Klaas Wagenaar
Fax: 011-31-342-428-659
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<PAGE> 34
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid. Any such notice shall be deemed given when delivered
personally, four days after being sent certified mail, postage prepaid, or the
next business day if delivered by telecopy or overnight courier service.
10.2 Headings. The headings of the several sections of this Agreement
are inserted for convenience of reference only and are not intended to affect
the meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
10.4 Binding Nature. This Agreement shall be binding upon, shall inure
to the benefit of, and be enforceable by and against, the parties hereto and
their respective successors and permitted assigns. No party may assign or
transfer any rights under this Agreement, except that Baan Company may assign
this Agreement, and any document, instrument or agreement executed pursuant to
this Agreement to a successor to substantially all of its business.
10.5 Entire Agreement. Except as set forth in the other documents,
instruments or agreements executed in connection with this Agreement, this
Agreement and the schedules referred to herein (a) set forth the entire
understanding between the parties, (b) supersede all previous written or oral
negotiations, commitments, understandings and agreements relating to the subject
matter hereof (except the agreements regarding confidential information referred
to in Section 6.4 hereof) and (c) merge all prior and contemporaneous
discussions between the parties relating to the subject matter hereof. No party
shall be bound by any definition, condition, representation, warranty or
covenant or provision other than as contained herein or contemplated hereby.
10.6 Incorporation of Schedules. All schedules attached hereto are by
this reference incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
10.7 Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of The Netherlands. Any dispute,
controversy or the breach, termination or invalidity thereof shall be resolved
in any court of proper jurisdiction in The Netherlands. The proceedings shall be
conducted in the Dutch language.
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<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, and the parties
have each signed this Agreement, all as of the date first above written.
VANENBURG VENTURES B.V. BAAN COMPANY N.V.
By: /s/ Jan Willem Krooshof By: /s/ Tom C. Tinsley
------------------------------ ----------------------------------
Jan Willem Krooshof Tom C. Tinsley
Chief Operating Officer Chief Executive Officer
BAAN MIDMARKET SOLUTIONS B.V.
By: /s/ Esmeraldo Vos
------------------------------
Esmeraldo Vos
[SIGNATURE PAGE FOR ASSET PURCHASE AGREEMENT]
<PAGE> 1
EXHIBIT A.1
The following is a list of all the subsidiaries of the Company:
Baan International B.V.
Baan Development B.V.
Baan Software B.V.
Baan Austria GmbH
Baan (Schweiz) AG
Baan Nederland B.V.
Baan Belgium N.V.
Baan France S.A.
Baan Nordic AB
Baan UK Ltd.
Baan Holding Central Europe GmbH
Baan South Africa (Proprietary) Limited
Baan U.S.A., Inc.
Baan Canada, Inc.
Baan Brasil Sistemas de Informatica Ltda.
Baan Argentina Ltda.
Baan Info Systems India Pvt. Ltd.
Baan Software India Pvt. Ltd.
Baan Japan Co., Ltd.
Baan (Malaysia) Sdn. Bhd.
Baan Education Asia Pacific (M) Sdn Bhd.
Baan Singapore Pte. Ltd.
Baan Asia Pacific Pte. Ltd.
Baan Korea Co. Ltd.
Baan Australia Pty. Ltd.
Baan Iberica I.S., S.A.
Baan Italia S.r.l.
Baan China Limited
Antalys, Inc.
Matrix Holding B.V.
Beologic A/S
CAPS Logistics, Inc.
CODA Plc.
Compact 3000 Ltd.
<PAGE> 1
EXHIBIT A.2
CONSENT OF PRICEWATERHOUSECOOPERS N.V.,
INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-92502) pertaining to the 1993 Stock Plan, the 1995 Director
Option Plan, the 1995 Employee Stock Purchase Plan for U.S. Employees and the
1995 Employee Stock Purchase Plan for Non-U.S. Employees; Registration Statement
(Form S-8 No. 333-34479) pertaining to Amended 1995 Stock Plan and 1996 Director
Option Plan of Aurum Software, Inc.; Registration Statement (Form S-8 No.
333-34973) pertaining to the 1993 Stock Plan of Baan Company N.V.; Registration
Statement (Form F-3 No. 333-24201) and related Prospectus pertaining to
Convertible Subordinated Notes of Baan Company N.V., of our report dated March
1, 1999, with respect to the consolidated financial statements of Baan Company
N.V. included in the Annual Report on Form 20-F for the year ended December 31,
1998.
PricewaterhouseCoopers N.V.
Amsterdam, The Netherlands
June 2, 1999
<PAGE> 1
EXHIBIT A.3
CONSENT OF ERNST & YOUNG ACCOUNTANTS,
INDEPENDENT AUDITORS
We consent to the incorporation by reference in the (i) Registration
Statement (Form S-8 No. 33-92502) pertaining to the 1993 Stock Plan, the 1995
Director Option Plan, the 1995 Employee Stock Purchase Plan for U.S. Employees
and the 1995 Employee Stock Purchase Plan for Non-U.S. Employees, (ii)
Registration Statement (Form S-8 No. 333-34479) pertaining to Amended 1995 Stock
Plan and 1996 Director Option Plan of Aurum Software, Inc., (iii) Registrations
Statement (Form S-8 No. 333-34973) pertaining to the 1993 Stock Plan of Baan
Company N.V., and (iv) Registration Statement (Form F-3 No. 333-24201) and
related Prospectus pertaining to Convertible Subordinated Notes of Baan Company
N.V., of our report dated May 4, 1998, with respect to the consolidated
financial statements of Baan Company N.V. included in the Annual Report (Form
20-F) for the year ended December 31, 1998.
Ernst & Young Accountants
Utrecht, The Netherlands
June 2, 1999
