Exhibit (r)
[BAAN LOGO]
BAAN COMPANY N.V.
Barneveld, August 3, 2000
To the shareholders of Baan Company N.V.
You are hereby invited to attend the Extraordinary General Meeting of
Shareholders of Baan Company N.V., a company with limited liability incorporated
under the laws of the Netherlands, to be held on Friday August 18, 2000, at
09:00 hrs (CET), at Conference Center 'Hart van Holland', located at
Berencamperweg 12, 3861 MC Nijkerk, the Netherlands.
Included are the Agenda for the Extraordinary General Meeting of Shareholders,
the Explanatory Notes to the Agenda, and a proxy card for use in connection with
the Extraordinary General Meeting of Shareholders.
If you tendered your shares to Invensys Holdings Limited ('Invensys') in
accordance with its offer to purchase all outstanding common shares of Baan
Company N.V., we ask that you disregard this invitation. Only current
shareholders will be admitted and will have voting rights at the Extraordinary
General Meeting of Shareholders.
Yours sincerely,
Baan Company N.V.
/s/ J.C. (HANS) WORTMANN
------------------------
J.C. (Hans) Wortmann,
Interim Chairman of the Board of
Supervisory Directors
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BAAN COMPANY N.V.
AGENDA
EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
Extraordinary General Meeting of Shareholders (the "Meeting") of Baan Company
N.V. (the "Company") to be held on Friday August 18, 2000, at 09:00 hrs (CET),
at Conference Center 'Hart van Holland', located at Berencamperweg 12, 3861 MC
Nijkerk, the Netherlands.
A. Opening
B. Items of business:
1. Annual Report of the Board of Managing Directors for the year ended
December 31, 1999:
a. Consideration and adoption of the Annual Accounts of the Company for
the year ended December 31, 1999
b. Discharge of the members of the Boards of Managing and Supervisory
Directors
2. Appointment of new members of the Board of Managing Directors
3. Appointment of new members of the Board of Supervisory Directors
4. Consideration and approval of the execution and performance by the
Company of the "Asset Purchase Agreement and Offer Amendment" dated July
26, 2000 between the Company and Baan Software B.V. on the one hand and
Invensys Holdings Limited and Invensys Plc. on the other hand and all
transactions contemplated thereby
5. Partial amendment of the Company's Articles of Association to change the
financial year of the Company from the calendar year to a financial year
from September 1 through August 31
6. Any other business as may properly come before the Meeting
7. Questions
C. Closing
The foregoing items B.1 - B.6 are more fully described in the Explanatory Notes
to the Agenda.
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BAAN COMPANY N.V.
EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
AUGUST 18, 2000
------------------------
EXPLANATORY NOTES TO AGENDA
I. GENERAL
The enclosed Proxy is solicited on behalf of Baan Company N.V., a company
with limited liability incorporated under the laws of the Netherlands
("Baan" or the "Company"), for use at the Extraordinary General Meeting of
Shareholders (the "Meeting") to be held on Friday August 18, 2000, at 09:00
hrs (CET), or at any adjournment thereof, for the purposes set forth
herein, and in the accompanying Agenda. The Meeting will be held at
Conference Center 'Hart van Holland', located at Berencamperweg 12, 3861 MC
Nijkerk, the Netherlands. The Company's telephone number is
+31-342-428-888.
The proxy solicitation materials have been mailed on or about August 3,
2000, to all holders of registered shares of the Company as of July 28,
2000.
II. PROCEDURE FOR ATTENDANCE
In order to attend the Meeting and exercise their rights at the Meeting (in
person or by proxy) holders of bearer shares and registered shares must do
the following:
(i) Bearer shares: Holders of bearer shares, and usufructuaries and
pledgees that may exercise voting rights on bearer shares, are
required to deposit on or prior to Monday August 14, 2000 (before
4.00 p.m. local time) until after closing of the Meeting their
share certificates or a deposit certificate issued in respect of
such shares by a banking institution, against issuance of a
receipt, at the offices of ABN AMRO Bank N.V., Herengracht 595,
Amsterdam, the Netherlands, or at the offices of Morgan Guaranty
Trust Company of New York, Depository, Attn: William Yetto, P.O.
Box 9383, Boston, MA 02205-9958, United States of America. Only
such receipt shall entitle the shareholder, usufructuary, or
pledgee with voting rights to attend the Meeting;
(ii) Registered shares: Holders of registered shares, and
usufructuaries and pledgees that may exercise voting rights on
registered shares, are required to notify the Company in writing
of their intention to attend the Meeting on or prior to Monday
August 14, 2000 (before 4.00 p.m. local time) by delivering such
notification to one of the offices of the Company at Baron van
Nagellstraat 89, 3771 LK Barneveld, the Netherlands, or at 2191
Fox Mill Road, Herndon, VA 20171, United States of America, or to
one of the above mentioned offices of ABN AMRO Bank N.V. or
Morgan Guaranty Trust Company of New York, together with a
specification of the numbers of any share certificates which may
have been issued in respect of such shares. Upon timely receipt
of such notification, the shareholder, usufructuary or pledgee
with voting rights, shall be provided with an admission ticket
for the Meeting. A shareholder, usufructuary or pledgee with
voting rights may only exercise his rights at the Meeting in
respect of the shares that are registered in his/her name at both
the time of notification and the date of the Meeting.
Notification will be deemed to have been properly made if a duly
completed proxy card is returned to the Company in a timely
manner, as provided below.
The Meeting shall decide whether any person other than those indicated
above can attend the Meeting. All holders of voting rights or their
representatives will be requested to sign an attendance list at the
Meeting.
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III. VOTES REQUIRED FOR RESOLUTIONS
Each proposal requires the majority of the votes cast at the Meeting. Each
share is entitled to one vote.
IV. PROXIES
The right of a shareholder, usufructuary, or pledgee with voting rights to
attend and vote at the Meeting can be exercised on his behalf by a person
who is authorized in writing to do so. The written proxy must be deposited
no later than at the time, and at the place, indicated above for bearer
shares (or a deposit certificate). Holders of registered shares have been
sent a proxy card which can be used for such purpose; proper completion and
timely return of the proxy card by holders of registered shares, together
with a specification of the numbers of any share certificates issued in
respect of their shares (see above), constitutes proper notice of intent to
attend by proxy for the purposes hereof.
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Morgan Guaranty Trust Company of New York, the
Company's US transfer agent and registrar, to aid in the solicitation of
proxies from brokers, bank nominees and other institutional owners, on
terms customary for such services. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares
for their expenses in forwarding solicitation materials to such beneficial
owners. Proxies may also be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone or telegram.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Meeting and voting in person.
V. EXPLANATORY NOTES TO AGENDA ITEMS
EXPLANATORY NOTE TO ITEM B.1 -- ANNUAL REPORT OF THE BOARD OF MANAGING
DIRECTORS FOR THE YEAR ENDED DECEMBER 31, 1999; CONSIDERATION AND ADOPTION
OF THE ANNUAL ACCOUNTS OF THE COMPANY FOR THE YEAR ENDED DECEMBER 31, 1999;
DISCHARGE OF THE MEMBERS OF THE BOARDS OF MANAGING AND SUPERVISORY
DIRECTORS
At the Extraordinary General Meeting of Shareholders of June 29, 2000 the
shareholders extended through November 30, 2000 the time by which the
Company must draw up and make available to the shareholders the Statutory
Annual Accounts for the year ended December 31, 1999. This Extraordinary
General Meeting of Shareholders serves as the annual meeting for
presentation of the annual report and adoption of the annual accounts as
required by the Company's Articles of Association.
After a presentation of the Company's Annual Report for the year ended
December 31, 1999, the shareholders will be asked (i) to adopt the
Company's Statutory Annual Accounts for the year ended December 31, 1999
(each of the Annual Report and the Statutory Annual Accounts having been
prepared in accordance with Netherlands law), and (ii) to discharge the
members of the Boards of Managing and Supervisory Directors.
The Annual Report and the Statutory Annual Accounts have been previously
drawn up by the Board of Managing Directors and approved by the Board of
Supervisory Directors of the Company. Copies of the Annual Report and of
the Statutory Annual Accounts have been deposited for inspection by the
shareholders at the Company's offices located at Baron van Nagellstraat 89,
3771 LK Barneveld, the Netherlands and at the offices of ABN AMRO Bank
N.V., Herengracht 595, Amsterdam, the Netherlands; they have also been made
available on the Company's Web site at www.baan.com. A copy is also
attached; a version of the Statutory Annual Accounts in the Dutch language
will be available at the above mentioned offices of ABN AMRO Bank, N.V. or
at the Company's Netherlands headquarters. Included in the Statutory Annual
Accounts is the report of PricewaterhouseCoopers N.V., the Company's
independent auditors.
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The shareholders are asked to discharge members of the Board of Managing
Directors in respect of their management and members of the Board of
Supervisory Directors in respect of their supervision during the 1999
financial year insofar as such management and supervision, respectively, is
apparent from the Annual Report and the Statutory Annual Accounts.
According to article 2:362 paragraph 7 of the Dutch Civil Code, the
Company's Statutory Annual Accounts (consisting of the balance sheet and
the profit and loss accounts) can be prepared in a non-Dutch currency if
the activities of the Company or the international diversity of its group
so justify. The Company has prepared its Statutory Annual Accounts in US
Dollars since 1994.
EXPLANATORY NOTE TO ITEM B.2 -- APPOINTMENT OF NEW MEMBERS OF THE BOARD OF
MANAGING DIRECTORS
According to the Articles of Association of the Company, the general
meeting of shareholders needs to appoint new members of the Board of
Managing Directors. At the Annual General Meeting of Shareholders held last
June 23, 1999, the shareholders appointed Mary Coleman, Peter Aird, James
Mooney, Andrew Nash, Laurens van der Tang, and Klaas Wagenaar as members of
the Board of Managing Directors. Since then Mary Coleman, James Mooney,
Andrew Nash and Klaas Wagenaar have resigned. Peter Aird and Laurens van
der Tang have continued to serve on the Board of Managing Directors. Peter
Aird has indicated that he wishes to resign and will resign from the
Management Board effective as of the date of this Meeting. The Board of
Supervisory Directors is pleased to recommend for appointment a new Board
of Managing Directors consisting of the individuals identified below.
According to article 15 paragraph 2 of the Articles of Association of the
Company, the Board of Supervisory Directors is authorized to grant titles
to the members of the Board of Managing Directors, if so desired. The
shareholders are being asked to appoint the following individuals as
members of the Board of Managing Directors (with their titles, as approved
by the Board of Supervisory Directors, next to each name in parentheses):
(a) Bruce A. Henderson (Chairman);
(b) Laurens van der Tang (President);
(c) J.C. (Hans) Wortmann (Senior Vice President Research & Development);
(d) David S. Wyman (Chief Financial Officer, Invensys Software and Systems
Division);
(e) Christopher J. Besley (Treasurer); and
(f) Tim Voak (Tax Director).
Certain information regarding the nominees is set forth below.
Bruce Henderson was appointed Division Chief Executive of the Invensys
Intelligent Automation Division in September 1999, having previously served
as Division Chief Executive of the Invensys Controls Division from February
1999 to September 1999 and President of Siebe Appliance Controls from 1995
to February 1999. Having worked as a McKinsey & Company consultant between
1977 and 1983, he then served in a number of senior executive positions
with TRW Inc. between 1983 and 1995, including Managing Director, Quality
Safety Systems and Vice President and General Manager, Electronic
Convenience Systems.
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 Development, and in January 1992 he was
named Vice President, Product Development. In January 1995, he was promoted
to Vice President, Research and Development of the Company and, in March
1997, to Executive Vice President, Research and Development. In his most
recent position, Mr. van der Tang has been responsible for the management
and strategy of the Company's product research and development groups.
J.C. (Hans) Wortmann served as a Supervisory Director of the Company from
May 1995 to date, most recently as its Interim Chairman, since Joop Janssen
took a leave of absence for health reasons. Since
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1989, Mr. Wortmann has been a Professor at the School of Technology
Management of the Technical University of Eindhoven in the Netherlands. He
has also provided consulting services to Baan Development B.V. in the area
of overall product architecture.
David Wyman was appointed Vice President Transition for the Invensys
Software and Systems Division (ISS) in June 2000. He was previously
Assistant VP of Finance for the Invensys Controls Division, having joined
Invensys in late 1997 as the Assistant VP of Finance for the Siebe
Appliance Controls Group. Between 1985 and 1997 he had served in a number
of senior Finance roles with Texas Instruments.
Justin Besley was appointed Group Treasurer of Invensys Plc. in February
1999, having previously served as Group Treasurer of BTR Plc. from
September 1998 to February 1999 and Head of Treasury Operations of BTR Plc.
from December 1993 to September 1998.
Tim Voak was appointed as Head of Group Tax for Invensys Plc. on January 4,
2000, having previously served as Group Tax Director at Lucas Industries
and Lucas Varity Plc. from June 1993 to December 1999. Prior to that he has
worked for The British Petroleum Company Plc. (now BP Amoco Plc.) and the
UK Inland Revenue.
EXPLANATORY NOTE TO ITEM B.3 -- APPOINTMENT OF NEW MEMBERS OF THE BOARD OF
SUPERVISORY DIRECTORS
The Board of Supervisory Directors currently consists of J.C. (Hans)
Wortmann (Interim Chairman since Joop Janssen took a leave of absence for
health reasons), David C. Hodgson, and William O. Grabe. Since the 1999
EGM, Pierre Everaert temporarily stepped down from his service on the Board
of Supervisory Directors to assume the role of Interim CEO upon the
resignation of Mary Coleman as CEO in January 2000. Since the 1999 EGM John
W. Barter, General H.G.B. (Henk) van den Breemen (ret.), and Koichi
Nishimura resigned from the Board of Supervisory Directors. The terms of
Hans Wortmann and David Hodgson will expire on the date of this Meeting.
Joop Janssen and William Grabe have indicated that they wish to resign and
will resign from the Supervisory Board effective as of the date of this
Meeting.
According to the Articles of Association of the Company, members of the
Board of Supervisory Directors must be appointed by the general meeting of
shareholders. The Company is pleased to be able to put forth for
shareholder ratification the appointment of the following individuals as
members of the Board of Supervisory Directors:
(a) Kathleen A. O'Donovan;
(b) James F. Mueller;
(c) James C. Bays;
(d) John B. Saunders; and
(e) Robert E. Goudie, Jr.
Each person is nominated to be appointed to serve for a term commencing
August 18, 2000 and continuing through the Annual General Meeting of
Shareholders to be held in the year 2003. Pierre Everaert, who stepped down
temporarily from the Board of Supervisory Directors to serve as Interim
Chief Executive Officer of the Company on January 5, 2000, will resume his
duties as member of the Supervisory Board effective as of the date of this
Meeting. His term continues through the Annual General Meeting of
Shareholders to be held in the year 2002.
The statutorily required information regarding the nominees is set forth
below.
<TABLE>
<CAPTION>
NAME OF NOMINEE PRINCIPAL OCCUPATION AGE
--------------- -------------------- ---
<S> <C> <C>
Kathleen A. O'Donovan.......... Nominee as Supervisory Director; Chief Financial 43
Officer, Invensys Plc.
James F. Mueller............... Nominee as Supervisory Director; Chief Operating 54
Officer, Invensys Plc.
</TABLE>
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<TABLE>
<CAPTION>
NAME OF NOMINEE PRINCIPAL OCCUPATION AGE
--------------- -------------------- ---
<S> <C> <C>
James C. Bays.................. Nominee as Supervisory Director; Senior Vice 51
President, General Counsel and Chief Legal Officer,
Invensys Plc.
John B. Saunders............... Nominee as Supervisory Director; Senior Vice 57
President and Director of Corporate Strategy and
Development, Invensys Plc.
Robert E. Goudie, Jr........... Nominee as Supervisory Director; Senior Vice 41
President, General Counsel and Secretary to the
Board of the Company
Pierre J. Everaert............. Temporarily stepped down as Supervisory Director of 60
the Company to serve as Interim CEO of the Company;
Founder of E C Consult B.V.; Professor at the
University of Gent
</TABLE>
Kathleen A. O'Donovan (Chief Financial Officer, Invensys Plc.) Kathleen
O'Donovan was appointed Chief Financial Officer and a member of the Board
of Directors of Invensys Plc. in February 1999, prior to which she had been
Finance Director and a member of the Board of Directors of BTR Plc. since
1991. She was a Partner of Ernst & Young from 1989 until June 1991. She has
also served since November 1997 as a non-executive member of the Board of
Directors of EMI Group Plc., a listed British media group, and as a
director of the Bank of England since August 1999.
James F. Mueller (Chief Operating Officer, Invensys Plc.) James Mueller was
appointed as Chief Operating Officer of Invensys Plc. in February 1999 and
as a member of the Board of Directors from March 2000, having previously
served as a member of the Board of Directors of Siebe Plc. from April 1996
until February 1999. His prior appointment had been as President and Chief
Operating Officer of Siebe Temperature and Appliance Control from 1993
until February 1999. His business experience includes senior executive
positions with The Thomas Group, TRW Inc. and Bundy Corporation.
James C. Bays (Senior Vice President, General Counsel and Chief Legal
Officer, Invensys Plc.) James Bays was appointed as Senior Vice President,
General Counsel and Chief Legal Officer, Invensys Plc. in February 1999,
having previously served as Vice President, General Counsel and Chief Legal
Officer of Siebe Plc. since 1996. Prior to that he had served in senior
legal positions with GenCorp Inc. and TRW Inc. and as an attorney at Jones,
Day, Reavis & Pogue.
John B. Saunders (Senior Vice President and Director of Corporate Strategy
and Development, Invensys Plc.) John Saunders was appointed as Senior Vice
President and Director of Corporate Strategy and Development, Invensys Plc.
in February 1999 having previously served as Director, Corporate Strategy
and Development of BTR Plc. from January 1996 until February 1999. His
previous executive experience has included appointments as Senior Vice
President and Director Corporate Strategy at SmithKline Beecham Plc. from
1988 until 1995, Director of Corporate Development at the Plessey Company
Plc. and Director, Strategic Consulting at PA Management Consultants.
Robert E. Goudie, Jr. (Senior Vice President, General Counsel and Secretary
to the Board of the Company) Robert Goudie joined the Company in April 1998
as Senior Vice President, General Counsel and Secretary to the Board. Mr.
Goudie has had 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.
Pierre J. Everaert (Founder of E C Consult B.V. and Professor at the
University of Gent) Pierre J. Everaert became a member of the Supervisory
Board of the Company in March 1999 and was elected its Chairman one month
later. He stepped down temporarily from that role on January 5, 2000 to
assume the role of Interim CEO of the Company. He has 15 years of executive
experience: at Goodyear; at General Biscuits S.A. (Paris, France), where he
was Vice Chairman; at Ahold USA Inc. as CEO; and at 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
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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 KPNQwest (the Hague, the
Netherlands) and is a member of the board of several privately held
companies.
Principal Share Ownership. On the record date, July 28, 2000, an aggregate
of 267.338.018 shares of the Company's Common Shares were issued and
outstanding. The following table sets forth the beneficial ownership of the
Company's Common Shares as of such date by each nominee for election to the
Board of Supervisory Directors:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED APPROXIMATE PERCENT OWNED
------------------------ ------------------------- -------------------------
<S> <C> <C>
Kathleen A. O'Donovan 0 0
James F. Mueller 0 0
James C. Bays 0 0
John B. Saunders 0 0
Robert E. Goudie, Jr. 3,000 (*) Less than 1%
Pierre Everaert 125,000 (*) Less than 1%
</TABLE>
---------------
(*) All shares were tendered to Invensys
EXPLANATORY NOTE TO ITEM B.4 -- CONSIDERATION AND APPROVAL OF THE EXECUTION
AND PERFORMANCE BY THE COMPANY OF THE "ASSET PURCHASE AGREEMENT AND OFFER
AMENDMENT" DATED JULY 26, 2000 BETWEEN THE COMPANY AND BAAN SOFTWARE B.V.
ON THE ONE HAND AND INVENSYS HOLDINGS LIMITED AND INVENSYS PLC. ON THE
OTHER HAND AND ALL TRANSACTIONS CONTEMPLATED THEREBY
The shareholders will be asked to consider, authorize, and approve an Asset
Purchase Agreement and Offer Amendment (the "Purchase Agreement") entered
into among the Company, its wholly-owned subsidiary, Baan Software B.V.,
Invensys Plc. ("Invensys"), a public limited company organized under the
laws of England and Wales, and its wholly-owned subsidiary, Invensys
Holdings Limited ("Invensys Holdings"), a private limited company also
organized under the laws of England and Wales. (A copy of the Purchase
Agreement is available on the Company's website at www.baan.com and on the
on-line website database of the United States Securities and Exchange
Commission at www.sec.gov/edgarhp.htm. It will also be available upon
request at the Meeting.)
As shareholders are aware, Invensys Holdings has offered to purchase all of
the Company's outstanding common shares for Euro 2.85 per share, an offer
which the Management Board and Supervisory Board recommended to
shareholders and which was fully discussed at the Extraordinary General
Meeting of Shareholders on June 29, 2000. If approved, the proposed
Purchase Agreement would assure the completion of the orderly transfer of
the Company's business to Invensys. Upon completion of the transfer, the
Company would be liquidated. It is expected that this will occur within the
next twelve months. The Purchase Agreement provides that, upon such
liquidation, Invensys will assure that the Company has sufficient assets to
distribute (on a gross basis) to or on behalf of its shareholders Euro 2.85
per share. Tax treatment of monies received by shareholders in liquidation
may be different than those received in a tender offer and shareholders are
advised to seek independent tax advice.
Invensys Holdings is part of the Invensys Group, a global leader in the
automation and controls industry, providing innovative solutions and
services to its customers, with an increased focus on software, networks
and electronics. Invensys' products and services range from sophisticated
control systems for automating industrial plants, to electronic devices and
controls for homes and offices together with complete power systems to
protect the world's telecommunications and information technology networks.
Invensys operates in all regions of the world and in the fiscal year ended
March 31, 2000 had turnover from on-going operations in excess of Dfl. 24
billion.
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Invensys has advised the Management Board and Supervisory Board that,
following the proposed purchase, the Company's business will form a key
part of a newly-created Invensys Software and Systems Division, which will
have annual turnover in excess of Dfl. 4.5 billion. In the opinion of the
Management Board and Supervisory Board, the transfer of the Company's
business to Invensys is the best alternative available to the Company in
that it will provide the Company's customers with needed assurance of the
business' financial stability, provide employees with a more stable work
environment, and assure shareholders of the opportunity to realize (on a
gross basis) Euro 2.85 per share on their investment. The Company's Works
Council has given its positive advice on this transaction.
EXPLANATORY NOTE TO ITEM B.5 -- PARTIAL AMENDMENT OF THE COMPANY'S ARTICLES
OF ASSOCIATION TO CHANGE THE FINANCIAL YEAR OF THE COMPANY FROM THE
CALENDAR YEAR TO A FINANCIAL YEAR FROM SEPTEMBER 1 THROUGH AUGUST 31
On the proposal of the Board of Managing Directors, approved by the Board
of Supervisory Directors, the shareholders are being asked to amend the
Articles of Association of the Company in accordance with the proposed
amendment attached to these Explanatory Notes as Exhibit 1. Currently, the
Company and its Dutch subsidiaries are in fiscal unity, with their
financial year ending at the end of the calendar year. The Closing under
the Asset Purchase Agreement and Offer Amendment will result in the ending
of the current fiscal unity enjoyed by the Company and these subsidiaries.
The purpose of this proposed amendment is to preserve fiscal unity by
changing the financial year of the Company in such a fashion that the
current book year ends on August 31, the business day immediately preceding
the Closing of the Asset Purchase Agreement and Offer Amendment. The
financial year of the Company will then run from September 1 through August
31. Upon approval of this partial amendment of the Articles of Association
the fiscal year of a number of the Dutch subsidiaries of the Company will
be changed in the same fashion. Preservation of the fiscal unity will allow
any tax losses arising in these Dutch subsidiaries of the Company in the
period from January 1, 2000 until Closing to be available to the Company.
EXPLANATORY NOTE TO ITEM B.6 -- ANY OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING
If any matters not listed on the Agenda properly come before the meeting,
it is the intention of the persons named in the enclosed proxy to vote the
shares they represent as the Board of Managing Directors may recommend.
Under the Company's Articles of Association, however, a proposal not
included in the agenda may only be approved at the Meeting in the event
that the entire issued capital of the Company is represented at the
Meeting, in person or by proxy, and the proposal is unanimously approved.
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EXHIBIT 1 TO EXPLANATORY NOTES
TO AGENDA
FINANCIAL YEAR/DRAWING UP THE ANNUAL ACCOUNTS
Article 26
1. The financial year of the company shall be [the calendar year] September 1
through August 31.
2. Annually, not later than five months after the end of the financial year, the
management board shall draw up the annual accounts, unless by reason of
special circumstances this term has been extended by the general meeting.
3. Within the period referred to in paragraph 2, the annual accounts shall be
deposited for inspection by the shareholders at the office of the company.
Within this period of time the management board shall also submit the annual
report. The statement of the accountant as mentioned in article 27 and the
additional information required by virtue of the law shall be added to the
annual accounts.
4. The annual accounts shall be signed by the members of the management board
and the supervisory board; if the signature of one or more of the members is
lacking, this shall be stated and reasons given.
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BAAN COMPANY N.V.
STATUTORY ACCOUNTS 1999
<TABLE>
<CAPTION>
CONTENTS PAGE
-------- ----
<S> <C>
Company Profile........................................................ 2
Report of the Supervisory Board........................................ 4
Management Board Report................................................ 6
Financial Statements
- Consolidated balance sheet........................................... 15
- Consolidated income statement........................................ 17
- Consolidated cash flow statement..................................... 18
- Notes to the consolidated financial statements....................... 20
- Corporate balance sheet.............................................. 33
- Corporate income statement........................................... 35
- Notes to the corporate financial statements.......................... 36
Other Information
- Appropriation of net results......................................... 45
- Subsequent events.................................................... 45
- Report of the auditors............................................... 47
</TABLE>
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COMPANY PROFILE
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, enterprise software applications that are in use by more than
7,000 customers at over 15,000 sites worldwide. Software applications and
related services offered by the Company help customers gain competitive
advantage through improvements to core business processes and by supporting
Internet commerce.
On May 31, 2000, Invensys plc offered to purchase all the outstanding issued
share capital of the Company for Euro 2.85 per share. Details of the offer are
set forth in the Company's Schedule 14D-9 as filed with the U.S. Securities and
Exchange Commission on June 14, 2000 in connection with the offer. Over the
course of the first five months of 2000, the Company had strategic and financing
discussions with financial investors, customers, partners and potential buyers.
Based on those discussions and the current operating environment confronting the
Company, management believes the Invensys offer is the best available solution
for the Company. The Invensys offer, originally scheduled to close on July 13,
2000, has been extended and is now scheduled to close on July 25, 2000, but
there are several conditions to close. Among them is that 95% of Baan's issued
and outstanding shares must be tendered in support of the offer.
If the Invensys offer does not successfully close, the Company must pursue an
immediate and fundamental restructuring, and obtain necessary financing, if the
Company is to continue as an independent going concern. The Company would likely
contact investors/financiers with whom it was having discussions during the
first and second quarters of 2000 prior to announcement of the Invensys offer.
Whether the Company would be successful in securing the needed financing for the
next twelve months and be capable of successfully undertaking the requisite
restructuring, and the extent to which it will be able to maintain its core
integrated product and e-Fulfillment strategies (as described below), are at
this moment uncertain. Nevertheless, the Company believes it can continue as a
going concern, albeit in a substantially reduced and changed form.
The cornerstone of Baan Company's product strategy is delivery of scalable,
flexible, enterprise application solutions that can be implemented rapidly in
heterogeneous computing environments and rapidly re-configured 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, and
robust out-of-the-box functionality. As a result, Baan Company's standard
software typically can be configured and implemented within a time frame the
Company believes provides it with a competitive advantage. Ongoing adjustments
can be made to the system in response to changing market demands and changes in
production and operational processes.
During the last three years, Baan pursued a strategy of broadening its
traditional footprint in Enterprise Resource Planning (ERP) software to provide
an "end to end" enterprise applications suite, culminating in release of its
Baan Enterprise Solutions product line in the Fall of 1999. This suite extends
beyond ERP into Customer Relationship Management (CRM) and Supply Chain
Management (SCM) software. This vision had a number of implications beyond the
delivery of a wider product portfolio. Baan entered new markets, principally
through a series of acquisitions, as it widened its scope and moved away from
its original focus. During 1999, Baan pursued a dual product strategy: becoming
the first enterprise applications vendor to offer a fully integrated ERP-CRM-SCM
product suite, and e-enabling and extending that suite to respond to the changes
taking place in the marketplace as a result of the Internet and the growth of
e-business.
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In late 1999, in response to the impact of the Internet and building on its
traditional strengths in manufacturing and engineering industries, the Company
re-aligned its integrated product strategy to focus on "e-Fulfillment" -
providing solutions that address an organization's entire e-commerce chain. The
Baan Company suite of enterprise applications is designed to support specific
business functions and processes for manufacturing and engineering companies as
they compete in the new Internet economy.
e-Fulfillment is focused on fulfilling the customers' needs - making achievable
promises when taking the order, through manufacturing and subsequent delivery,
using Internet technologies. e-Fulfillment synchronizes and accelerates the flow
of material and information inside an organization and among business partners,
enabling the real time exchange of information in a way that allows companies to
move from a linear/sequential supply chain model to one where multiple
activities occur concurrently, within a commerce network. Baan's e-Fulfillment
solutions enable planning across enterprises and intelligent decisions to be
taken closer to the time orders are placed, with the goal of lowering the cost
of delivered goods and improving customer service.
Baan is developing its e-Fulfillment solution to extend support from the
transaction backbone, provided by its traditional ERP applications, to
inter-enterprise business process management, provided by ERP, SCM and CRM
solutions. ERP is the main transaction backbone of the enterprise and represents
the only application in a company that effectively supports the execution of a
business process. Baan believes that back-office excellence is the foundation of
e-commerce strategies - many industry analysts agree that a company with a
well-implemented ERP application has a stronger foundation on which to execute a
successful e-business strategy. The strategic shift Baan undertook in 1999 was
designed to allow it to deliver, in the future, support for internet-based
business processes with intelligent messaging, workflow and business process
modeling to support business community integration.
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 15,400 customer sites around the
world. As of December 31, 1999 the Company had 4,835 employees, (5,101 in 1998),
of which 1,701 were employed in Research and Development, 852 in sales and
marketing, 1,892 in consulting, education and customer support services, and 390
in finance and general administration.
For the year ended December 31, 1999, the Company's revenue and income before
income taxes were approximately $619.1 million and ($311.4 million),
respectively, as compared with $735.6 million and ($335.2 million),
respectively, for the year ended December 31, 1998.
Baan Company is listed on the Amsterdam Exchanges (AEX) and on NASDAQ.
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REPORT OF THE SUPERVISORY BOARD
To the Shareholders of Baan Company N.V.
Baan unquestionably had a difficult year in 1999. Losses were high and the
Company faced new challenges in terms of future viability and stability
following the restructuring announced in the fourth quarter of 1998. This was
set against a dynamic market environment with industry challenges such as Year
2000 (Y2K) and the Euro, alongside new competition and a new business economy
introduced by the Internet and e-business.
Responding to these challenges, Baan undertook a comprehensive strategic review
during 1999. This process, commenced during the summer of last year, included a
close analysis of the market conditions, revenue analysis by product line and
domain and competitive segmentation and positioning. The extensive review
resulted in implementation of a new, two-fold, go-to-market strategy in 1999:
becoming the first and only enterprise applications vendor to release an
integrated ERP-supply chain-front office product offering (which culminated with
our Baan Enterprise Solutions release in December), and e-extending and enabling
our products (which we announced to the market at our Baan World 99 event in
Vienna in November through release of our e-Fulfillment strategy).
And, despite the other challenges faced in 1999, there were other positive
announcements as well. We grew our installed base substantially by adding almost
700 new customers in 1999; we maintained our strong commitment to R&D and our
historical leadership position as a technology innovator in the face of
budgetary constraints; and we showed improved levels of customer satisfaction
through the strong efforts of our services organization. And while 1999
unquestionably was disappointing overall from a revenue perspective, we saw some
positive signs toward the end of the year.
As we turned into 2000, however, having positioned the business for what we
hoped would be a rebound in the enterprise applications market, a new and
unprecedented set of challenges immediately confronted the Company. The then CEO
and CFO resigned in early January and other members of senior management
departed during the first quarter (including two other members of the Management
Board). The Company faced a precarious equity situation which led to increased
scrutiny from the AEX and the specter of being placed on "special listing
conditions," a significantly declining share price, and growing customer
concerns about the future viability of the Company. This dramatically altered
environment forced the Company to consider new strategic options. That strategic
assessment, carried out with the help of our bankers Lazard Freres (who were
retained on January 31, 2000), culminated in the cash tender offer of Invensys
plc to purchase all the issued share capital of Baan for Euro 2.85 per share,
announced on May 31, 2000.
The priorities for the Company going forward, are to ensure viability through
the Invensys acquisition and to restore profitability through a strong reduction
in costs and a return to revenue growth. The Company believes the Invensys offer
is the best available alternative to realize these goals. Implications of
failing to successfully close this offer are outlined in the notes to the
consolidated financial statements, and such failure could have a materially
adverse effect on the Company's ability to survive as a going concern on an
independent basis.
Financial Statements: The financial statements for 1999 as prepared by the
Management Board have been audited by PricewaterhouseCoopers, the Company's
auditors. Their unqualified opinion with an emphasis of matter paragraph -
emphasizing management's uncertainty about the
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Company's ability to continue as a going concern can be found in the Other
Information section. We recommend that you adopt and approve the annual accounts
as presented.
Supervision: The Supervisory Board met regularly with management throughout the
course of 1999 and was kept informed about the strategic direction the Company
elected to take in response to market conditions, acquisition proposals,
financial performance, and the operational and customer challenges it faced
throughout the year. Since the beginning of 2000, the Supervisory Board has met
in person or via teleconference at least weekly (with few exceptions), and
sometimes more frequently, in the light of the extraordinary circumstances
facing the Company.
Changes in membership of the Supervisory Board: At the March 1999 Extraordinary
General Meeting of Shareholders, a new Supervisory Board was elected. This Board
served for the remainder of 1999, but it also endured changes as we turned into
2000. Pierre Everaert stepped down temporarily from the Supervisory Board on
January 5, 2000 to assume the role of Interim CEO of the Company, in light of
Mary Coleman's departure. Later, during the first quarter, Koichi Nishimura and
John Barter resigned due to other professional commitments; Henk van den Breemen
resigned due to health reasons; and Joop Janssen went on medical leave of
absence.
Clearly, 1999 was a difficult year for Baan Company. And nothing could have
prepared the Company for the dramatic events in the first and second quarter of
2000 that fundamentally changed the landscape for the Company. What progress we
have made during 1999 and 2000 has been achieved through the commitment and
dedication of Baan employees, who in spite of the challenging times and
uncertain personal circumstances as a result thereof, demonstrated resilience
and loyalty to the Company and its customers. I would like to thank them, and
all of our customers for their ongoing support and commitment.
On behalf of the Supervisory Board,
Hans Wortmann, Interim Chairman
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MANAGEMENT BOARD REPORT
Any view of the 1999 fiscal year will inevitably be affected by the announcement
of May 31, 2000 that Invensys plc has offered to purchase the complete issued
share capital of the Company for Euro 2.85 per share. Given the circumstances
confronting Baan Company, which we describe in more detail in this report,
management believes that the Invensys offer provides the best solution for the
Company to significantly restructure the business (a task which is unavoidable)
and re-build a successful and viable business in the enterprise applications
market. Our objective in this Management Board Report is to describe the
business environment of 1999, how that affected the Company strategically and
operationally, and how developments in the first half of 2000 have culminated in
the Invensys offer.
BUSINESS ENVIRONMENT AND PRODUCTS
The enterprise applications market as defined today by industry analysts, has
developed through the consolidation of three primary markets - Enterprise
Resource Planning (ERP) including manufacturing automation and accounting and
financial management, Customer Relationship Management (CRM) and Supply Chain
Management (SCM).
Like many enterprise application vendors, Baan Company's roots are in the ERP
arena. During the late-1990s, several factors drove ERP industry growth rates in
excess of 50% per year. Some of the key drivers included:
o Requirement to continually drive down costs in a competitive global
economic environment;
o Conversion of legacy systems to a new generation of products to support the
Year 2000 (Y2K); and,
o 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
to continue in excess of 35% per year through the year 2001. In reality, based
on publicly available information and analysts' estimates, the leading vendors
in the ERP space saw growth rates drop unexpectedly from around 40% in the first
quarter of 1998 (compared to the first quarter of 1997) to less than 5% growth
in the fourth quarter of 1998 (compared to the fourth quarter of 1997).
Throughout 1999, new license growth in the enterprise applications market
declined by approximately 25% year over year from 1998 levels, which represented
a dramatic change from the 40%+ growth rates of previous years. New license
revenue is the key growth engine for software companies like Baan and drives
related revenue in follow-on services (such as consulting and education) and
support across the entire organization.
Industry analysts like the Gartner Group and AMR expect new license revenue to
begin to grow again by the second half of 2000. While Supply Chain Management
and Customer Relationship Management markets are already seeing a return to
growth, ERP market growth in the manufacturing sector is lagging somewhat behind
these other markets.
The second half of 1999 marked a dramatic and fundamental shift in the
enterprise applications market with the emergence of the Internet as a viable
platform for Business-to-Business (B2B) commerce transactions. Today, industry
analysts expect that the transition of core business processes to the Internet
will be a primary driver for growth in enterprise applications in 2000 and
beyond.
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Given these market trends, and in light of uncertainties in market demand
post-Y2K, Baan initiated a strategic planning process in mid 1999 to assess the
implications of this new market scenario. Revenues, previously stated only by
geography and revenue type, were analyzed by product line and each product area
underwent thorough examination in terms of its market positioning and goals for
the coming year. The focus of this effort was to ensure that the Company was
lining up all of its resources to become the first enterprise applications
vendor to deliver an integrated, "end to end" ERP/SCM/CRM solution, and to
e-enable the product line.
In October 1999, Baan's top 200 managers gathered to review the strategy that
had evolved as a direct result of this planning process and to adapt the "go to
market" model to mirror the strategy. In the fourth quarter of 1999, the
restructuring to support this strategy was announced.
There were several key product announcements during 1999 that reflected those
strategic goals. In April 1999, the Company launched the Baan E-Enterprise suite
of web-enabled enterprise software applications. The suite includes applications
to support both buy-side and sell-side E-Commerce business processes to
facilitate business between the entire value chain of employees, partners,
resellers, and suppliers.
At BaanWorld in November 1999, the Company announced its strategy around
`e-Fulfillment', bringing together its integrated product suite in Baan
Enterprise Solutions to address the needs of manufacturing and engineering
companies competing in the new Internet economy.
In December 1999, the Company made generally available Baan Enterprise
Solutions, the industry's first integrated suite of ERP, SCM and CRM
applications. With this release, Baan also released new integration technology,
Baan OpenWorld, based on the Extensible Mark-up Language (XML). In 1999, XML
emerged as the integration language of the Internet, positioning Baan several
years ahead of their competitors.
The Company also had success in improving levels of customer satisfaction, in
part by protecting, and investing in, its global support resources during 1999.
The Company continued to make progress in improving levels of customer
satisfaction in post sales support and maintenance with incremental improvements
across six successive quarters in quality and nine successive quarters in
business unit performance. This improvement was due to improved efficiency and
productivity in Customer Support and the continued levels of investment in this
area over this difficult period.
Over the course of the year, Baan maintained a strong commitment to investments
in Research and Development, increased investments in building E-Commerce
applications, and invested in marketing to create higher levels of corporate
brand recognition.
Management believes that these actions and the 1999 strategic initiatives
positioned the Company well for what analysts suggested would be improved market
conditions for the enterprise applications market in 2000.
The Company believes market growth opportunities for enterprise application
vendors remain in four distinct areas:
o Internet adoption - Industry analysts expect that Internet "enablement" of
business processes will fuel license revenue growth in this segment of over
100%. This growth will be in software areas that support all aspects of an
enterprise's commerce chain as companies seek
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to integrate the Internet into Customer Relationship Management, Inbound
Supply Chain Management business processes, and eventually into core
manufacturing processes.
o Customer Relationship Management - Industry analysts expect growth levels
in excess of 50% per year for this area, driven by the adoption of Internet
technology and new Internet business models.
o Supply Chain Management - Industry analysts suggest that this area will
grow in excess of 50% per year, as globalization and increased competition
drive companies to seek to differentiate themselves through distribution
and delivery models. In addition, the adoption of Internet commerce is
placing a greater emphasis on Supply Chain Management.
o Mid-market ERP - The cost and complexity of traditional ERP and operations
management products historically limited adoption in this segment. Today,
penetration rates for the mid-market are below 30%. As vendors like Baan
Company delivered solutions on industry standard platforms and reduced
deployment times from years to months, ERP solutions became cost effective
for the mid-market. Industry analysts continue to believe that the
mid-market represents high growth opportunities for the ERP vendors.
FINANCIAL OVERVIEW
While the Company repositioned itself strategically for growth in the year 2000,
driving top line revenues in 1999 proved challenging.
Total net revenues for the year 1999 were $619.1 million compared to $735.6
million in 1998. Total costs of revenue were $435.0 million in 1999 compared
with $342.8 million in 1998. These numbers result in a gross margin of $184.2
million in 1999, whereas the gross margin in 1998 was $393.2 million. Total
operating and non-recurring expenses reduced to $485.6 million in 1999 from
$725.3 in 1998. The loss from operations in 1999 was ($301.4) million compared
to ($332.0) million in 1998.
Total license revenue decreased 43% ($143.5 million) to $192.9 million in 1999
from $336.4 million in 1998. As a percentage of total net revenues, total
license revenue was 31% in 1999, as compared to 46% in 1998.
The Company believes the reduction in 1999 total license revenue, compared to
1998, was attributable to principally the following five factors:
Changing competitive and economic landscape
During 1999, the Company believes that the enterprise applications software
market was negatively impacted by a number of industry-wide issues,
including (i) increased customer focus on addressing Year 2000 problems,
(ii) increasing and new competition, and (iii) changing market conditions
driven by the shift to B2B and Internet commerce. The Company believes the
impact of these market forces was more pronounced upon the Company than its
competitors. This is because the Company's total license revenue continued
to comprise a greater percentage of the Company's total net revenue,
compared to non-license revenues such as maintenance, service and
consulting when compared to certain competitors. The above factors, in
turn, gave rise to a number of market trends that the Company believes
slowed license revenue growth. These included longer sales cycles,
increased uncertainty of customers in making purchasing decisions, deferral
or delay of new IT projects, re-allocation
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of capital expenditures to fix Year 2000 problems of existing systems, and
increased and new competition.
Sales execution
Sales execution was negatively affected due to the increased education and
training needed to transition the Company's sales force from selling an ERP
(or other single) application to selling a broader product suite
incorporating Supply Chain Management and Customer Relationship Management.
There also has traditionally been relatively high employee turnover in the
sales forces of many enterprise application vendors. As the Company
transitioned in 1999 to its integrated product strategy, the inability of
the Company to retain high percentages of its sales force for periods
longer than one year additionally contributed to increased education and
training cycles and inevitably less experienced sales teams, which also
negatively impacted total net revenues.
Business reorganization
Commencing in 1997 and continuing through 1999, the Company acquired
several software companies as part of a strategy to expand its product
footprint beyond ERP and/or to supplement its ERP technology. As with any
acquisition strategy, integrating these acquired companies into the
Company's corporate organization presented certain challenges. Originally,
the Company operated many of the acquired companies as independent
entities, in part to respect the differing cultures of these firms and to
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 that ultimately proved unduly complex and contributed to
certain operational uncertainties and inefficiencies. As part of the
Company's restructuring announced in the fourth quarter of 1998, it moved
to a more traditional functional organization that, among other things, was
designed to present a single face to the customer (by integrating the sales
forces) with a minimally matrixed structure and clearer lines of authority.
While eliminating a certain amount of complexity in the organization, these
changes did create certain additional challenges for the sales force (which
had its roots and training in ERP) and de-focused certain domain areas of
the business, such as Supply Chain Management and Customer Relationship
Management. In its earnings announcement of the first quarter of 2000, the
Company indicated that it believes further complexity can be eliminated
from the organization, and that further organizational changes will be
pursued as part of a stringent cost containment program that will be
implemented in 2000.
Operational losses and Company viability
The Company suffered its first quarterly operational loss (since becoming a
public company) in the third quarter of 1998, which led to a restructuring
of the Company's operations in the fourth quarter of that year. Despite the
1998 restructuring, the Company generated operational losses for each of
the four quarters of 1999, and that trend continued into the first quarter
of 2000. In response, the Company announced during the first half of 2000
that it must pursue an aggressive restructuring plan this year that could
reduce its operating costs by almost one- half. Its ability to pursue the
necessary restructuring, however, has been handicapped by the Company's
need to maintain its full listing status on the AEX and to raise adequate
financing for the charges that inevitably will result from this plan. The
continued operating losses and challenging circumstances under which the
Company must pursue a restructuring have generated a certain level of
caution amongst existing and potential new customers of the Company's
products and services. During 1999, and continuing into 2000, the Company
has seen a number of customers adopt a "wait and see" attitude, waiting to
purchase the Company's products or services until it sees that the Company
has returned to profitability. This negatively affected the Company's
license revenues in 1999 and, until the Company
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returns to profitability, it foresees that this "wait and see" attitude
will continue to negatively affect license revenues.
Personnel changes
There is high demand, particularly in the United States (and increasingly
in Europe as well), for qualified IT personnel, including executives, sales
and marketing personnel, and software developers. Like all of its
competitors, the Company is experiencing significant turnover in its
personnel - both in its executive ranks and in the field. The Company's
operational losses during 1999 and continuing into 2000 have exacerbated
the loss of key personnel. This trend negatively affected license revenue
in 1999, as the Company identified, hired and trained new sales people. The
Company expects to continue to see a certain level of instability in its
workforce as the "dot-com" and more established companies continue to
recruit its employees and the Company executes on its cost cutting and
containment program for 2000.
Total operating and non-recurring expenses decreased by 33% in 1999 to $485.6
million from $725.3 million in 1998. This decrease reflects the Company's
attempts to balance the costs against the projected revenues within the planned
restructuring. Specifically, Sales and Marketing and General and Administrative
expenses were reduced. During 1999, although Research and Development's costs
were reduced by approximately 11%, the Company maintained its historically
strong commitment to, and investment in, Research and Development. In response
to the changing market conditions, the Company re-prioritized many of its
existing development projects and put a greater emphasis on development of its
Internet products.
In the fourth quarter of 1999, the Company undertook a strategic reorganization
to focus its operations on providing the open, integrated and e-enabled
enterprise solutions for e-Fulfillment. In connection with that decision, the
Company recorded write-downs of certain capitalized software and intangible
fixed assets not related to its core strategy and took certain restructuring
charges related to office closures and headcount reductions.
DEVELOPMENTS DURING THE FIRST HALF OF THE YEAR 2000
Despite the downward trend in license revenue that affected the entire
enterprise applications sector in 1999 (due to the Year 2000 issue, increased
competitive pressures and other factors), the Company's overall revenue position
showed positive signs as 1999 came to a close. But in early 2000, caused in part
by new market pressures from the shift to the Internet economy, but more
importantly due to internal issues affecting the Company, Baan has experienced
significant downward pressures on its license revenue and total net revenues. In
January 2000, the Company announced the resignations of both the then Chief
Executive Officer (Mary Coleman) and Chief Financial Officer (Jim Mooney). In
addition, several other members of the senior management also departed, or
announced they would be departing, in the first quarter of 2000. Further, partly
as a result of the 1999 restructuring and other charges taken in the fourth
quarter of 1999, the Company was confronted with a deteriorating shareholders'
equity position. As indicated above, the AEX requires that its listed companies
maintain positive shareholders' equity. Failure to do so can result in the
listed company being placed on "special listing conditions" that typically
results in a significant erosion in the share price and volume of trading. By
the end of January, the share price had declined to approximately one-half of
its value at the beginning of the year. These events, combined with continuing
operating losses, contributed to increased concerns amongst investors, key
customers, prospects and employees about the Company's viability going forward.
This created a climate where it was increasingly difficult for the Company to
successfully close transactions for new business.
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The Company immediately took steps during the first quarter of 2000 to fill open
management positions. That new team was thus faced with a series of immediate
challenges, including, (1) increased difficulty in making new sales and
retaining existing customers because of concerns about the viability of the
Company, (2) a shareholders' equity position under scrutiny by the AEX and (3) a
declining share price. This meant that in the first quarter of 2000, the
management of the Company was forced to devote significant resources to an
effort to stabilize the Company's financial situation.
On January 31, 2000, the Company retained Lazard Freres (investment bankers) to
assist in examining the financial position of the Company, reviewing strategic
options to maximize shareholder value (including a possible sale of the Company)
and exploring other transactions to raise equity for the Company. These efforts
culminated on May 31, 2000 with the announcement that the Company's Management
and Supervisory Board unanimously had approved an Offer Agreement with Invensys
plc under which Invensys has offered to purchase 100% of the issued share
capital of the Company for Euro 2.85 per share. That offer, originally scheduled
to close on July 13, 2000, has been extended and is now scheduled to close on
July 25, 2000. There are several conditions to close, however, including the
condition that 95% of all Baan shares must be tendered in support of the offer.
Several facts about the strategic discussions that we had with potential
partners or investors during the first half of 2000 must be underscored:
o The Company received only one formal offer other than the Invensys
offer to acquire all the shares or assets of the Company (and that
other offer had significantly less favorable economic terms than the
Invensys offer).
o Any and all informal offers we received or discussions we had with
potential investors or acquirers also involved economic terms
significantly less favorable than those offered by Invensys.
o The Company has received no offers of any kind since the announcement
of the Invensys offer on May 31, 2000.
Failure of the Invensys offer to successfully close, therefore, could have a
materially adverse effect on the business and Baan's ability to continue as a
going concern. In particular:
o The Company will be operating in an environment of growing customer
concerns about the continued viability of the Company.
o Those concerns are likely to be heightened by continued operating
losses for at least the next several quarters (at least until the
necessary restructuring of the Company is completed); indeed,
management itself has expressed concern about the Company's ability to
continue as a going concern.
o Additionally, the Company has indicated publicly that it will close the
second quarter in a negative equity position. The AEX recently issued a
press release indicating that it will place the Company on "special
listing conditions" if the Invensys offer is not successfully closed
within 8 weeks from the date of that release. That action will
undoubtedly contribute to further skepticism in the market.
o The Company must pursue an immediate and fundamental restructuring. The
restructuring that would be required will likely entail reducing the
Company's operations by at least one-half. To secure the necessary
financing for that endeavor we would likely resume discussions with
other potential partners that we had spoken to over the last five
months. Securing affordable financing for this restructuring in the
environment outlined above will likely prove extremely challenging, and
such financing could include onerous
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terms and (in the case of equity financing) carry with it substantial
dilution for shareholders.
o The Company also believes there could be an accelerated loss of key
personnel that will add to the challenges the Company will face in
improving top line revenue and executing on the needed restructuring.
ACQUISITIONS AND DIVESTMENTS
Baan Midmarket Systems B.V. (BMS) was established in late 1997 as a joint
venture between the Company and the predecessor company to Vanenburg Group B.V.
(VG, a related party to the Company during 1997 through 1999), with 15% owned by
the Company and 85% owned by VG. In January 1999, the Company entered into an
agreement with VG pursuant to which the Company purchased (or was assigned) the
principal assets of BMS. All VAR agreements that had previously been assigned to
BMS and/or that BMS had entered into since its creation were assigned to the
Company. Approximately 130 BMS employees also transferred to the Company as part
of the transaction. The purchase price was comprised of the following: (i) $2
million paid in cash upon execution 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 VG 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.
During the third quarter of 1999, the Company acquired companies providing
solutions built in the Baan environment. These acquisitions are Proloq, which
provides extensions to Baan ERP for process industries like primary metals, pulp
and paper and others and B.A. Intelligence Networks, Ltd. (BAIN), which develops
Product Data Management (PDM) extensions to Baan ERP. Baan also acquired
ownership of Dynamic Enterprise Models (DEM) from Vanenburg Business Innovations
B.V. (Triarch). DEM allows organizations to model their business processes and
speed configuration and customizations of Baan products. BAIN and Triarch were
members of Vanenburg Group B.V.
On March 12, 2000, the Company sold its minority interest in Meta4 to generate
additional cash of approximately $40 million and additional equity of
approximately $21 million.
During the first quarter of 2000, the Company completed the sale of Baan's CODA
unit, including the flagship CODA Financials and CODA E-Finance applications,
for an approximate $49 million sales price. The Company realized a gain of
approximately $31 million as a result of this transaction.
MANAGEMENT BOARD
During the first half of 1999, the Management Board consisted of Tom C. Tinsley.
Mary Coleman was appointed President and CEO on June 1, 1999 and was elected
Chairman of the Board at the June 23, 1999 Annual General Meeting of
Shareholders (AGM). She maintained those positions until her resignation on
January 4, 2000. Pierre J. Everaert, who was serving as Chairman of the
Supervisory Board at the time of Ms. Coleman's resignation, stepped down from
that position on January 5, 2000 to assume the role of Interim CEO of the
Company and he continues to hold that position.
R-22
<PAGE>
Also elected to the Management Board at the June 23, 1999 AGM were Laurens van
der Tang, Executive Vice President of Research and Development, and Peter Aird,
Executive Vice President of Customer Services and Support, and both continue in
those positions. Klaas Wagenaar and Andrew Nash were also elected and served on
the Management Board for the remainder of 1999. Both resigned from the Company
during the first quarter of 2000.
DIRECTORS AND CORPORATE EXECUTIVE OFFICERS OF THE COMPANY
The Managing Directors, corporate executive officers and Supervisory Directors
of the Company, and their ages, are as follows:
NAME AGE POSITION(S)
---- --- -----------
Pierre J. Everaert(1) 60 Interim Chief Executive Officer and
Supervisory Board Member
Robert A. Ruijter 49 Chief Financial Officer
Laurens van der Tang(7) 34 Executive Vice President, Research
and Development
Peter Aird(7) 49 Executive Vice President, Customer
Service and Support
Robert E. Goudie, Jr. 41 Sr. Vice President, General Counsel
and Secretary to the Board
Gerrit J. van Munster 36 Senior Vice President, Human
Resources
Joop P.M. Janssen(2) 57 Supervisory Board Member
William O. Grabe(3) 62 Supervisory Board Member
David C. Hodgson(4) 43 Supervisory Board Member
J.C. (Hans) Wortmann(4)(5)(6) 49 Interim Chairman, Supervisory Board
--------
(1) Mr. Everaert temporarily stepped down from his position on the Supervisory
Board to assume the role of Interim CEO of the Company on January 5, 2000.
(2) Mr. Janssen has been on a medical leave of absence since March 29, 2000.
(3) Member of the Supervisory Board Nomination and Compensation Committee.
(4) Member of the Supervisory Board Audit Committee.
(5) Mr. Janssen became Interim Chairman of the Supervisory Board on January 5,
2000, replacing Mr. Everaert when he temporarily stepped down to become
Interim CEO. When Mr. Janssen went on medical leave of absence in March
2000, Mr. Wortmann assumed the role as Interim Chairman of the Supervisory
Board.
(6) At the March 1999 Extraordinary General Meeting of Shareholders, John
Barter, Koichi Nishimura, and Henk van den Breemen were also elected to the
Supervisory Board. During the first quarter of 2000, Messrs. Barter and
Nishimura resigned their positions on the Board to free up more time for
other professional commitments. Mr. van den Breemen also resigned from the
Board during the first quarter of this year for health reasons.
(7) Member of the Management Board.
R-23
<PAGE>
The Company qualifies for an exemption under Article 2:153 of the Dutch Civil
Code, that would otherwise require the Company to adopt the so-called
"structuurregime" for large companies (which would remove certain powers from
the shareholders and place them with the Supervisory Board). In addition; the
Company has not voluntarily adopted the "structuurregime". Accordingly, the
power of the General Meeting of Shareholders is not diminished and the
shareholders retain the power to appoint both the Supervisory and Management
Boards.
Although the Company is facing challenging times, the Management Board would
like to thank customers for their loyalty and the employees for their
continuing effort and commitment.
Barneveld, July 17, 2000
THE MANAGEMENT BOARD
Laurens van der Tang
Peter Aird
R-24
<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(AFTER PROPOSED APPROPRIATION OF NET RESULTS)
ASSETS
December 31, December 31,
1999 1999
------------ ------------
$ $
FIXED ASSETS
Intangible fixed assets ...... 64,563 52,644
Tangible fixed assets ........ 104,566 141,017
Financial fixed assets ....... 2,167 26,214
---------- ----------
TOTAL FIXED ASSETS ........... 171,296 219,875
CURRENT ASSETS
Accounts receivable .......... 180,080 277,761
Due from related parties ..... 4,011 6,297
Other current assets ......... 50,686 112,387
Marketable securities ........ 60,921 1,080
Cash and bankers ............. 135,744 205,751
---------- ----------
TOTAL CURRENT ASSETS ......... 431,442 603,276
---------- ----------
TOTAL ASSETS ................. 602,738 823,151
========== ==========
R-25
<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(AFTER PROPOSED APPROPRIATION OF NET RESULTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, December 31,
1999 1998
------------ ------------
$ $
GROUP EQUITY (DEFICIT) (7,760) 156,760
LONG-TERM LIABILITIES
Convertible subordinated notes 188,833 190,103
Long-term deferred revenue 15,069 17,831
Credit institutions 208 910
Due to related parties 25,874 --
Other 3,081 4,084
------------ ------------
TOTAL LONG-TERM LIABILITIES 233,065 212,928
CURRENT LIABILITIES
Current portion of long-term debt 188 523
Accounts payable 66,460 74,508
Due to related parties 18,323 --
Deferred revenue 135,534 147,933
Other current liabilities 38,827 67,728
Accrued liabilities 118,101 162,771
------------ ------------
TOTAL CURRENT LIABILITIES 377,433 453,463
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 602,738 823,151
============ ============
R-26
<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
$ $
<S> <C> <C>
NET REVENUES:
License revenue 190,884 285,778
License revenue from related parties 2,000 50,600
------------ ------------
Total license revenue 192,884 336,378
Maintenance and service revenue 426,259 399,271
------------ ------------
TOTAL NET REVENUES 619,143 735,649
COST OF REVENUES:
Cost of license revenue 59,787 30,741
Write-down of capitalized software 43,105 9,600
Cost of maintenance and service revenue 332,091 302,063
------------ ------------
TOTAL COST OF REVENUES 434,983 342,404
------------ ------------
GROSS MARGIN 184,160 393,245
------------ ------------
OPERATING AND NON-RECURRING EXPENSES:
Sales and marketing 172,412 272,497
Research and development 134,733 151,369
General and administrative 143,791 156,148
Asset write-downs 23,906 27,299
Loss on disposal of assets -- 58,030
Restructuring and other non-recurring expenses 10,722 59,972
------------ ------------
TOTAL OPERATING AND NON-RECURRING EXPENSES 485,564 725,315
------------ ------------
INCOME (LOSS) FROM OPERATIONS (301,404) (332,070)
Interest income 3,261 8,668
Interest expense (9,456) (11,750)
Other income (expense), net (3,788) (40)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (311,387) (335,192)
Provision (benefit) for income taxes -- (20,000)
------------ ------------
NET INCOME (LOSS) (311,387) (315,192)
------------ ------------
NET INCOME (LOSS) PER SHARE:
Basic (1.44) (1.59)
Diluted (1.44) (1.59)
</TABLE>
R-27
<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
$ $
<S> <C> <C>
CASH FLOW FROM OPERATIONS:
Net income (loss) (311,387) (315,192)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 80,501 51,511
Provision for doubtful accounts 37,406 55,304
Provision for deferred income taxes -- 10,788
Asset write-downs 67,011 36,899
Unrealized loss on marketable securities 1,808
Loss on disposal of assets 4,546 45,988
Restructuring and other expenses -- 14,693
Foreign currency transaction losses (27,710) 3,648
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 43,760 (84,921)
Due to/from related parties (1,826) 36,817
Other current assets 4,626 (53,077)
Accounts payable (4,266) (12,408)
Accrued liabilities (43,250) 49,685
Other current liabilities 23,642 (4,192)
Deferred revenue (14,841) 123,465
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (139,980) (40,992)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Fixed assets purchased, excluding capitalized software development costs (10,343) (38,674)
Fixed assets sold, excluding capitalized software development costs 5,611 8,377
Increase in capitalized software development costs (36,284) (29,581)
Payment for acquisitions and investments, net of cash acquired (15,093) (23,240)
Proceeds from sale of investments and subsidiaries -- 18,689
Purchases of marketable securities (38,253) (209,451)
Proceeds from maturities of marketable securities 1,526 313,218
Other 4,559 (11,856)
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (88,277) 27,482
--------- ---------
</TABLE>
R-28
<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
<S> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Payments under short-term credit facilities (234) (917)
Payments of long-term borrowings (744) (266)
Proceeds from issuance and subscription of common shares 160,656 114,466
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 159,678 $ 113,283
Effect of foreign currency exchange rates changes on cash
and cash equivalents (1,428) (5,439)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (70,007) 94,334
Cash and cash equivalents at beginning of year 205,751 111,417
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 135,744 $ 205,751
---------- ----------
</TABLE>
R-29
<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements are stated in United States dollars and
are prepared under the historical cost convention. Assets and liabilities are
stated at their nominal value except in those cases where a different basis of
valuation is disclosed in the notes.
As permitted by Section 402, Book 2 of The Netherlands Civil Code, a condensed
income statement is presented as part of the corporate financial statements of
the Company.
APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF
AMERICA
These financial statements have been prepared in accordance with generally
accepted accounting principles in The Netherlands (Dutch GAAP). Since the
Company is a foreign registrant with the Securities and Exchange Commission
(SEC) and is listed at NASDAQ it is required to file an annual report (Form
20-F) with the SEC. The financial statements included in the Form 20-F have
been prepared in accordance with generally accepted accounting principles in
the United States of America (US GAAP).
The following table shows a reconciliation between the net loss and
shareholders' equity (deficit) for the financial year ended December 31, 1999
in these financial statements and those included in Form 20-F.
$ (in thousands)
----------------
Net loss under Dutch GAAP (311,387)
Net loss under US GAAP (309,579)
-------------
Difference (1,808)
-------------
Shareholders' equity (deficit) under Dutch GAAP (7,760)
Shareholders' equity (deficit) under US GAAP (7,760)
-------------
Difference --
-------------
The difference regarding the net loss for the year relates to an unrealized
loss on a marketable security that was marked to market as a result of a
re-classification from financial fixed assets. Under Dutch GAAP such unrealized
gains and losses are recorded in the income statement, under US GAAP as a
direct shareholders' equity adjustment.
The Company has used the pooling method of accounting in 1998 for certain of
its business combinations due to the Company's United States orientation.
R-30
<PAGE>
GOING CONCERN
The operating environment confronting the Company raises significant
uncertainty about the Company's ability to continue as a going concern. The
principal conditions giving rise to that uncertainty include the following:
o The Company has incurred net losses of $311.4 million and $315.2 million
in 1999 and 1998, respectively. The Company incurred net cash outflows
from operations of $140.0 million and $41.0 million in 1999 and 1998,
respectively.
o The Company has experienced significant downward pressures on its license
and overall revenue during the first half of 2000. This contributed to a
significant operational loss in the first quarter of 2000. That marked
the seventh successive quarter of operational losses, and the Company
expects to continue to incur significant operational losses over the next
several quarters if it continues as an independent company.
o As a result of the restructuring and other charges taken in the fourth
quarter of 1999, the Company closed the year with a shareholders' deficit
of $7.8 million. The AEX requires that its listed companies maintain
positive shareholders' equity; failure to do so can result in the listed
company being placed on "special listing conditions" that typically
results in a significant erosion in the share price and volume of trading
and, as a consequence, an even more difficult operating environment. The
AEX issued a press release on June 6 indicating that it will place the
Company on "special listing conditions" if the Invensys offer is not
successfully closed within 8 weeks from the date of that release.
o If the Company is to continue as an independent company, it must
immediately pursue a fundamental restructuring. The restructuring will
likely entail reducing the Company's operations by at least one-half, and
to secure the necessary financing for that endeavor we would likely
resume discussions with potential partners that we had spoken to over the
last five months. Securing affordable financing in light of the going
concern uncertainty and a likely AEX special listing status will likely
prove challenging, and could include onerous terms and (in the case of
equity financing) carry with it substantial dilution for shareholders.
o The Company has experienced significant turnover in personnel during the
first half of 2000. Departures have been felt in senior management,
middle management, in the field, and at all levels of the organization.
The Company began the year with approximately 5,000 employees; as of the
end of June, it had lost approximately 1,000 employees, principally
through attrition.
o The Company's share price began the year at or around $15 per share; for
most of the month of May preceding the Invensys offer the shares were
trading at between $1 to $2 per share.
o The above events have contributed to increased concerns amongst
investors, key customers, prospects, and employees about the Company's
viability going forward. This has created a climate where it is
increasingly difficult for the Company to successfully close transactions
for new business.
Particularly in light of this very challenging environment, management believes
the Invensys offer is the best way to secure Baan's future. Failure of the
Invensys offer to successfully close could have a further materially adverse
effect on the business and Baan's ability to continue as a going concern. In
particular, such failure could reinforce customer concerns about the continued
viability of the Company; given the likely special listing status on the AEX and
likely erosion to the share price, the Company's ability to access the Bear
Stearns agreement going forward would be uncertain (Bear Stearns has the right
to reject any puts under that agreement if the share price falls below Euro 3
during any put period), and finding alternative financing will likely be
extremely challenging; the Company's negotiating position with other prospective
strategic
R-31
<PAGE>
buyers will likely be reduced; and there likely would be an accelerated loss of
key personnel that could add to the challenges the Company will face in
improving top line revenue and executing on the needed restructuring.
Management is of the opinion, however, that once shareholders understand the
benefits of the Invensys offer and the consequences of that offer not closing,
shareholders will tender their shares in support of the offer. Consequently, and
in light of the possibility that other (albeit substantially less attractive)
alternatives could be pursued if the Invensys offer fails, the Company has
applied accounting principles based on going concern. There remains significant
uncertainty, however, about the Company's ability to continue as a going concern
and therefore about its ability to realize its assets and discharge its
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets amounts or to amounts and classification of liabilities that may
be necessary if the entity is unable to continue as a going concern.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements consolidate the accounts of
the Company and its Group Companies. All significant inter-company accounts and
transactions have been eliminated.
FOREIGN EXCHANGE AND DERIVATIVE FINANCIAL INSTRUMENTS
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 shareholder's equity are the effects of
exchange rate changes on inter-company transactions of a long-term nature.
Foreign currency transaction gains and losses are included in sales and
marketing expenses in the accompanying income statement.
The Company, to manage its foreign currency exposures, uses derivative financial
instruments. Realized and unrealized gains and losses on foreign currency
forward contracts are marked to market and recognized in results of operations.
BALANCE SHEET
INTANGIBLE FIXED ASSETS
Intangible fixed assets represent the excess of purchase price and related costs
over the value assigned to the net tangible assets of businesses acquired. The
Company evaluates the net realizable value of its intangible fixed assets
whenever events or changes in circumstances indicate that the book value of an
asset might not be fully recoverable. When such an event occurs the Company
estimates the future cash flows expected to result from the use of the asset. If
the expected future cash flows are less than the book value of the asset, an
impairment loss is recognized based on the estimated future cash flows.
R-32
<PAGE>
Amortization of such assets is provided on the straight-line method over the
following estimated useful lives:
GOODWILL 8 YEARS
CUSTOMER LISTS 5 YEARS
ASSEMBLED WORKFORCE 7 YEARS
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at cost. Depreciation of such assets is
provided on the straight-line method over the following estimated useful lives:
BUILDINGS AND LEASEHOLD IMPROVEMENTS 5-7 YEARS
OTHER OPERATING ASSETS 3-5 YEARS
SOFTWARE DEVELOPMENT COSTS 3 YEARS
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. These costs are depreciated on a product-by-product basis. The annual
depreciation 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 that
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. The Company evaluates the net realizable value of its capitalized
software development costs at each balance sheet date.
FINANCIAL FIXED ASSETS
Investments in companies in which the Company has significant influence are
accounted for under the equity method. Companies in which the Company does not
have significant influence are carried at cost or estimated net realizable
value, if less.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at nominal value net of allowance for doubtful
accounts, when deemed necessary.
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.
CASH AND BANKERS
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
R-33
<PAGE>
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 deposits
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.
INCOME STATEMENT
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 of the software license
if the Company has persuasive evidence that an agreement is in place, the
license fee is fixed or determinable, and collection of the resulting receivable
is deemed probable. Sales to third party and related party indirect channel
partners are recorded subject to the conditions noted above and a sale by such
partners to end-users. Delivery is further defined in certain contracts as
delivery of the product master or first copy for non-cancelable product
licensing arrangements under which the customer has certain software
reproduction rights. 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 non-refundable. Service revenue from
consulting and training is billed separately and is recognized as the services
are performed. Revenues from software contracts requiring product customization
or service contracts containing fixed-price arrangements are recorded under
contract accounting on a percent-of-completion basis.
CASH FLOW STATEMENT
The Consolidated cash flow statement was prepared using the indirect method.
2. INTANGIBLE FIXED ASSETS
Intangible fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Customer Assembled
Goodwill lists workforce Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Book value at December 31, 1998 $ 44,931 $ 2,923 $ 4,790 $ 52,644
Purchases and additions 47,796 -- 7,700 55,496
Disposals and write-downs (21,362) -- (1,202) (22,564)
Amortization (15,027) (2,537) (2,922) (20,486)
Foreign exchange difference (126) (157) (244) (527)
---------- ---------- ---------- ----------
Book value at December 31, 1999 56,212 229 8,122 64,563
---------- ---------- ---------- ----------
Total accumulated amortization 29,487 751 1,836 32,074
---------- ---------- ---------- ----------
At cost 85,699 980 9,958 96,637
---------- ---------- ---------- ----------
</TABLE>
In 1999, the Company recorded a charge of $22.6 million related to the
impairment of certain intangible fixed assets. These write-downs reflect the
Company's reduced estimate of each
R-34
<PAGE>
asset's net realizable value based on current forecasted cash flows. The Company
believes the adjusted book values are reasonable based on current cash flow
projections, which include the assumption that the Invensys transaction is
completed. If the Invensys transaction is not completed substantial additional
write-downs may occur.
3. TANGIBLE FIXED ASSETS
Tangible fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Buildings and Other Software
leaseholds operating development
improvements assets costs Total
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Book value at December 31, 1998 $ 15,249 $ 47,449 $ 78,319 $ 141,017
Purchases and additions 2,005 8,338 47,362 57,705
Disposals and write-downs (8,614) (1,543) (43,105) (53,262)
Capitalization -- -- 19,011 19,011
Depreciation (756) (23,704) (34,205) (58,665)
Foreign exchange difference (187) (892) (161) (1,240)
------------ ------------ ------------ ------------
Book value at December 31, 1999 7,697 29,648 67,221 104,566
------------ ------------ ------------ ------------
Total accumulated depreciation 4,613 81,489 75,275 161,377
------------ ------------ ------------ ------------
At cost 12,310 111,137 142,496 265,943
------------ ------------ ------------ ------------
</TABLE>
In 1999, the Company recorded a charge of $43.1 million to reduce certain
capitalized software development costs to its net realizable value. These
charges resulted from the Company's change in product strategy. The Company
believes that the adjusted book value of its capitalized software development
costs is reasonable based on current cash flow projections which include the
assumption that the Invensys transaction is completed. If the Invensys
transaction is not completed, substantial additional write-downs of capitalized
software development costs may occur.
4. FINANCIAL FIXED ASSETS
Financial fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Other
investments Other Total
----------- ------------ ------------
<S> <C> <C> <C>
Book value at December 31, 1998 $ 24,238 $ 1,976 $ 26,214
Purchases and additions 307 -- 307
Disposals and write-downs (386) -- (386)
Amortization -- (869) (869)
Reclassification to marketable securities (20,897) -- (20,897)
Foreign exchange difference (2,202) -- (2,202)
------------ ------------ ------------
Book value at December 31, 1999 1,060 -- 2,167
------------ ------------ ------------
</TABLE>
R-35
<PAGE>
The other investments relate to companies in which the Company does not have
significant influence and are carried at cost or estimated realizable value, if
less.
The other financial fixed asset of $1,107,000 represents the long-term portion
of costs incurred in connection with the issuance of the convertible
subordinated notes. These debt issuance costs are being amortized on a
straight-line basis to interest expense over the term of the Notes. An
additional amount of $1,131,000 is included in other current assets.
5. MARKETABLE SECURITIES
All securities held as of December 31, 1999 are due within one year. As of
December 31, 1999, all securities were designated as available for sale.
Accordingly, these securities are carried at fair value. During 1999, an
investment in stock included in financial fixed assets was designated by
management as available for sale and therefore reclassified to marketable
securities. The investment was adjusted to fair value, and a net unrealized loss
of $1,808,000 was recorded in the income statement.
6. LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Convertible subordinated notes, 4.5%, due $ 188,833 $ 190,103
December 15, 2001
Long-term deferred revenue 15,069 17,831
Credit institutions 396 910
Due to related parties 25,874 --
Other 3,081 4,607
--------------- ---------------
233,253 213,451
Less current portion: (188) (523)
--------------- ---------------
$ 233,065 $ 212,928
--------------- ---------------
</TABLE>
In December 1996, the Company issued $175 million 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 million 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,
1999, $11.2 million of notes had been converted to common shares.
During March 2000, the Company reached agreements with certain holders of its
4.5% convertible subordinated notes due 2001 under which some of the notes were
exchanged for shares at a price that was lower than the conversion price
provided in the notes. More details are included in the subsequent events
paragraph.
Costs of $5,655,000 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. This relates to capitalized issuance costs included
in both financial fixed assets and other current assets.
R-36
<PAGE>
The aggregate amount of maturities subsequent to December 31, 1999 for all
long-term debt based on the exchange rates at December 31, 1999 are as follows
(in thousands):
2000 $ 188
2001 221,036
2002 7,019
2003 5,010
--------
$233,253
========
7. CURRENT LIABILITIES
CREDIT AGREEMENTS
As of December 31, 1999, one of the Company's subsidiaries has a $1 million line
of credit with its local bank. At December 31, 1999 and 1998, the local
subsidiary had borrowings of $411,000 and $101,000, respectively, on its line of
credit.
The weighted average interest rate on the short-term borrowings was 5.95% for
the year ended December 31, 1999.
During the third quarter of 1999, the Company entered into a $75 million
revolving credit facility collateralized by certain of the Company's
receivables. At December 31, 1999, no borrowings were outstanding under this
facility.
8. 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.
Minimum annual rental commitments under non-cancelable operating leases for
periods subsequent to December 31, 1999, (based upon the exchange rates at
December 31, 1999), are as follows (in thousands):
2000 $ 20,050
2001 11,217
2002 6,433
2003 4,098
2004 1,790
Thereafter 381
--------
Total minimum rental commitments $ 43,969
========
LITIGATION
The Company is party to legal proceedings from time to time, which may include
claims by customers, suppliers, other vendors, resellers and former employees.
As of December 31, 1999 and 1998 the Company has recorded accruals of $34
million and $7 million with respect to pending legal claims. There is no such
proceeding currently pending that 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 costs. There can be
no assurance therefore, that any litigation that is now pending or which may
arise in the future will not have a material adverse effect.
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<PAGE>
9. GEOGRAPHIC INFORMATION
Baan Company N.V. is primarily organized and managed in geographics. The
geographics are Europe/Middle East/Africa (EMEA), Americas, and Asia/Pacific
(APAC). The following table presents revenues by geographic region in the years
ended December 31, (in thousands):
Year Ended December 31,
1999 1998
--------- -----------
Net revenues from unaffiliated customers:
EMEA $308,284 $336,520
Americas 262,482 309,299
APAC 46,377 39,230
-------- --------
Total net revenues from unaffiliated customers $617,143 $685,049
-------- --------
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 Group B.V. (VG, formerly Baan Investment B.V. and
Vanenburg Ventures B.V.). As reported in the 1998 financial statements VG had
advised that it owned approximately 20% of the Company's outstanding Common
Shares as of as of April 9, 1999.
As described further below, the Company has entered into various agreements with
entities owned or controlled by VG and has recognized revenue and reimbursement
of expenses from, and incurred costs for goods and services provided by, VG
while it was considered a related party of the Company. 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. Since 1998, it has been Company policy to have all
material agreements with VG approved by the independent directors of the
Company's Supervisory Board and information on all material VG relationships has
also been provided to the Company's Audit Committee.
Revenues from VG during 1999 and 1998 were $2.0 million and $50.6 million,
respectively. As of December 31, 1999 and 1998, the outstanding balances with VG
(reflected in amounts (due to) and due from related parties) consisted of the
following (in thousands):
December 31,
1999 1998
------------ ------------
Baan Mid-market Solutions (BMS) $ -- $ 2,648
Vanenburg Business Systems (VBS) 4,011 1,142
Vanenburg Group (43,375) (1,463)
Other (822) 3,970
------------ ------------
(40,186) 6,297
============ ============
The Company's Indirect Channel. Since 1996, one of the principal relationships
between VG and the Company has been VG's involvement as both a reseller and
manager of the Company's indirect channel. Commencing in 1996, because the
go-to-market strategy and demands of the mid-market differ significantly from
those of the high-end enterprise applications sector, the Company embarked on a
strategy of signing resellers as part of this mid-market strategy.
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<PAGE>
1. The VBS relationship. Consistent with its venture capital philosophy, and in
an effort to participate in the indirect channel that the Company was creating,
VG and a third party in 1996 created a joint venture known as BBS Holding B.V.
(now owned 100% by VG). That company in turn owns a series of approximately
fifteen companies operating as resellers in the mid-market 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. The fifteen VBS companies are part of a
worldwide indirect channel for the Company, currently consisting of over 200
companies.
During 1996 and 1997, because it had a direct contractual relationship with VBS,
the Company recognized revenues from sales to VBS, which were included in
"License revenue from related parties" in the Company's consolidated income
statement. 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 Mid-market Solutions B.V. (BMS), a joint venture between the
Company and VG created in late 1997 as wholesaler and manager of the indirect
channel. As described below, the Company bought BMS in January 1999, but it
recorded no license revenue from sales to VBS in 1999 because, after the BMS
acquisition, the Company required that all VBS entities purchase Baan licenses
for resale through an independent distributor (also described below).
2. Creation of BMS. As the Company's indirect channel grew over 1997, the
Company determined that a stronger infrastructure to manage and support the
channel was needed. To provide that "backbone", the Company and VG entered into
a joint venture agreement in the fourth quarter of 1997 under which BMS was
created (85% owned by VG, 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 effectively ceased to
sell directly to VBS and the Company's other resellers (with the exception of
some minor direct sales to independent third-party resellers).
During the fourth quarter of 1997 (when BMS was created) and throughout 1998,
the Company recognized revenue from the sale of licenses to BMS, and recommended
certain costs (principally from the outsourcing of Company personnel to BMS for
certain billing, collection, and other back office services). In January 1999,
as described in the next section, the Company acquired all of the principal
assets of BMS and, as a result, recorded no revenue from BMS in 1999.
3. The Company's acquisition of core BMS assets. In October 1998, VG announced
that certain of its lenders were selling the Company shares VG owned and had
pledged as collateral on certain VG debt obligations. VG 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 VG 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.
As a result of this transaction, management of the Company's entire indirect
channel 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)
R-39
<PAGE>
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.
Other Company-VG Relationships During 1999. During the first six months of 1999,
the Company charged VG $4.3 million for certain Information Technology (IT)
services, pursuant to an IT services agreement between the parties under which
the Company provided VG use of the Company's IT and telephony infrastructure.
Pricing was based on third-party information the Company obtained concerning
outsource rates third parties charged for similar arrangements. As of July 1,
1999, the IT services agreement was terminated and the Company no longer
provides these IT services to VG.
In March 1999, the Company entered into a development agreement with a
wholly-owned subsidiary of VG (Hiscom B.V.). Under the agreement, the subsidiary
agreed to pay the Company $5 million as a one-time development fee for perpetual
use of the then-existing version of the licensed Baan technology, and $1 million
representing annual upgrade fees of $500,000 over each of the next two years for
any enhancements to the licensed technology. An independent valuation and Baan
Supervisory Board approval were received. The $5 million development fee and $1
million upgrade fees are being recognized ratably over the two-year life of the
contract.
In September 1999, the Company entered into an agreement under which it acquired
certain assets of VG, licensed certain intellectual property it was acquiring
from VG back to VG, and settled certain legal claims between the parties. Under
that agreement, the Company acquired the following intellectual property,
employees, and other items from VG for $28.8 million payable in equal
installments over sixteen quarters beginning in the fourth quarter of 1999: (i)
the intellectual property assets and workforce from B.A. Intelligence Networks,
Ltd. (BAIN), a developer of Product Data Management (PDM) extensions to Baan
ERP, (ii) the intellectual property assets of Vanenburg Business Innovations
B.V. (Triarch), a developer of Dynamic Enterprise Models, and (iii) GMG Global
Maintenance Group Ltd., then a wholly-owned VG subsidiary incorporated in Israel
that provides support for Baan products as well as other services.
11. PERSONNEL INFORMATION
WAGES AND SALARY INFORMATION
Wages and salary information is as follows (in thousands):
1999 1998
------------ ------------
Wages and salaries $ 314,446 $ 315,331
Social security costs 35,189 36,224
Pension costs 7,214 6,265
------------ ------------
Total $ 356,849 $ 357,820
============ ============
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<PAGE>
AVERAGE NUMBER OF PERSONNEL
The average number of personnel employed during the year was:
1999 1998
---------- ----------
Research and development 1,611 1,710
Sales and marketing 867 1,074
illable services 1,911 2,017
Finance and general administration 393 497
---------- ----------
Total 4,782 5,298
========== ==========
12. NON-RECURRING ACTIVITIES
During the fourth quarter of 1999, the Company undertook a reorganization that
was principally financial in nature and was the result of our shift to an
integrated products and e-Fulfillment strategy. Consequently, we have recorded
non-recurring charges of $77.7 million related to the reorganization in 1999.
These charges include: $23.9 million for write-downs of goodwill and other
tangible and intangible assets; $43.1 million for write-downs of capitalized
software development costs; and $10.7 million for other costs including a 4%
worldwide headcount reduction and the closing of 14 branch offices.
Approximately $10.1 million of these non-recurring charges are accrued at
December 31, 1999.
The following table summarizes the Company's non-recurring expenses and activity
for the year ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Balance
Total costs Cash paid Asset write downs December 31, 1999
----------- --------- ----------------- -----------------
<S> <C> <C> <C> <C>
Intangible and other asset write-
downs $ 23,906 $ -- $ 23,906 $ --
Capitalized software write-downs 43,105 -- 43,105 --
Severance-related costs 4,319 654 -- 3,665
Closure of offices 6,403 -- -- 6,403
---------- ---------- ---------- ----------
Total non-recurring expenses $ 77,733 $ 654 $ 67,011 $ 10,068
========== ========== ========== ==========
</TABLE>
13. INCOME TAXES
Deferred income taxes are provided, using the liability method, for all
temporary differences between tax and financial reporting. At December 31, 1999
the Company had net operating losses generated in various countries totaling
approximately $695 million of which $478 million, $53 million and $122 million
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. Included in the Dutch net
operating losses is an amount of approximately $200 million related to certain
specific Dutch tax rules (Article 13.c.a.). This amount needs to be reversed in
future years and added to the Dutch taxable income. The net operating losses
generated in the United States expire in 2008 or later. As per December 31,
1999, the Company has established a valuation allowance for all net operating
losses.
R-41
<PAGE>
14. PER SHARE INFORMATION
The Company previously adopted SFAS No. 128 ("Earnings Per Share") which
specifies the calculation and presentation of basic and diluted net income
(loss) per share. Basic net income (loss) per share is determined by dividing
the net income (loss) applicable to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
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>
1999 1999
------------ ------------
$ $
<S> <C> <C>
Numerator:
Net income (loss) (311,387) (315,192)
------------ ------------
Denominator:
Denominator for basic income (loss) per share -
Weighted average shares 215,760 198,519
Common equivalent shares -- --
------------ ------------
Denominator for diluted income (loss) per share -
Adjusted weighted average shares and assumed
conversions 215,760 198,519
------------ ------------
Basic income (loss) per share $ (1.44) $ (1.59)
Diluted income (loss) per share $ (1.44) $ (1.59)
</TABLE>
At December 31, 1999 and 1998, 8,583,000 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, 1999 and 1998 all common equivalent shares
related to employee stock options, respectively, were excluded from the
computation of diluted earnings per share because the effect was anti-dilutive.
R-42
<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
CORPORATE BALANCE SHEET
(IN THOUSANDS)
(AFTER PROPOSED APPROPRIATION OF NET RESULTS)
ASSETS
December 31, 1999 December 31, 1998
----------------- -----------------
$ $
FIXED ASSETS
Intangible fixed assets 64,381 50,883
Tangible fixed assets 33,767 34,138
Financial fixed assets 127,756 323,944
----------------- -----------------
TOTAL FIXED ASSETS 225,904 408,965
CURRENT ASSETS
Due from related parties 4,011 6,297
Other current assets 36,407 47,180
Marketable securities 60,891 --
Cash and bankers 78,447 135,161
----------------- -----------------
TOTAL CURRENT ASSETS 179,756 188,638
----------------- -----------------
TOTAL ASSETS 405,660 597,603
================= =================
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<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
CORPORATE BALANCE SHEET
(IN THOUSANDS)
(AFTER PROPOSED APPROPRIATION OF NET RESULTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
$ $
<S> <C> <C>
SHAREHOLDERS' EQUITY
Share capital 6,657 6,193
Subscribed capital 109,900 74,900
Additional paid-in capital 450,726 312,506
Accumulated translation adjustment (28,395) (1,578)
Retained earnings (546,648) (235,261)
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (7,760) 156,760
LONG-TERM LIABILITIES
Convertible subordinated notes 188,833 190,103
Due to group companies 13,065 --
Due to related parties 25,874 --
Credit institutions and other long-term liabilities -- 1,290
----------------- -----------------
TOTAL LONG-TERM LIABILITIES 227,772 191,393
CURRENT LIABILITIES
Due to group companies 105,270 119,878
ue to related parties 17,887 --
Other current liabilities 62,491 129,572
----------------- -----------------
TOTAL CURRENT LIABILITIES 185,648 249,450
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 405,660 597,603
================= =================
</TABLE>
R-44
<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
CORPORATE INCOME STATEMENT
(IN THOUSANDS)
1999 1998
--------------- ---------------
$ $
Net income (loss) from group companies and
participating interests after taxes (278,319) (257,402)
Other income (loss) after taxes (33,068) (57,790)
--------------- ---------------
NET INCOME (LOSS) (311,387) (315,192)
=============== ===============
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<PAGE>
BAAN COMPANY N.V.
--------------------------------------------------------------------------------
NOTES TO THE CORPORATE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies are the same as those described in Notes to the
Consolidated Financial Statements. All amounts are stated in United States
dollars.
2. INTANGIBLE FIXED ASSETS
Intangible fixed assets consist of the following (in thousands):
Book value at December 31, 1998 $ 50,883
Purchases and additions 55,450
Disposals and write-downs (22,064)
Amortization (19,177)
Foreign exchange difference (711)
----------
Book value at December 31, 1999 64,381
==========
Total accumulated amortization 23,570
==========
At cost 87,951
==========
3. TANGIBLE FIXED ASSETS
Tangible fixed assets consist of the following (in thousands):
Other Software
operating development
assets costs Total
---------- ----------- ----------
Book value at December 31, 1998 $ 5,716 $ 28,422 $ 34,138
Purchases and additions -- 30,089 30,089
Disposals and write-downs -- (13,337) (13,337)
Depreciation (4,010) (13,097) (17,107)
Foreign exchange difference -- (16) (16)
---------- ---------- ----------
Book value at December 31, 1999 1,706 32,061 33,767
========== ========== ==========
Total accumulated depreciation 24,362 15,680 40,042
========== ========== ==========
At cost 26,068 47,741 73,809
========== ========== ==========
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<PAGE>
4. FINANCIAL FIXED ASSETS
Financial fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Group companies
---------------------------- ------------ ------------ ------------
Other
Investments Loans investments Other Total
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ (93,909) $ 391,808 $ 24,069 $ 1,976 $ 323,944
Purchases and additions 13,305 147,858 307 -- 161,470
Repayments -- (75,970) -- -- (75,970)
Disposals and write-downs 1,198 (8,670) (217) (869) (8,558)
Reclassification -- 13,065 -- -- 13,065
Share of net result (278,319) -- -- -- (278,319)
Reclassification to marketable -- -- (20,897) -- (20,897)
securities
Foreign exchange differences 28,619 (13,396) (2,202) -- 13,021
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 (329,106) 454,695 1,060 1,107 127,756
============ ============ ============ ============ ============
</TABLE>
The other investments relate to Companies in which the Company does not have
significant influence and are carried at cost or estimated realizable value, if
less. A full list of subsidiaries and participating interests is included in
Note 10.
The other financial fixed asset of $1,107,000 represents the long-term portion
of costs incurred in connection with the issuance of the convertible
subordinated notes. These debt issuance costs are being amortized on a
straight-line basis to interest expense over the term of the Notes. An
additional amount of $1,131,000 is included in other current assets.
5. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Accumulated
Share Subscribed paid-in translation Retained
capital capital capital adjustment earnings Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 6,193 $ 74,900 $ 312,506 $ (l,578) $ (235,261) $ 156,760
Issuance of common shares 174 -- 37,240 -- -- 37,414
Net result 1999 -- -- -- -- (311,387) (311,387)
Common shares subscribed -- 135,000 -- -- -- 135,000
Stock subscription 286 (100,000) 99,714 -- -- --
Conversion of convertible
notes into common shares 4 -- 1,266 -- -- 1,270
Currency translation
adjustment -- -- -- (26,817) -- (26,817)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 6,657 109,900 450,726 (28,395) (546,648) (7,760)
=========== =========== =========== =========== =========== ===========
</TABLE>
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<PAGE>
SHARE CAPITAL.
The share capital consists of 700 million shares with a par value of NLG 0.06
at both December 31, 1999 and 1998. The actual number of shares issued amounts
to 220,671,146 and 204,886,317 at December 31, 1999 and 1998, respectively. As
of December 31, 1998, the par value of issued shares in Dutch guilders was NLG
12.3 million which translated at the year-end exchange rate of NLG 1.89 = $1 is
$6.5 million. As of December 31, 1999, the par value of issued shares in Dutch
guilders was NLG 13.2 million which translated at the year-end exchange rate of
NLG 2.19 = $1 is $6.0 million.
At the Extraordinary General Meeting of Shareholders held on March 18, 1999, the
shareholders voted to amend the Company's Articles of Association to permit the
issuance of preferred shares. The holders of preference shares, if issued, would
have a right to receive dividend payments on their shares equal to a percentage
of the nominal value of said preference shares increased by the possible share
premium payments on those shares (calculated in accordance with article 30 of
the Articles of Association) before any dividends can be distributed to the
holders of ordinary shares. Any shortfall in dividend payment in previous years
will be remedied in the year(s) in which profits allow such remedy. In addition,
the holders of preference shares, if issued, would have certain preferential
rights if the Company is liquidated. The finance preference shares can, if so
desired, be divided into series of shares. No share certificates would be issued
with respect to preference shares. The Company has agreed that at no time will
it issue preference shares in the aggregate amount greater than 30% of the total
issued and outstanding common shares of the Company. No preference shares have
been issued to date.
SUBSCRIBED CAPITAL
During 1999 and 1998, Fletcher paid to the Company $135 million and $75 million,
respectively, in exchange for subscription to common shares to be purchased
during the period August 1, 1999 through December 31, 2001. The number of common
shares and the price per share are based on future stock price movement and are
calculated when the shares are purchased.
STOCK BASED COMPENSATION
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
47,000,000 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, 1999 and 1998, 8,544,320 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 ten
years from the grant date and each option generally vests over four years. The
plan expires in 2003. The plan's administrator determines the exercise price.
As a consequence of past acquisitions, the Company assumed the outstanding
options under the stock option plans of acquired companies.
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 member of
the Supervisory Board on or after July 1, 1995 shall automatically be granted an
option to purchase 50,000 common shares, except that the elected chairman of the
Supervisory Board shall be granted an option to purchase 65,000 shares on the
date on which the person first becomes a member of the
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<PAGE>
Supervisory Board; provided, however, that no option shall be granted to a
member of the Supervisory Board who, immediately prior to becoming a member of
the Supervisory Board, was a member of the Management Board. Initial Option
grants vest in four equal annualinstallments of 25% per year. 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 was as follows:
WEIGHTED
OUTSTANDING AVERAGE
NUMBER OF PRICE
OPTIONS PER OPTION
----------- -----------
Balance at December 31, 1998 19,546,000 $ 11.42
Granted 6,375,000 $ 11.28
Canceled or expired (5,115,000) $ 13.51
Exercised (4,135,000) $ 4.33
-----------
Balance at December 31, 1999 16,671,000 $ 12.29
=========== ===========
As of December 31, 1999 and 1998, stock options were exercisable for 8,170,602
and 7,425,000 common shares, respectively
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<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE WEIGHTED
RANGE OF EXERCISE CONTRACTUAL NUMBER PRICE PER NUMBER AVERAGE PRICE
PRICES LIFE OUTSTANDING OPTION EXERCISABLE PER OPTION
----------------------- ----------------- ----------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $ 5.68 0.3 year 499,876 $ 2.38 442,391 $ 2.37
$ 5.69 - $11.36 1.5 years 8,151,480 $ 9.97 4,958,261 $ 10.27
$ 11.37 - $17.03 2.4 years 6,232,361 $ 12.61 1,809,027 $ 12.30
$ 17.04 - $22.71 1.9 years 945,517 $ 18.00 448,297 $ 18.14
$ 22.72 - $28.39 2.1 years 5,215 $ 27.67 4,770 $ 27.85
$ 28.40 - $34.07 2.6 years 759,483 $ 30.86 468,212 $ 30.98
$ 34.08 - $39.75 3.1 years 47,309 $ 37.10 30,558 $ 37.18
$ 39.76 - $45.42 0.4 years 30,000 $ 44.63 9,000 $ 44.63
$ 45.43 - $51.10 0.0 years -- $ -- -- $ --
$ 51.11 - $56.78 1.2 years 86 $ 56.37 86 $ 56.37
----------- ----------
16,671,327 8,170,602
=========== =========
</TABLE>
6. LONG-TERM LIABILITIES
The long-term liabilities relate principally to the convertible subordinated
notes disclosed in Note 6 to the consolidated financial statements. No principal
payments are due within one year and no amounts are due after five years. During
1999, the average interest rate on long-term debt was 4.5%.
7. CURRENT LIABILITIES
Borrowing arrangements and related guarantees are disclosed in Note 7 to the
consolidated financial statements. Amounts payable to group companies bear
interest of approximately 5% and generally have no specific repayment terms.
8. REMUNERATION OF BOARD MEMBERS
Remuneration of the members of the Management Board was $2,488,000 and $776,000
in 1999 and 1998, respectively.
Remuneration of the members of the Supervisory Board was $584,000 and $16,000 in
1999 and 1998, respectively.
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<PAGE>
9. OTHER INFORMATION
The Company has given guarantees in respect of the following Dutch subsidiaries
under the provision of section 403, Book 2 of The Netherlands Civil Code:
-Baan Netherland B.V., Barneveld, The Netherlands
-Baan International B.V., Barneveld, The Netherlands
-Baan Development B.V., Barneveld, The Netherlands
-Baan Software B.V., Barneveld, The Netherlands
-Matrix Holding B.V., Nijmegen, The Netherlands
-Matrix Research and Development B.V., Nijmegen, The Netherlands
-Matrix Informatie Systemen B.V., Nijmegen, The Netherlands
-Matrix International B.V., Nijmegen, The Netherlands
The Company is a foreign registrant at NASDAQ and is required by the SEC to file
an annual report (Form 20-F) with the SEC. The 1999 Form 20-F has been filed at
the Securities and Exchange Commission in the United States on July 17, 2000. A
copy of this document is available free of charge at the Company's office in
Barneveld.
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<PAGE>
10. CONSOLIDATED SUBSIDIARIES AND PARTICIPATING INTERESTS
<TABLE>
<S> <C>
Consolidated subsidiaries at December 31, 1999:
-Baan Nederland B.V., Barneveld, The Netherlands 100%
-Baan Belgie N.V., Antwerp, Belgium 100%
-Baan International B.V., Barneveld, The Netherlands 100%
-Baan Development B.V., Barneveld, The Netherlands 100%
-Baan Software B.V., Barneveld, The Netherlands 100%
-Proloq Holding B.V., Veenendaal, The Netherlands 100%
with participating interest in:
-Proloq International B.V., Veenendaal, The Netherlands 100%
-Proloq Intellectual Property, B.V., Veenendaal, The Netherlands 100%
-Proloq Services, B.V., Veenendaal, The Netherlands 100%
-Proloq USA, Inc., Herndon, Virginia, USA 100%
-Baan (Schweiz) A.G., Otelfingen, Switzerland 100%
-Baan Austria GmbH, Vienna, Austria 100%
-Baan Italia S.r.l., Milan, Italy 100%
-Baan Iberica I.S. S.A., Sant Just Desvern, Spain 100%
- Baan UK Ltd., Harlow, United Kingdom 100%
- Baan France S.A., Paris, France 100%
- Baan Nordic AB, Stockholm, Sweden 100%
- Baan Holding Central Europe, Hannover, Germany 100%
with participating interest in:
- Matrix Information Systeme GmbH, Moers, Germany 100%
- Berclain (Deutschland) GmbH, Germany 100%
- Coda GmbH, Germany 100%
- Baan Deutschland GmbH, Hannover, Germany 100%
with participating interest in:
- Schuler GmbH, Germany 100%
- Compact 3000 Ltd., Dudley, United Kingdom 100%
- CODA, Harrogate, United Kingdom
with participating interest in: 100%
- Coda Limited, Harrogate, United Kingdom 100%
- Coda Overseas Holding Ltd., Harrogate, United Kingdom 100%
- Coda International Products Ltd., Harrogate, United Kingdom 100%
- Coda International Services Ltd., Harrogate, United Kingdom 100%
- Coda, Inc., New Hampshire, USA 100%
- Coda Canada, Inc., Toronto, Canada 100%
- Coda Iceland Chf, Kopavogur, Iceland 100%
- Coda B.V., Utrecht, The Netherlands 100%
- Coda Singapore (Pty.) Ltd., Singapore, Singapore 100%
- Coda Malaysia Bhd., Kuala Lumpur, Malaysia 100%
- Coda Scandinavia AB, Stockholm, Sweden 100%
- Coda Hong Kong Ltd., Hong Kong, Hong Kong 100%
- Coda Pty. Ltd., Sydney, Australia 100%
- Coda Limited, New Zealand 100%
- Matrix Holding B.V., Nijmegen, The Netherlands 100%
with participating interest in:
- Matrix Research and Development B.V., Nijmegen, The Netherlands 100%
- Matrix Informatie Systemen B.V., Nijmegen, The Netherlands 100%
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
- Matrix International B.V., Nijmegen, The Netherlands 100%
- Matrix Workstations Ltd., Berkshire, United Kingdom 100%
- Global Maintenance Group Ltd., Kfar-Saba, Israel 100%
- Baan Canada Inc., Toronto, Canada 100%
- Baan U.S.A. Inc., New Castle, Delaware, USA 100%
- CAPS Logistics, Inc., Atlanta, USA 100%
- Beologic A/S, Herlev, Denmark 100%
- Baan Argentina Ltda., Buenos Aires, Argentina 100%
- Baan Brasil Sistemas de Informatica Ltda., Sao Paolo, Brazil 100%
- Baan Info Systems India Private Ltd., Bombay, India 100%
- Baan Software India Private Ltd., New Delhi, India 100%
- Baan China Ltd., Hong Kong, Hong Kong 100%
- Baan Japan Co. Ltd., Tokyo, Japan 100%
- Baan (Malaysia) Sdn. Bhd., Kuala Lumpur, Malaysia 100%
with participating interest in:
- Baan Singapore Pte. Ltd., Singapore, Singapore 100%
- Baan Education Asia Pacific Sdn. Bhd., Kuala Lumpur, Malaysia 100%
- Baan Asia Pacific Pte. Ltd., Singapore, Singapore 100%
- Baan Australia Pty Limited, Sydney, Australia 100%
- Baan Korea Co. Ltd., Seoul, Republic of Korea 100%
Participating interests at December 31, 1999:
- Tech@Spree Software Technology GmbH, Berlin, Germany 19%
- Meta 4 Software M.S., S.A., Spain 11%
- BLGS Holding, Boulogne, France 20%
- TAS Tele Anwender Service GmbH, Karlsruhe, Germany 20%
(held by Baan Deutschland GmbH, Hannover, Germany)
- Baan Eastern Europe Localisation Centre, Salonica, Greece 15%
- Shenyang Neu-Baan Software Co., Ltd., Shenyang, Liaoning, China 40%
</TABLE>
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Barneveld, July 17, 2000
THE MANAGEMENT BOARD
Laurens van der Tang
Peter Aird
THE SUPERVISORY BOARD
J.C. (Hans) Wortmann
William O. Grabe
David C. Hodgson
Pierre J. Everaert (temporarily stepped down as of January 5, 2000 to assume
the position of Interim CEO)
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BAAN COMPANY N.V.
--------------------------------------------------------------------------------
OTHER INFORMATION
1. APPROPRIATION OF NET RESULTS
PROVISION AS TO APPROPRIATION OF NET RESULTS
According to Article 30 of the Company's Articles of Association, the Management
Board with the approval of the Supervisory Board determines those amounts out of
the profits that will be allocated to the Company's reserves. The remaining
parts of the profits shall be at the free disposal of the General Meeting of
Shareholders.
PROPOSAL OF APPROPRIATION
The Management Board proposes that the net loss will be deducted from retained
earnings. This proposal has been included in the financial statements.
2. SUBSEQUENT EVENTS
During March 2000, the Company completed a series of transactions aimed at
raising cash and equity capital. During March 2000, the Company reached
agreements with certain holders of its 4.5% Convertible Subordinated Notes due
2001 (the notes) under which some of the notes were exchanged for shares at a
price that was lower than the conversion price provided in the notes. The
Company also temporarily lowered the conversion price (originally $22.00 per
share) to $6.25 per share for its remaining notes for a 61-day period, which
ended on May 29, 2000. As a result, a total of $50.3 million aggregate principal
amount of notes were either converted into or exchanged for shares during this
period, resulting in the issuance of approximately 8 million shares.
Consequently, there remains approximately $139 million in outstanding
convertible notes as of May 31, 2000.
On March 12, 2000, the Company sold its minority interest in Meta4 to generate
additional cash of approximately $40 million and additional equity of
approximately $21 million.
After discussions with several financial institutions about a possible equity
investment in the Company, on March 29, 2000 the Company entered into an equity
Put Option Agreement with Bear, Stearns International Limited (Bear Stearns)
under which the Company had the right to request Bear Stearns to purchase up to
Euro 150.0 million worth of shares over an 18-month period based on the market
price for the shares, subject to volume and minimum price limitations. As
consideration for entering into the Put Option Agreement, the Company issued 1.5
million shares to Bear Stearns at par value (NLG 0.06). Under this agreement the
Company received Euro 17.8 million as an additional infusion during the second
quarter of 2000.
On March 31, 2000, the Company sold its CODA business to Science System for
approximately $49 million in cash, resulting in a gain of approximately $31
million.
On May 31, 2000, Invensys Holdings Limited (Invensys), a private limited company
organized under the laws of England and Wales, set forth an offer to purchase
all of the outstanding shares of the Company at a price of Euro 2.85 per share.
The Supervisory Board of the Company unanimously approved the resolutions
unanimously adopted by the Management Board and management of the Company
(together with the Supervisory Board, the Boards), which approved the offer
Agreement and the transactions contemplated by it, including the offer, and
determined that the terms of the offer are fair to and in the best interests of
the Company and its shareholders.
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<PAGE>
The Boards unanimously recommend that the shareholders accept the offer and
tender their shares in the offer. On June 14, 2000, the Company received
positive advice from the Central Works Councils, that is currently in the
process of being established, with regard to the offer. The Invensys offer,
originally scheduled to close on July 13, 2000, has been extended and is now
scheduled to close on July 25, 2000, but there are several conditions to close.
Among them is that 95% of Baan's issued and outstanding shares must be tendered
in support of the offer.
On May 31, 2000, Vanenburg Group B.V. (VG), Jan and Paul Baan and related
persons/entities sold all shares they held in the Company to Invensys in
connection with the Invensys tender offer. The shares were sold at the offer
price, and the sellers represented that they were selling to Invensys any and
all shares they owned in the Company. Therefore, as of June 1, 2000, VG owns no
shares in the Company.
Also in connection with the Invensys tender offer, the Company and Fletcher
entered into a Termination and Standstill Agreement. Fletcher agreed to sell to
the Company 8,121,236 shares held by Fletcher at the U.S. dollar equivalent
price of the Invensys Offer Price of Euro 2. 85 per share (which the Company
then assigned to Invensys). The Company also agreed to pay Fletcher the sum of
(a) $10,000,000 in exchange for extinguishing its unexercised rights (and there
was up to $215 million in such unexercised rights) which the Company will record
as an expense during 2000 and (b) $16,623,392 (including interest at 8.5% per
year after May 29, 2000) in repayment of monies already advanced to the Company
in 1999 but not yet converted into shares (total of approximately $15 million)
which will be recorded as an increase to shareholders' deficit. Those monies
would be due and payable if a change in control of the Company occurs prior to
December 31, 2000; if there is no change in control by December 31, those
payments would not be owed and these rights would revert to Fletcher.
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3. REPORT OF THE AUDITORS
INTRODUCTION
We have audited the accompanying financial statements of Baan Company N.V.,
Barneveld for the year 1999. 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.
SCOPE
We conducted our audit in accordance with auditing standards generally accepted
in The Netherlands. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the
financial position of the Company as at December 31, 1999 and of the result for
the year then ended in accordance with accounting principles generally accepted
in The Netherlands and comply with the financial reporting requirements included
in Part 9, Book 2 of The Netherlands Civil Code.
EMPHASIS OF MATTER
Without qualifying our opinion above, we draw attention to the going concern
note included under paragraph 1 of the notes to the financial statements which
refers to the uncertainty as to the Company's ability to continue as a going
concern. It is not impossible, however, that in the long term the Company will
be able to continue operating as a going concern. The financial statements have
therefore been prepared on a going-concern basis.
Amsterdam, July 17, 2000
PricewaterhouseCoopers N.V.
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